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As filed with the Securities and Exchange Commission on October 6, 2017.

Registration No. 333-            

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

SPERO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2834   46-4590683

(State or other jurisdiction of

incorporation or

organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

675 Massachusetts Avenue, 14 th Floor

Cambridge, Massachusetts 02139

(857) 242-1600

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

 

 

Ankit Mahadevia, M.D.

President and Chief Executive Officer

Spero Therapeutics, Inc.

675 Massachusetts Avenue, 14 th Floor

Cambridge, Massachusetts 02139

(857) 242-1600

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

 

 

 

Copies to:

 

Matthew J. Gardella, Esq.

Lewis J. Geffen, Esq.

Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.

One Financial Center

Boston, Massachusetts 02111

(617) 542-6000

 

Peter N. Handrinos, Esq.

Nathan Ajiashvili, Esq.

Latham & Watkins LLP

200 Clarendon Street

Boston, Massachusetts 02116

(617) 948-6000

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  ☐

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, 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, check the following box and list the Securities Act registration 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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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  
    

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☒

 

 

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, $0.001 par value per share

  $86,250,000   $10,739

 

 

(1) Includes shares of common stock that the underwriters have the option to purchase. Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

 

(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate initial public 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 this 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 prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated October 6, 2017

PROSPECTUS

            Shares

 

LOGO

Common Stock

 

 

This is Spero Therapeutics, Inc.’s initial public offering. We are selling                  shares of our common stock.

We expect the initial public offering price to be between $        and $        per share. Currently, no public market exists for our common stock. We have applied to list our common stock on The NASDAQ Global Market under the symbol “SPRO.”

We are an “emerging growth company” under the federal securities laws and are subject to reduced public company disclosure standards. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

Investing in our common stock involves risks. See “ Risk Factors ” beginning on page 15 of this prospectus.

 

 

 

    

Per Share

      

Total

 

Public offering price

   $        $  

Underwriting discount(1)

   $        $  

Proceeds, before expenses, to us

   $        $  

 

  (1) We refer you to “ Underwriting ” beginning on page 178 of this prospectus for additional information regarding underwriting compensation.

The underwriters may also exercise their option to purchase up to an additional                  shares from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                 , 2017.

 

 

 

BofA Merrill Lynch   Cowen     Stifel

 

 

Oppenheimer & Co.

 

 

The date of this prospectus is                 , 2017.


Table of Contents

TABLE OF CONTENTS

 

Prospectus Summary

     1  

Risk Factors

     15  

Special Note Regarding Forward-Looking Statements

     59  

Use of Proceeds

     61  

Dividend Policy

     63  

Reorganization

     64  

Capitalization

     65  

Dilution

     67  

Selected Consolidated Financial Data

     70  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     72  

Business

     95  

Management

     137  

Executive and Director Compensation

     145  

Certain Relationships and Related Party Transactions

     154  

Principal Stockholders

     161  

Description of Capital Stock

     165  

Shares Eligible for Future Sale

     170  

Material U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders

     173  

Underwriting

     178  

Legal Matters

     186  

Experts

     186  

Where You Can Find More Information

     187  

Index to Consolidated Financial Statements

     F-1  

 

 

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we may authorize to be delivered or made available to you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date, or other earlier date stated in this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

For investors outside of the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, this offering of shares of our common stock and the distribution of this prospectus outside of the United States.

 

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Certain industry data and market data included in this prospectus were obtained from independent third-party surveys, market research, publicly available information, reports of governmental agencies and industry publications and surveys. All of management’s estimates presented herein are based upon management’s review of independent third-party surveys and industry publications prepared by a number of sources and other publicly available information. All of the market data used in this prospectus involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We believe that the information from these industry publications and surveys included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes thereto and the information set forth under the sections of this prospectus titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Unless the context otherwise requires or as otherwise noted, we use the terms “Spero Therapeutics,” “company,” “we,” “us” and “our” in this prospectus to refer to Spero Therapeutics, Inc. and its subsidiaries taken as a whole.

Overview

We are a multi-asset, clinical-stage biopharmaceutical company focused on identifying, developing and commercializing novel treatments for multi-drug resistant bacterial infections. Our most advanced product candidate, SPR994, is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use in adults to treat multi-drug resistant, or MDR, Gram-negative infections. Treatment with effective orally administrable antibiotics may prevent hospitalizations for serious infections and enable earlier, more convenient and cost-effective treatment of patients after hospitalization. We also have a platform technology known as our Potentiator Platform that we believe will enable us to develop drugs that will expand the spectrum and potency of existing antibiotics, including formerly inactive antibiotics, against Gram-negative bacteria. Our lead product candidates generated from our Potentiator Platform are two intravenous, or IV,-administered agents, SPR741 and SPR206, designed to treat MDR Gram-negative infections in the hospital setting. In addition, we are developing SPR720, an oral antibiotic designed for the treatment of pulmonary non-tuberculous mycobacterial infections. We believe that our novel product candidates, if successfully developed and approved, would have a meaningful patient impact and significant commercial applications for the treatment of MDR infections in both the community and hospital settings.

Antibiotic-resistant bacteria are one of the largest threats to global health, and their prevalence is increasing. While the majority of life-threatening infections historically resulting from antibiotic-resistant bacteria are acquired in the hospital setting, there is an increasing incidence of MDR pathogens in the community setting. Antibiotics used currently for first-line empiric treatment of MDR bacterial infections suffer from significant limitations and risks, including narrow spectrums of coverage and safety and tolerability concerns, and they can be associated with serious adverse effects. In addition, there are no oral antibiotics commercially available that can reliably be used in adults with MDR Gram-negative bacterial infections, which limits the ability of physicians to prevent hospitalizations and transition patients home from the hospital after receiving IV-administered therapy. This increasing prevalence of drug resistance and MDR Gram-negative bacteria, as well as the limitations of existing therapies and traditional drug development approaches, highlights the critical need for novel therapies, and in particular orally administrable agents, that are capable of overcoming these obstacles to effective patient treatment.

Our Product Candidates

To address the foregoing, we are developing a portfolio of novel product candidates, including:

 

    SPR994: Novel Antibiotic with Potential to be the First Broad-Spectrum Oral Carbapenem for Use in Adults . SPR994 is our novel oral formulation of tebipenem pivoxil, or tebipenem, a carbapenem-class antibiotic marketed by Meiji Seika Pharma Co. Ltd., or Meiji, in Japan as Orapenem since 2009 for common pediatric infections. While we are developing SPR994 to be effective against a broad spectrum of MDR bacterial infections, our initial focus is on the treatment of complicated urinary tract infections, or cUTIs.

 



 

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Based on our pre-investigational new drug application meeting, or pre-IND meeting, with the U.S. Food and Drug Administration, or FDA, and subject to our receiving favorable results from our Phase 1 clinical trial of SPR994 acceptable to the FDA, we believe we will be able to progress directly to a pivotal Phase 3 clinical trial of SPR994 for the treatment of cUTI. We filed a Clinical Trial Notification, or CTN, in Australia in September 2017 and plan to initiate in the fourth quarter of 2017 a Phase 1 dose-selection clinical trial of SPR994 in Australia. A CTN enables conduct of clinical trials in Australia similar to an investigational new drug application, or IND, in the United States. We expect to report top-line data from this trial in mid-2018. Thereafter, we plan to hold a pre-Phase 3 meeting with the FDA to confirm that no additional clinical trials or preclinical studies are required prior to initiating a Phase 3 clinical trial. Subject to feedback from the FDA, we plan to submit an IND and commence in the second half of 2018 a pivotal Phase 3 clinical trial of SPR994 for the treatment of cUTI in support of a new drug application, or NDA. We expect to receive data from the planned lead-in cohort evaluating the pharmacokinetics and safety of SPR994 in cUTI patients in the first half of 2019 and to receive top-line data from our planned pivotal Phase 3 clinical trial in mid-2020.

Our clinical strategy is supported by extensive safety data underlying tebipenem’s regulatory approval in Japan and long-standing use in Japan for common pediatric infections. Approximately 1,200 subjects, including approximately 741 adults, have been dosed with tebipenem at a range of doses in clinical and pharmacologic studies. We have rights to use all clinical data generated by Meiji, including two exploratory Phase 2 trials that were conducted in Japan in patients with cUTI, the first indication in which we intend to study SPR994. Further, we have received Qualified Infectious Disease Product, or QIDP, designation from the FDA for SPR994 for the treatment of cUTI, community-acquired bacterial pneumonia, or CABP, and moderate to severe diabetic foot infections, or DFI, which provides priority review of SPR994 for regulatory approval by the FDA. The QIDP designation for SPR994, however, does not guarantee a faster development process or ensure FDA approval.

Given the observed activity of SPR994 against MDR Gram-negative bacteria, we view the market opportunity for SPR994, if successfully developed and approved, to be substantial. Urinary tract infections, or UTIs, are among the most common bacterial diseases worldwide, with significant clinical and economic burden. QuintilesIMS estimates that between 33 to 34 million patients either visit their physician or are hospitalized for a UTI or otherwise suspected of experiencing a UTI in the United States annually. Our initial study for SPR994 will focus on patients who suffer from a subset of UTIs called cUTIs, which affect approximately 4.9 million patients in the United States annually. A significant majority of UTIs, including cUTIs, are caused by a group of MDR Gram-negative bacteria called Enterobacteriaceae . Nearly 30% to 35% of UTIs are resistant to the oral antibiotics currently used for treatment, which has led to increased use of IV-administered therapeutics such as carbapenems. We believe SPR994 is well positioned to address the unmet need for an oral therapy for community-acquired UTIs and may offer physicians an option for treating MDR UTIs while avoiding patient hospitalization. In addition, we believe SPR994 has the potential to accelerate hospital discharge and obviate the need for continued IV-administered therapy at home by transitioning discharged patients to an at-home oral therapy.

 

   

Potentiator Platform (SPR741 and SPR206): Our Technology Designed to Enhance the Effectiveness of Existing Antibiotics Against MDR Gram-Negative Bacterial Infections . Our Potentiator Platform is our novel and proprietary technology that we believe will enable us to develop drugs to expand the spectrum and potency of existing antibiotics, including formerly inactive antibiotics, against Gram-negative bacteria. Gram-negative bacteria are a subset of bacterial organisms distinguished by the presence of an outer cell membrane. Our Potentiator

 



 

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Platform relies on our chemical and biological insights that enable us to design molecules that have demonstrated the ability to specifically enhance the permeability of this outer cell membrane. Our Potentiator Platform molecules are designed to treat Gram-negative bacterial infections through interactions with the bacteria’s outer cell membrane either as a monotherapy or by co-administering our potentiator molecules with existing antibiotics, thereby making the existing antibiotics more effective by clearing a path for them to enter and kill the bacteria. Specifically, our Potentiator Platform molecules utilize a mechanism of action whereby they interact with constituents of the outer cell membrane called lipopolysaccharides, or LPS, resulting in a loss of outer membrane integrity and increased permeability, thereby potentially allowing antibiotics that were previously excluded to enter the Gram-negative bacteria where they become active. Since we began work on our Potentiator Platform in 2015, we have generated two development-stage product candidates: SPR741 and SPR206.

Our lead potentiator product candidate is SPR741, an IV-administered agent that has demonstrated in vitro the ability to expand the spectrum and increase the potency of a co-administered antibiotic against Gram-negative bacteria, including organisms identified by the Centers for Disease Control and Prevention, or the CDC, and the World Health Organization, or the WHO, as urgent and serious threats to human health. SPR741 has demonstrated an ability to potentiate over two dozen existing antibiotics by expanding their activity against Gram-negative pathogens. While previous attempts by others to develop agents that interact with the bacteria’s outer membrane using the mechanism of action employed by SPR741 have, to our knowledge, failed in preclinical testing and Phase 1 clinical trials due to safety concerns, data from our Phase 1 single-ascending dose, or SAD, and multiple-ascending dose, or MAD, clinical trial of SPR741 demonstrate it was well tolerated at single doses up to and including 800 mg and at doses up to an including 600 mg every 8 hours for 14 days. We are scheduled to hold a pre-IND meeting with the FDA in November 2017. We plan to submit a Clinical Trial Authorisation application, or CTA, in the United Kingdom in the fourth quarter of 2017 and thereafter initiate a Phase 1b drug-drug interaction clinical trial of SPR741 in the United Kingdom. Subject to the outcome of our pre-IND meeting and the results of our Phase 1b drug-drug interaction clinical trial of SPR741, we expect to submit an IND and initiate a Phase 2 combination clinical trial of SPR741 with a generic antibiotic for the treatment of cUTI in the first half of 2018. We also intend to apply to the FDA for QIDP designation for SPR741 during the fourth quarter of 2017.

In addition, we are developing next-generation potentiator molecules, exemplified by our product candidate SPR206. SPR206 is designed to also have antibiotic activity as a single agent against certain MDR and extremely drug resistant, or XDR, bacterial strains. SPR206 is currently in preclinical development. We intend to initiate scale-up manufacturing to support the initiation of FDA good laboratory practice, or GLP, toxicology and safety pharmacology studies in 2018. Pending successful results from such studies, we plan to submit an IND (or foreign equivalent) and begin our Phase 1 clinical trial of SPR206 during the second half of 2018.

There is a need to expand the clinical utility of widely used antibiotic agents by addressing the loss of potency of such drugs against Gram-negative strains of bacteria in high-risk patients. We believe SPR741 has the key characteristics to be developed as a potentiator to be used in combination with multiple first-line empiric therapies for a wide variety of life-threatening infections caused by Gram-negative pathogens. We believe SPR206 has the potential, if successfully developed and approved, to become a new standard of care for Gram-negative infections given the lack of coverage of these infections by generic and recently approved agents, and even new agents in development.

 



 

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    SPR720: Novel Antibiotic with Potential to be the First Oral Treatment for Pulmonary Non-tuberculous Mycobacterial Infections . SPR720 is our novel oral therapy product candidate designed for the treatment of pulmonary non-tuberculous mycobacterial infections, or NTM, a rare lung infection often occurring in patients with compromised immune systems, including human immunodeficiency virus, or HIV, or respiratory conditions, such as cystic fibrosis, chronic obstructive pulmonary disease, asthma and bronchiectasis. The annual prevalence of NTM is increasing at an estimated rate of 8% per year. The current treatment for NTM is lengthy and involves combination therapy, often including three or more antibiotics, including injectables. None of these treatments are approved for use in NTM. Treatment failure is common and is often due to poor compliance or patients’ inability to tolerate the regimen. Many patients experience progressive lung disease and mortality is high. We believe SPR720, if successfully developed, has the potential to be the first oral antibiotic approved for the treatment of this debilitating orphan disease. In vitro and in vivo studies have demonstrated the potency of SPR720 against a range of bacteria causing NTM, including Mycobacterium abscessus , a highly resistant strain causing infections with high mortality.

SPR720 is currently in preclinical development. We have conducted 28-day toxicity studies in rats and non-human primates in accordance with GLP regulations. We have also observed activity as good as or better than positive controls in in vitro and in vivo studies, including in an acute model infection caused by Mycobacterium abscessus murine pneumonia. We are currently testing SPR720 in in vivo studies to assess activity across other pathogens of interest. Pending further evidence of in vivo activity and positive results from our additional toxicity studies, we plan to initiate a Phase 1 clinical trial of SPR720 in the first half of 2019.

 



 

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Our Pipeline

The following table sets forth our product candidates, their status, our current estimated development timeline and anticipated milestones. We have distinguished between ongoing development activities and planned development activities that have yet to occur. Our ability to advance our product candidates and achieve our anticipated milestones on the timeline depicted in the table will depend on our successful completion of preclinical and clinical studies with results that are satisfactory to the FDA or comparable foreign regulatory authorities. See “Risk Factors—Risks Related to Product Development and Commercialization.” Without such success, our planned development activities and anticipated milestones will not occur on the timeline depicted in the table, or at all. Our planned development activities and anticipated milestones are based on our current assumptions, estimates and plans, which may change.

LOGO

 

* Our ability to progress SPR994 to a pivotal Phase 3 clinical trial is subject to a pre-Phase 3 meeting with the FDA to confirm that no additional clinical trials or preclinical studies are required prior to initiating a Phase 3 clinical trial.

 

** Our ability to progress SPR741 to a Phase 2 clinical trial depends on obtaining results from our Phase 1 and Phase 1b clinical trials that are satisfactory to the FDA.

Our Strategy

Our goal is to identify, develop and commercialize novel treatments for MDR bacterial infections, focusing on areas of high unmet medical need for safe and effective antibiotic treatments. Key elements of our strategy are as follows:

 

   

Rapidly advance our lead product candidate SPR994 through clinical development and regulatory approval . We intend to initiate a Phase 1 dose-selection clinical trial of SPR994 in Australia in the fourth quarter of 2017, and we expect to report top-line data from this trial in

 



 

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mid-2018. Following completion of this trial, leveraging data and know-how we have licensed from Meiji, we intend to hold a pre-Phase 3 meeting with the FDA, file an IND and commence in the second half of 2018 a pivotal Phase 3 clinical trial of SPR994 for the treatment of cUTI in support of an NDA. We expect to receive data from the planned lead-in cohort evaluating the pharmacokinetics and safety of SPR994 in cUTI patients in the first half of 2019 and to receive top-line data from our planned pivotal Phase 3 clinical trial in mid-2020. In addition to cUTI, we believe SPR994 has the potential to treat other serious and life-threatening infections.

 

    Rapidly advance our lead potentiator product candidate SPR741 through clinical development and regulatory approval and advance our other product candidates . We recently completed a Phase 1, two-part, randomized, double-blind, placebo-controlled, dose-escalation clinical trial of SPR741. The SAD and MAD data from this clinical trial indicated that SPR741 was well tolerated at single doses up to and including 800 mg and at doses up to and including 600 mg every 8 hours for 14 days. We are scheduled to hold a pre-IND meeting with the FDA in November 2017. We plan to submit a CTA in the United Kingdom in the fourth quarter of 2017 and thereafter initiate a Phase 1b drug-drug interaction clinical trial of SPR741 in the United Kingdom. Subject to the outcome of our pre-IND meeting and the results of our Phase 1b drug-drug interaction clinical trial of SPR741, we expect to submit an IND and initiate a Phase 2 combination clinical trial of SPR741 with a generic antibiotic for the treatment of cUTI in the first half of 2018. In addition, we expect to continue to advance our other product candidates, including SPR206 and SPR720, through preclinical and clinical development.

 

    Maximize the value of our Potentiator Platform through collaborations with other pharmaceutical companies . We intend to pursue strategic collaborations with other pharmaceutical companies to leverage our Potentiator Platform. These collaborations may include global collaborations to advance the entire Potentiator Platform, or product-specific deals pairing our product candidates with collaborators’ antibiotics, whether generic or novel, with the intention of enhancing those antibiotics’ performance and efficacy. We believe this approach will facilitate the capital-efficient development and commercialization of our Potentiator Platform.

 

    Continue to pursue collaborations with non-commercial organizations for scientific expertise and funding support . We are currently receiving funding support of up to an aggregate of $15.0 million from the U.S. National Institute of Allergy and Infectious Diseases, or NIAID, the U.S. Department of Defense, or DoD, and the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator, or CARB-X, a public-private partnership funded by the Biomedical Advanced Research and Development Authority, or BARDA, within the U.S. Department of Health and Human Services. We intend to continue to collaborate with government agencies and non-profit foundations to support the development of our product candidates.

 

    Expand our portfolio of product candidates for the treatment of MDR infections . Since our inception, we have focused on identifying and developing antibiotics to treat MDR infections, and we are using our expertise to aggressively build and expand a portfolio of product candidates for the treatment of such infections. Our management team has deep-rooted relationships in the academic, medical and corporate infectious disease community, which provide us visibility into new and innovative therapies under development. We believe the greatest unmet medical needs for safe and effective antibiotic treatments lie among infections due to MDR bacteria, as patients with these infections often have limited or inadequate therapeutic options, leading to high rates of mortality. The increasing prevalence of drug resistance and MDR bacteria, and the limitations of existing therapies and traditional drug development approaches, highlight the critical need for novel therapies capable of overcoming resistance, particularly orally administrable agents.

 



 

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    Establish global commercialization and marketing capabilities . We have global commercialization rights to all of our product candidates, with the exception of SPR994 in certain contractually specified Asian countries. Our management team has significant expertise in the commercialization of infectious disease treatments. Prior to joining us, members of our management team have collectively played leading roles in the approval and launch of 11 infectious disease products. We intend to build a targeted sales force and directly commercialize our product candidates in the United States in both hospital and community settings. Outside the United States, we intend to enter into collaborations with third parties to develop and market our product candidates in targeted geographical markets. By collaborating with companies that have an existing commercial presence and experience in such markets, we believe we can efficiently maximize the commercial potential of our product candidates.

The Problem: Growing Antibiotic Resistance in the Hospital and Community Setting

Antibiotics are drugs used to treat infections that are caused by bacteria. Prior to the introduction of the first antibiotics in the 1930s and 1940s, bacterial infections were often fatal. Today, antibiotics are used routinely to treat and prevent infections. There are two main varieties of bacteria, Gram-negative bacteria and Gram-positive bacteria, which are distinguished by structural differences in their cell envelope. Gram-positive bacteria are surrounded by a single lipid membrane and a thick cell wall, while Gram-negative bacteria are encircled by two lipid membranes, an inner membrane and an outer membrane, with a thinner cell wall in between. Antibiotics that target Gram-negative bacteria must be specifically designed to cross both the inner and outer membranes to enter the bacteria. The outer membrane, with its lipopolysaccharide, or LPS,-containing outer leaflet, represents a significant barrier to the entry into the bacteria by antibiotics and is a significant contributor toward reduced potency of many agents in treating Gram-negative bacterial infections. A study of 13,796 patients in intensive care units around the world reported in 2009 that 51% of patients experienced bacterial infections, and of these patients 62% were infected by Gram-negative organisms.

Antibiotic resistance is one of the largest threats to global health, and resistance rates are increasing. Antibiotic resistance can affect anyone, of any age and in any country. According to the CDC, each year in the United States at least 2 million people become infected with bacteria that are resistant to antibiotics and at least 23,000 people die each year as a direct result of these infections. Approximately 70% of the pathogens that cause these infections are resistant to at least one drug, meaning the incidence rate of serious infections is increasing and the proportion of the infections caused by MDR pathogens is increasingly seen as an emerging threat to world health. The CDC estimates that the excess annual cost resulting from these infections in the United States is as high as $20 billion. According to the CDC, among all of the bacterial resistance problems, Gram-negative pathogens, which cause a majority of all bacterial infections, are particularly worrisome because they are becoming resistant to nearly all drugs that would be considered for treatment. In February 2017, the WHO published a list of Gram-negative bacteria based on the urgency of need for new antibiotics and highlighted a critical group of MDR Gram-negative bacteria that pose a particular threat to human health, including Acinetobacter, Pseudomonas and various Enterobacteriaceae (including Klebsiella , E. coli , Serratia and Proteus ). These pathogens are associated with significant mortality because the increased incidence of antibiotic resistance has limited the number of effective treatment options.

There is an acute need for new antibiotics to treat MDR bacterial infections, as few new antibiotics capable of addressing such infections have been approved recently for commercialization or are in clinical development. Further, the majority of MDR bacterial infections historically have been acquired in the hospital setting, where they have been treated using IV-administered antibiotics. However, increasingly such infections are being acquired in the community setting, emphasizing the need for orally administrable antibiotics that can effectively treat such infections.

 



 

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Our Product Candidates Overcome Limitations of Available Treatment Options

Antibiotics currently used for first-line empiric treatment of MDR bacterial infections and NTM suffer from significant limitations. We believe that our product candidates will overcome these limitations, as described below:

 

    SPR994 is designed to address the lack of orally administrable antibiotics to prevent hospitalization and permit IV-to-oral switch therapy in resistant Gram-negative infections . Many of the most commonly used antibiotics for MDR Gram-negative infections are only available in an IV-administered formulation. Treatment with effective orally administrable antibiotics may prevent hospitalizations for serious infections and enable earlier, more convenient and cost-effective treatment of patients following hospitalization. However, currently there are no oral antibiotics commercially available that can reliably be used in adults with MDR Gram-negative infections. SPR994 is an orally administrable tablet that has the potential to treat such infections in both the community and hospital settings, thereby preventing certain hospitalizations and enabling patients to transition to oral treatment.

 

    SPR741 and SPR206 are designed to address the decline of novel and effective IV-administered antibiotics to treat MDR Gram-negative infections in the hospital setting . First-line empiric antibiotics, such as levofloxacin, ceftazidime and piperacillin-tazobactam, have experienced diminished utility as the number of bacterial strains resistant to these antibiotics has increased. Due to gaps in the spectrum of coverage of antibiotics currently on the market, physicians are often confronted with the need to design complicated multi-drug cocktails for patients with serious infections. We believe that SPR741 will address the need for more effective treatments against MDR Gram-negative bacterial infections by expanding the spectrum and potency of existing antibiotics, including formerly inactive antibiotics.

 

    SPR720 is designed to be the first oral treatment of NTM where treatment failure is common and no approved therapies exist . The current treatment for NTM is lengthy and involves combination therapy, often including three or more antibiotics, including injectables. None of these combination treatments are currently approved for use in NTM. Treatment failure is common and is often due to poor compliance or patients’ inability to tolerate the regimen. Many patients experience progressive lung disease as a result of NTM, and mortality rates are high, ranging from 29% to 69% within five years of diagnosis. We believe SPR720, if successfully developed, has the potential to be the first approved oral agent for NTM, and it has demonstrated effectiveness in vitro and in vivo against a range of pathogens, including Mycobacterium abscessus , a highly resistant organism causing NTM with a high rate of mortality.

Risks Associated with Our Business

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary. These risks include, among others, the following:

 

    We have a limited operating history, have incurred net losses in each year since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We do not expect to generate any product revenue for the foreseeable future.

 

   

We are heavily dependent on the success of our lead product candidates SPR994 and SPR741, both of which are still under development. Our ability to generate product revenue is substantially

 



 

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dependent on our ability to further develop, obtain marketing approval for and successfully commercialize SPR994 and SPR741. Even if we receive regulatory approval to market product candidates, the market may not be receptive to our product candidates upon their commercial introduction, which will prevent us from becoming profitable.

 

    We expect that we will need substantial additional funding. If we are unable to raise capital when needed, we may be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

 

    Our clinical program for SPR994 is subject to a number of specific risks, including our use of a new formulation of the active pharmaceutical ingredient of SPR994 and our reliance, in part, on clinical data from two exploratory Phase 2 clinical trials conducted by Meiji in Japan, which were not conducted in accordance with FDA guidance for clinical trials in patients with cUTI, as support for our clinical plan to proceed from a Phase 1 dosage-selection clinical trial directly to a pivotal Phase 3 clinical trial. If the FDA were to discount significantly the value of this clinical data, our clinical path for SPR994 could be materially delayed and we could incur material costs associated with conducting additional clinical trials.

 

    If our planned clinical trials of SPR994, SPR741 or any other product candidate that we advance to clinical trials fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidates.

 

    We rely on third parties to conduct our preclinical studies and clinical trials and to manufacture preclinical and clinical supplies of SPR994 and SPR741. If the third parties do not perform satisfactorily, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates.

 

    Our success depends in large part on our ability to obtain and maintain patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally, with respect to our proprietary chemistry technology and our product candidates. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position will be harmed.

 

    Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this prospectus.

Corporate Information

The Company was formed as Spero Therapeutics, LLC in December 2013 under the laws of the State of Delaware. On June 30, 2017, through a series of transactions, Spero Therapeutics, LLC merged with and into Spero Therapeutics, Inc. (formerly known as Spero OpCo, Inc.), a Delaware corporation. Our principal executive offices are located at 675 Massachusetts Avenue, Cambridge, Massachusetts 02139, and our telephone number is (857) 242-1600. Our website address is www.sperotherapeutics.com . The information contained on, or that can be accessed through, our website is not part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock.

The mark “Spero Therapeutics” is our common law trademark. All other service marks, trademarks and trade names appearing in this prospectus are the property of their respective owners. We do not intend our use or

 



 

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display of other companies’ trade names, trademarks or service marks to imply a relationship with, or an endorsement or sponsorship of us by, these other companies. Solely for convenience, trademarks and tradenames referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames.

Reorganization

As more fully described in the section titled “Reorganization”, on June 30, 2017, we completed a series of transactions pursuant to which Spero Therapeutics, LLC merged with and into Spero Therapeutics, Inc., with Spero Therapeutics, Inc. continuing as the surviving corporation. In connection with this reorganization, by operation of law, we acquired all of the assets of Spero Therapeutics, LLC and assumed all of its liabilities and obligations. Further, each issued and outstanding preferred and common unit of Spero Therapeutics, LLC outstanding immediately prior to the reorganization was converted into and exchanged for one share of Spero Therapeutics, Inc. capital stock of the same class and/or series. These transactions are collectively referred to in this prospectus as the Reorganization. The purpose of the Reorganization was to reorganize our corporate structure so that Spero Therapeutics, Inc. would continue as a corporation and so that our existing investors would own our capital stock rather than equity interests in a limited liability company. Except as context otherwise requires, all information included in this prospectus is presented giving effect to the Reorganization.

Implications of Being an Emerging Growth Company

We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such fiscal year, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

 

    we may present in this prospectus only two years of audited financial statements, in addition to any required unaudited financial statements, with correspondingly reduced Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

 

    we may avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

 

    we may provide reduced disclosure about our executive compensation arrangements; and

 

    we may not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.

We have chosen to opt out of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition periods for complying with new or revised accounting standards is irrevocable.

 



 

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The Offering

 

Common stock offered by us

                 shares

 

Common stock to be outstanding after this offering

                 shares

 

Option to purchase additional shares

The underwriters have an option within 30 days of the date of this prospectus to purchase up to             additional shares of our common stock in this offering.

 

Use of proceeds

We estimate the net proceeds from this offering will be approximately $        million (or $        million if the underwriters exercise their option to purchase additional shares 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.

 

  We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, to fund our planned Phase 1 clinical trial of SPR994 and initiate our planned pivotal Phase 3 clinical trial of SPR994; to fund additional preclinical activities relating to SPR741 and our planned Phase 2 clinical trial of SPR741; to fund additional preclinical and IND-enabling studies to develop SPR206 and SPR720; and for working capital and other general corporate purposes. See “Use of Proceeds.”

 

Risk factors

You should read the section titled “Risk Factors” beginning on page 15 of this prospectus and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

 

Reserved Share Program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to              shares offered by this prospectus for sale to certain of our directors, officers, employees, business associates and related persons through a reserved share program. If these persons purchase reserved shares it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.

 

Proposed NASDAQ Global Market symbol

“SPRO”

The number of shares of our common stock to be outstanding after this offering is based on 51,036,137 shares of our common stock outstanding as of August 31, 2017, after giving effect to the automatic conversion of all outstanding shares of preferred stock into an aggregate of 48,998,475 shares of common stock immediately prior to the completion of this offering, and excludes:

 

    9,368,492 shares of common stock issuable upon the exercise of outstanding stock options as of August 31, 2017, at an exercise price of $0.97 per share;

 



 

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    1,482,201 shares of common stock available for future issuance as of August 31, 2017 under our 2017 Stock Incentive Plan, or the 2017 Plan; and

 

                     additional shares of our common stock that will become available for future issuance under the 2017 Plan in connection with this offering, as well as any automatic increases in the number of shares of our common stock reserved for issuance under the 2017 Plan.

Except as otherwise indicated, all information in this prospectus assumes or gives effect to:

 

    no exercise of the outstanding options described above after                 , 2017;

 

    no exercise by the underwriters of their option to purchase up to an additional                  shares of our common stock in this offering;

 

    the automatic conversion of all of our outstanding shares of our preferred stock into an aggregate of 48,998,475 shares of common stock immediately prior to the completion of this offering;

 

    the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated by-laws prior to the completion of this offering; and

 

    a one-for-              reverse stock split of our common stock effected on                 , 2017.

 



 

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Summary Consolidated Financial Data

You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2015 and 2016 from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statement of operations data for the six months ended June 30, 2016 and 2017 and the consolidated balance sheet data as of June 30, 2017 have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus and have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal, recurring adjustments, necessary for a fair statement of the financial information in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and our results for any interim period are not necessarily indicative of results that may be expected for any full year.

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2015     2016     2016     2017  
     (in thousands, except per share data)  

Consolidated Statement of Operations Data:

        

Revenue

   $ —       $ 335     $ —       $ 389  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     11,125       26,333       13,401       13,456  

General and administrative

     2,202       7,223       3,096       4,697  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,327       33,556       16,497       18,153  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (13,327     (33,221     (16,497     (17,764
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Change in fair value of derivative liabilities

     174       580       (33     1,549  

Interest income and other income (expense), net

     —         —         4       41  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     174       580       (29     1,590  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (13,153     (32,641     (16,526     (16,174

Less: Net loss attributable to non-controlling interests

     (2,999     (7,150     (4,562     (1,129
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Spero Therapeutics, Inc.

     (10,154     (25,491     (11,964     (15,045

Cumulative dividends on redeemable convertible preferred shares

     (932     (3,441     (1,607     (3,261

Accretion of bridge units and redeemable convertible preferred shares to redemption value

     (2,341     (996     (614     (945
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders of Spero Therapeutics, Inc.

   $ (13,427   $ (29,928   $ (14,185   $ (19,251
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted(1)

   $ (8.74   $ (15.78   $ (7.72   $ (9.52
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted(1)

     1,536       1,897       1,837       2,021  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted (unaudited)(1)

     $ (1.71     $ (0.37
    

 

 

     

 

 

 

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)(1)

       14,887         40,140  
    

 

 

     

 

 

 

 



 

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(1) See Note 15 to our consolidated financial statements appearing elsewhere in this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. and on the calculation of pro forma basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc.

 

     As of June 30, 2017  
     Actual     Pro Forma(2)      Pro Forma
As Adjusted(3)
 
     (in thousands)  

Consolidated Balance Sheet Data:

       

Cash and cash equivalents

   $ 36,299     $ 33,809      $               

Working capital(1)

     31,064       28,574     

Total assets

     40,099       37,609     

Redeemable convertible preferred stock

     103,760       —       

Total stockholders’ equity (deficit)

     (70,505     30,765     

 

(1) We define working capital as current assets less current liabilities.

 

(2) The pro forma balance sheet data give effect to (i) our issuance and sale in July 2017 of 61,880 shares of Series C preferred stock for gross proceeds of $0.1 million and the resulting change to the conversion ratios of our Series A and Series B preferred stock, (ii) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 48,998,475 shares of common stock immediately prior to the completion of this offering and (iii) our payment of $2.6 million to Northern Antibiotics Oy Ltd., or Northern, upon the completion of this offering under our license and exchange agreement with Northern.

 

(3) The pro forma as adjusted balance sheet data give further effect to our issuance and sale of                  shares of common stock in this offering at an assumed initial public offering price of $        per share, which is the midpoint of the 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.

The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. 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’ equity by $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares 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 amount of each of cash and cash equivalents, working capital, total assets and total stockholders’ equity by $        million, assuming no change in the assumed initial public offering price per share and 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. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, operating results and prospects could be materially harmed. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred net losses in each year since our inception and anticipate that we will continue to incur significant losses for the foreseeable future, and if we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.

We are a clinical-stage biopharmaceutical company with a limited operating history. We have not generated any revenue from the sale of products and have incurred losses in each year since our inception in 2013. As of June 30, 2017, we had an accumulated deficit of $72.0 million. All of our product candidates are in development, none have been approved for sale and we may never have a product candidate approved for commercialization. We have financed our operations primarily through private placements of our preferred stock, collaborations and government funding for research and development. We have devoted substantially all of our financial resources and efforts to research and development, including preclinical and clinical development.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we conduct planned clinical trials of our lead product candidate, SPR994, and our lead potentiator product candidate, SPR741, seek marketing approval for SPR994 and SPR741 if clinical trials are successful, and continue to advance our other product candidates, including SPR206 and SPR720, through preclinical and clinical development. Our expenses will also increase substantially if and as we:

 

    conduct additional clinical trials of our product candidates, including the commencement of clinical trials for SPR994 and SPR741, which include our planned Phase 1 clinical trial of SPR994 in the fourth quarter of 2017, our planned pivotal Phase 3 clinical trial of SPR994 in the second half of 2018 and our planned Phase 2 clinical trial of SPR741 in the first half of 2018;

 

    continue to discover and develop additional product candidates;

 

    establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval;

 

    establish manufacturing and supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain marketing approval;

 

    maintain, expand and protect our intellectual property portfolio;

 

    hire additional clinical, scientific and commercial personnel;

 

    add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public reporting company; and

 

    acquire or in-license other product candidates and technologies.

 

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If our product candidates fail to demonstrate safety and efficacy in clinical trials, do not gain regulatory approval, or do not achieve market acceptance following regulatory approval and commercialization, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.

Because of the numerous risks and uncertainties associated with developing biopharmaceutical products, we are unable to predict the extent of any future losses or when, if ever, we will become profitable. Our expenses could increase if we are required by the FDA, or any comparable foreign regulatory authority to perform studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates.

We expect that we will need substantial additional funding. If we are unable to raise capital when needed, or do not receive payment under our government awards, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete. We expect that our expenses will increase substantially as we commence and advance our planned clinical trials of SPR994 and SPR741, seek marketing approval for SPR994 and SPR741 if clinical trials are successful, and continue to advance our other product candidates, including SPR206 and SPR720, through preclinical and clinical development. If we obtain marketing approval for SPR994, SPR741 or any other product candidate, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Some of these expenses may be incurred in advance of marketing approval, and could be substantial. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy.

We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements through                  . Our cash forecasts are based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently expected because of circumstances beyond our control. Our future funding requirements, both short-term and long-term, will depend on many factors, including:

 

    the timing and costs of our planned clinical trial of SPR994;

 

    the timing and costs of our planned clinical trial of SPR741;

 

    the initiation, progress, timing, costs and results of preclinical studies and clinical trials of our other product candidates and potential product candidates;

 

    the amount of funding that we receive under government awards that we have applied for;

 

    the number and characteristics of product candidates that we pursue;

 

    the outcome, timing and costs of seeking regulatory approvals;

 

    the costs of commercialization activities for SPR994, SPR741 and other product candidates if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

 

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    the receipt of marketing approval and revenue received from any potential commercial sales of SPR994 or SPR741;

 

    the terms and timing of any future collaborations, licensing or other arrangements that we may establish;

 

    the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;

 

    the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property related claims;

 

    the costs of operating as a public company; and

 

    the extent to which we in-license or acquire other products and technologies.

Upon completion of this offering, our non-dilutive sources of funding are expected to be awards from CARB-X and the DoD that provide partial funding for the development of our potentiator product candidates, including SPR741, and an award from NIAID for our SPR720 program. Our DoD cooperative agreement is structured as a single, two-year $1.5 million award. We are eligible for the full funding from the DoD and there are no options to be exercised at a later date. The NIAID award is structured as a base period followed by a single option. For the base period of March 1, 2017 through February 28, 2018, NIAID committed funding of approximately $0.6 million for the SPR720 program. If exercised by NIAID, the approximately $0.4 million option will have a period of performance from March 1, 2018 through February 28, 2019. The CARB-X award is structured as a base period followed by two sequential options. In March 2017, CARB-X committed funds of $1.5 million to support SPR741 development efforts for the period from April 1, 2017 to March 31, 2018. CARB-X has subsequent 12-month options for $3.9 million and $1.4 million that it can exercise at its discretion on April 1, 2018 and April 1, 2019, respectively. The NIAID and CARB-X awards are subject to termination for convenience at any time by NIAID and CARB-X. Neither organization is obligated to provide funding to Spero beyond the base period amounts from Congressionally approved annual appropriations.

Raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Unless and until we can generate a substantial amount of revenue from our product candidates, we expect to finance our future cash needs through public or private equity offerings, debt financings or collaborations, licensing arrangements and government funding arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, your ownership interest may be materially diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely affect our ability to conduct our business. In addition, securing additional financing would require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.

 

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If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this prospectus.

The report from our independent registered public accounting firm for the year ended December 31, 2016 includes an explanatory paragraph stating that our recurring losses from operations since inception and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely that investors will lose all or a part of their investment. After this offering, future reports from our independent registered public accounting firm may also contain statements expressing substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all.

Our ability to use our net operating loss carryforwards may be limited.

As of December 31, 2016, we had U.S. federal, state and foreign net operating loss carryforwards, or NOLs, of $39.8 million, $39.6 million and $3.8 million, respectively. Our NOLs begin to expire in 2033. Utilization of these NOLs depends on many factors, including our future income, which cannot be assured. These NOLs could expire unused and be unavailable to offset our future income tax liabilities. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership by 5% stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its post-change income may be limited. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our NOLs is subject to an annual limitation under Section 382. In addition, we may experience ownership changes in the future as a result of subsequent changes in our stock ownership, including this offering, some of which may be outside of our control. If we determine that an ownership change has occurred and our ability to use our historical NOLs is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.

We have a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.

We were established in 2013 and began operations in 2014. Our operations to date have been limited to financing and staffing our company, developing our technology and developing SPR994, SPR741 and our other product candidates. We have not yet demonstrated an ability to successfully complete a large-scale, pivotal clinical trial, obtain marketing approval, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

 

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We will need to transition from a development-focused company to a company with commercial activities, and we may experience difficulties in managing this transition, which could disrupt our operations.

We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will eventually need to transition from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

Risks Related to Product Development and Commercialization

We are heavily dependent on the success of SPR994 and SPR741, both of which are still under development, and our ability to develop, obtain marketing approval for and successfully commercialize SPR994 and SPR741. If we are unable to develop, obtain marketing approval for and successfully commercialize SPR994 or SPR741, or if we experience significant delays in doing so, our business could be materially harmed.

We currently have no products approved for sale and have invested a significant portion of our efforts and financial resources in the development of SPR994 and SPR741 as product candidates for the treatment of MDR bacterial infections. Our near-term prospects are substantially dependent on our ability to develop, obtain marketing approval for and successfully commercialize either or both of SPR994 and SPR741. The success of SPR994 and SPR741 will depend on several factors, including the following:

 

    successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

 

    receipt of marketing approvals from applicable regulatory authorities;

 

    establishment of arrangements with third-party manufacturers to obtain manufacturing supply;

 

    obtainment and maintenance of patent, trade secret protection and regulatory exclusivity, both in the United States and internationally, including our ability to maintain our license agreement with Meiji with respect to SPR994;

 

    protection of our rights in our intellectual property portfolio;

 

    launch of commercial sales of SPR994 and SPR741, if approved, whether alone or in collaboration with others;

 

    acceptance of SPR994 and SPR741, if approved, by patients, the medical community and third-party payors;

 

    competition with other therapies; and

 

    a continued acceptable safety profile of SPR994 and SPR741 following approval.

Successful development of SPR994 and SPR741 for any additional indications would be subject to these same risks.

 

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Many of these factors are beyond our control, including clinical development, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are unable to develop, receive marketing approval for, or successfully commercialize SPR994 or SPR741, or if we experience delays as a result of any of these factors or otherwise, our business could be materially harmed.

We have no experience as a company in obtaining regulatory approval for a drug.

As a company, we have never obtained regulatory approval for, or commercialized, a drug. It is possible that the FDA may refuse to accept any or all of our planned NDAs for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval for any current or future product candidates. If the FDA does not approve any of our planned NDAs, it may require that we conduct additional costly clinical, nonclinical or manufacturing validation studies before it will reconsider our applications. Depending on the extent of these or any other FDA-required studies, approval of any NDA or other application that we submit may be significantly delayed, possibly for several years, or may require us to expend more resources than we have available. Any failure or delay in obtaining regulatory approvals would prevent us from commercializing SPR994 or SPR741, generating revenues and achieving and sustaining profitability. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve any NDA or other application that we submit. If any of these outcomes occur, we may be forced to abandon the development of our product candidates, which would materially adversely affect our business and could potentially cause us to cease operations. We face similar risks for our applications in foreign jurisdictions.

If clinical trials of SPR994, SPR741 or any other product candidate that we may advance to clinical trials fail to demonstrate safety and efficacy to the satisfaction of the FDA or comparable foreign regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of SPR994, SPR741 or any other product candidate.

We may not commercialize, market, promote, or sell any product candidate in the United States without obtaining marketing approval from the FDA or in other countries without obtaining approvals from comparable foreign regulatory authorities, such as the European Medicines Agency, or EMA, and we may never receive such approvals. We must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates in humans before we will be able to obtain these approvals. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We have not previously submitted an NDA to the FDA or similar applications to comparable foreign regulatory authorities for any of our product candidates.

The clinical development of SPR994, SPR741 and any of our other product candidates is susceptible to the risk of failure inherent at any stage of drug development, including failure to demonstrate efficacy in a trial or across a broad population of patients, the occurrence of severe adverse events, failure to comply with protocols or applicable regulatory requirements, and determination by the FDA or any comparable foreign regulatory authority that a drug product is not approvable. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials, even after promising results in earlier nonclinical studies or clinical trials. The results of preclinical and other nonclinical studies and/or early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Notwithstanding any promising results in early nonclinical studies or clinical trials, we cannot be certain that we will not face similar setbacks. For example, although SPR994 is a new formulation of the active pharmaceutical ingredient tebipenem that exhibited a favorable safety and efficacy profile during Phase 2 clinical trials conducted by Meiji and a global pharmaceutical company, which we refer to as Global Pharma, in Japan, we may nonetheless fail to achieve success in our clinical trials. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.

 

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In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of our clinical trials warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants, among others. It is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one of the factors listed or otherwise. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials, we may fail to detect toxicity of or intolerability of our product candidates or may determine that our product candidates are toxic or not well tolerated when that is not in fact the case. In the case of our clinical trials, results may differ on the basis of the type of bacteria with which patients are infected. We cannot assure you that any Phase 2, Phase 3 or other clinical trials that we may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.

We may encounter unforeseen events prior to, during, or as a result of, clinical trials that could delay or prevent us from obtaining regulatory approval for SPR994, SPR741 or any of our other product candidates, including:

 

    the FDA or other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials;

 

    we may not reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

    clinical trials of our product candidates may produce unfavorable or inconclusive results;

 

    we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

    the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate participants may drop out of these clinical trials at a higher rate than we anticipate or we may fail to recruit suitable patients to participate in a trial;

 

    our third-party contractors, including those manufacturing our product candidates or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

    the FDA or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

    we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate;

 

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    regulators or institutional review boards may require that we or our investigators suspend or terminate clinical trials of our product candidates for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate;

 

    the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies;

 

    the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

 

    the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the institutional review boards, or IRBs, of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, if any, for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, or changes in governmental regulations or administrative actions.

If we are required to conduct additional clinical trials or other testing of SPR994, SPR741 or any other product candidate beyond the trials and testing that we contemplate, if we are unable to successfully complete clinical trials or other testing of our product candidates, if the results of these trials or tests are unfavorable or are only modestly favorable or if there are safety concerns associated with SPR994, SPR741 or any other product candidate, we may:

 

    incur additional unplanned costs;

 

    be delayed in obtaining marketing approval for our product 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 significant safety warnings, including boxed warnings;

 

    be subject to additional post-marketing testing or other requirements; or

 

    be required to remove the product from the market after obtaining marketing approval.

Our failure to successfully initiate and complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business. Our product candidate development costs will also increase if we experience delays in testing or marketing approvals and we may be required to obtain additional funds to complete clinical trials. We cannot assure you that our clinical trials will begin as planned or be completed on schedule, if at all, or that we will not need to restructure our trials after they have begun. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our

 

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product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates, which may harm our business and results of operations. In addition, many of the factors that cause, or lead to, delays of clinical trials may ultimately lead to the denial of regulatory approval of SPR994, SPR741 or any other product candidate.

If we experience delays or difficulties in the enrollment of patients in clinical trials, clinical development activities could be delayed or otherwise adversely affected.

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may not be able to initiate, continue or complete clinical trials of SPR994, SPR741 or any other product candidate that we develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials as required by the FDA or comparable foreign regulatory authorities, such as the EMA. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:

 

    the size and nature of the patient population;

 

    the severity of the disease under investigation;

 

    the proximity of patients to clinical sites;

 

    the eligibility criteria for participation in the clinical trial;

 

    the design of the clinical trial;

 

    our ability to recruit clinical trial investigators with appropriate experience;

 

    competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications that we are investigating;

 

    our ability to obtain and maintain patient consents; and

 

    the risk that patients enrolled in clinical trials will drop out of the trials before completion.

The inclusion and exclusion criteria for our contemplated Phase 3 clinical trials of SPR994 and SPR741 may adversely affect our enrollment rates for patients in these trials. In addition, many of our competitors also have ongoing clinical trials for product candidates that would treat the same indications as we contemplate for SPR994 and SPR741, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or might require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, slow down or halt our product candidate development and approval process and jeopardize our ability to seek and obtain the marketing approval required to commence product sales and generate revenue, which would cause the value of our company to decline and limit our ability to obtain additional financing if needed.

Future legislation, and/or regulations and policies adopted by the FDA, the EMA or similar regulatory authorities may increase the time and cost required for us to conduct and complete clinical trials of SPR994, SPR741 and our other product candidates and potential product candidates.

The FDA has established regulations to govern the drug development and approval process, as have foreign regulatory authorities. The policies of the FDA and other regulatory authorities may change and

 

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additional laws may be enacted or government regulations may be promulgated that could prevent, limit, delay but also accelerate regulatory review of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and spur innovation, but all of its provisions have not yet been implemented. Among other things, the Cures Act provides a new “limited population” pathway for certain antibacterial and antifungal drugs, or LPAD, but the FDA has not yet issued guidance regarding the LPAD. Additionally, in August 2017, FDA issued final guidance setting forth its current thinking with respect to development programs and clinical trial designs for antibacterial drugs to treat serious bacterial diseases in patients with an unmet medical need. We cannot predict what if any effect the Cures Act or any existing or future guidance from FDA will have on the development of our product candidates.

Our clinical program for SPR994 is subject to a number of specific risks that may affect the outcome of the trial, including the use of a new formulation of the active pharmaceutical ingredient, tebipenem.

Our planned pivotal Phase 3 clinical trial of SPR994 is subject to a number of specific risks arising from our clinical program and the design of the trial. We have not conducted a clinical trial of SPR994 in patients with cUTI, who will be the subjects of the clinical trial, and we have no direct clinical evidence that SPR994 is effective in treating cUTIs in humans. Although we believe that SPR994 has the potential to treat cUTI in humans based on the results of our nonclinical in vitro and in vivo animal model studies, together with Meiji’s and Global Pharma’s Phase 2 clinical trial results, these results are not necessarily predictive of the results of our planned clinical trials and we cannot guarantee that SPR994 will demonstrate the expected efficacy in our planned pivotal Phase 3 clinical trial patients. We also cannot guarantee that the projections made from the pharmacokinetic and pharmacodynamic models that we developed from our nonclinical and clinical SPR994 studies will be validated in our planned pivotal Phase 3 clinical trial.

In addition, we may face competition in enrolling suitable patients as a result of other companies conducting clinical trials for antibiotic product candidates that are intended to treat similar infections, resulting in slower than anticipated enrollment in our trials. Enrollment delays in the trial may result in increased development costs for SPR994, or slow down or halt our product development for SPR994.

To support our accelerated clinical development strategy for SPR994, we are relying, in part, on clinical data from two exploratory Phase 2 clinical trials conducted by Meiji (ME1211) and Global Pharma (L-084 04) in Japan, which were not conducted in accordance with FDA guidance for clinical trials in patients with cUTI. To the extent that these clinical trial design differences limit our use of the clinical data, our proposed clinical trial plan for SPR994 with the FDA could be materially delayed and we may incur material additional costs.

There are significant differences in the trial design for the two exploratory Phase 2 clinical trials conducted by Meiji and Global Pharma in Japan compared to the clinical trial design described by the FDA in its guidance for clinical trials in patients with cUTI, including:

 

    The studies were not randomized and were open-label and had no comparator arm. Treatment assignments were made by the investigators.

 

    The inclusion criteria specified complicated UTI as an entry criterion, but other than retained residual volume (100 ml) there were no other criteria defining “complicated” UTI.

 

    While L-084 04 excluded patients who received prior antibiotics and who had no clinical response, there were no parameters or limits for inclusion (e.g., less than 24 hours of a potentially effective antibiotic or number of doses). ME1211 did not specifically mention prior antibiotic use.

 

    While urine cultures were obtained at baseline, these were not quantitative, and there was no minimum requirement for bacterial load for entry.

 

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    While microbiological outcome was assessed, the definitions did not include a minimum reduction in bacterial counts (i.e., a reduction to less than 10 4 cfu/ml).

 

    Clinical outcomes were global assessments by the investigators and did not specifically mention the resolution of baseline signs and symptoms.

 

    The primary endpoint was not a composite of both clinical and microbiological outcomes.

If the FDA were to discount significantly the value of these clinical data as support for our clinical plan to proceed from a Phase 1 dosage-selection clinical trial directly to a pivotal Phase 3 clinical trial of SPR994, then our clinical pathway for SPR994 could be materially delayed and we could incur material costs associated with conducting additional clinical trials.

Our planned Phase 2 clinical trial of SPR741 is subject to a number of specific risks that may affect the outcome of the trials, including the need to co-administer SPR741 with a companion antibiotic.

Our planned Phase 2 clinical trial of SPR741 is subject to a number of specific risks arising from our clinical program and the design of the trial. We have not conducted a clinical trial of SPR741 in patients with cUTI, who will be the subjects of the clinical trial, and we have no direct clinical evidence that SPR741 as a potentiator in combination with a partner antibiotic has the potential to treat cUTI in humans. Although we believe that SPR741 as a potentiator in combination with a partner antibiotic has the potential to treat cUTI in humans based upon our nonclinical in vitro and in vivo animal model study results, these results are not necessarily predictive of the results in humans. We cannot guarantee that SPR741 as a potentiator in combination with a partner antibiotic will demonstrate the efficacy we expect to observe in patients in our planned Phase 2 clinical trial. We also cannot guarantee that the projections made from the pharmacokinetic and pharmacodynamic models that we developed from our nonclinical and clinical SPR741 studies will be validated in our planned Phase 2 clinical trial.

In addition, we may face competition in enrolling suitable patients as a result of other companies conducting clinical trials for antibiotic product candidates that are intended to treat similar infections, resulting in slower than anticipated enrollment in our trials. Enrollment delays in the trials may result in increased development costs for SPR741, or slow down or halt our product development and approval process for SPR741.

Serious adverse events or undesirable side effects or other unexpected properties of SPR994, SPR741 or any other product candidate may be identified during development or after approval that could delay, prevent or cause the withdrawal of regulatory approval, limit the commercial potential, or result in significant negative consequences following marketing approval.

Serious adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, an institutional review board, or regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label, the imposition of distribution or use restrictions or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. If SPR994, SPR741 or any of our other product candidates is associated with serious or unexpected adverse events or undesirable side effects, the FDA, the IRBs at the institutions in which our studies are conducted, or a DSMB, could suspend or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

While the active pharmaceutical ingredient in SPR994, tebipenem, is approved in Japan, our formulation of tebipenem, SPR994, has not yet been tested extensively in patients. There may be unforeseen

 

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serious adverse events or side effects that differ from those seen in the Japanese studies. To date, patients treated with the active ingredient in SPR994 have experienced drug-related side effects including diarrhea, temporary increases in hepatic enzymes, allergic reactions, rash, and convulsions. To date, SPR741 has generally been well tolerated in clinical trials conducted in healthy subjects and there have been no reports of serious adverse events related to SPR741. Our planned Phase 2 clinical trial, however, will involve dosing a larger population of patients than were included in the ongoing Phase 1 clinical trial and additional adverse events may emerge in subsequent clinical trials.

If unexpected adverse events occur in any of our planned clinical trials, we may need to abandon development of our product candidates, or limit development to lower doses or to certain uses or subpopulations in which the undesirable side effects or other unfavorable characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing are later found to cause undesirable or unexpected side effects that prevented further development of the compound.

Undesirable side effects or other unexpected adverse events or properties of SPR994, SPR741 or any of our other product candidates could arise or become known either during clinical development or, if approved, after the approved product has been marketed. If such an event occurs during development, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of, or could deny approval of, SPR994, SPR741 or our other product candidates. If such an event occurs after such product candidates are approved, a number of potentially significant negative consequences may result, including:

 

    regulatory authorities may withdraw the approval of such product;

 

    we may be required to recall a product or change the way such product is administered to patients;

 

    regulatory authorities may require additional warnings on the label or impose distribution or use restrictions;

 

    regulatory authorities may require one or more post-market studies;

 

    regulatory authorities may require the addition of a “black box” warning;

 

    we may be required to implement a REMS including the creation of a medication guide outlining the risks of such side effects for distribution to patients;

 

    we could be sued and held liable for harm caused to patients;

 

    our product may become less competitive; and

 

    our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate, if approved, or could substantially increase commercialization costs and expenses, which could delay or prevent us from generating revenue from the sale of our products and harm our business and results of operations.

Even if a product candidate does obtain regulatory approval, it may never achieve the market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community that is necessary for commercial success and the market opportunity may be smaller than we estimate.

Even if we obtain FDA or other regulatory approvals and are able to launch SPR994, SPR741 or any other product candidate commercially, the product candidate may not achieve market acceptance among

 

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physicians, patients, hospitals (including pharmacy directors) and third-party payors and, ultimately, may not be commercially successful. For example, physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch therapies due to lack of coverage and reimbursement for existing therapies. Market acceptance of any product candidate for which we receive approval depends on a number of factors, including:

 

    the efficacy and safety of the product candidate as demonstrated in clinical trials;

 

    relative convenience and ease of administration;

 

    the clinical indications for which the product candidate is approved;

 

    the potential and perceived advantages and disadvantages of the product candidates, including cost and clinical benefit relative to alternative treatments;

 

    the willingness of physicians to prescribe the product;

 

    the willingness of hospital pharmacy directors to purchase the product for their formularies;

 

    acceptance by physicians, patients, operators of hospitals and treatment facilities and parties responsible for coverage and reimbursement of the product;

 

    the availability of coverage and adequate reimbursement by third-party payors and government authorities;

 

    the effectiveness of our sales and marketing efforts;

 

    the strength of marketing and distribution support;

 

    limitations or warnings, including distribution or use restrictions, contained in the product’s approved labeling or an approved risk evaluation and mitigation strategy;

 

    whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections;

 

    the approval of other new products for the same indications;

 

    the timing of market introduction of the approved product as well as competitive products;

 

    adverse publicity about the product or favorable publicity about competitive products;

 

    the emergence of bacterial resistance to the product; and

 

    the rate at which resistance to other drugs in the target infections grows.

Any failure by SPR994, SPR741 or any other product candidate that obtains regulatory approval to achieve market acceptance or commercial success would adversely affect our business prospects.

 

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

Because we have limited financial and managerial resources, we intend to focus on developing product candidates for specific indications that we identify as most likely to succeed, in terms of both their potential for marketing approval and commercialization. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential.

Our resource allocation decisions may cause us to fail to capitalize on viable commercial products 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 product candidates. 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 the product candidate.

If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing SPR994, SPR741 or any other product candidate if such product candidate is approved.

We do not have a sales, marketing or distribution infrastructure and we have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource those functions to third parties. We intend to build a commercial organization in the United States and recruit experienced sales, marketing and distribution professionals. The development of sales, marketing and distribution capabilities will require substantial resources, will be time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization costs. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. In addition, we may not be able to hire a sales force in the United States that is sufficient in size or has adequate expertise in the medical markets that we intend to target. If we are unable to establish a sales force and marketing and distribution capabilities, our operating results may be adversely affected.

Factors that may inhibit our efforts to commercialize our products on our own include:

 

    our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

    the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;

 

    the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

 

    unforeseen costs and expenses associated with creating an independent sales and marketing organization.

We intend to use collaborators to assist with the commercialization of SPR994, SPR741 and any other product candidate outside the United States. As a result of entering into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us would likely be lower than if we were to directly market and sell products in those markets.

 

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Furthermore, we may be unsuccessful in entering into the necessary arrangements with third parties or may be unable to do so on terms that are favorable to us. In addition, we likely would have little control over such third parties, and any of them might fail to devote the necessary resources and attention to sell and market our products effectively.

If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

We face substantial competition from other pharmaceutical and biotechnology companies and our operating results may suffer if we fail to compete effectively.

The development and commercialization of new drug products is highly competitive. We face competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to SPR994, SPR741 and our other product candidates that we may seek to develop and commercialize in the future. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates for the treatment of resistant infections. Potential competitors also include academic institutions, government agencies and other public and private research organizations. Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective or less costly than SPR994, SPR741 or any other product candidates that we are currently developing or that we may develop, which could render our product candidates obsolete and noncompetitive.

There are a variety of available oral therapies marketed for the treatment of multi-drug resistant infections that we would expect would compete with SPR994, such as Levaquin, Cipro and Bactrim. Many of the available therapies are well established and widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products, for example in the fluoroquinolone class. If SPR994 is approved, the pricing may be at a significant premium over other competitive products. This may make it difficult for SPR994 to compete with these products.

There are also a number of oral product candidates in clinical development by third parties that are intended to treat UTIs. Some mid- to late-stage product candidates include C-Scape from Achaogen, Inc., sulopenem from Iterum Therapeutics Limited, eravacycline from Tetraphase Pharmaceuticals, Inc. and omadacycline from Paratek Pharmaceuticals, Inc. If our competitors obtain marketing approval from the FDA or comparable foreign regulatory authorities for their product candidates more rapidly than us, it could result in our competitors establishing a strong market position before we are able to enter the market.

There are several IV-administered products marketed for the treatment of infections resistant to first-line therapy for Gram-negative infections, including Avycaz from Allergan plc and Pfizer Inc. and Zerbaxa from Merck & Co. There are also a number of IV-administered product candidates in late-stage clinical development that are intended to treat resistant Gram-negative infections, including plazomicin from Achaogen, Inc., meropenem vaborbactam from The Medicines Company, cefiderocol from Shionogi & Co. Ltd., eravacycline IV from Tetraphase Pharmaceuticals, Inc. and relabactam from Merck & Co.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

 

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In July 2012, the Food and Drug Administration Safety and Innovation Act was passed, which included the Generating Antibiotics Incentives Now Act, or the GAIN Act. The GAIN Act is intended to provide incentives for the development of new, qualified infectious disease products. In December 2016, the Cures Act was passed, providing additional support for the development of new infectious disease products. These incentives may result in more competition in the market for new antibiotics, and may cause pharmaceutical and biotechnology companies with more resources than we have to shift their efforts towards the development of product candidates that could be competitive with SPR994, SPR741 and our other product candidates.

Even if we are able to commercialize SPR994, SPR741 or any other product candidate, the product may become subject to unfavorable pricing regulations, or third-party payor coverage and reimbursement policies that could harm our business.

Marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which may negatively affect the revenues that we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

We currently expect that some of our product candidates, if approved, will be administered in a hospital inpatient setting. In the United States, governmental and other third-party payors generally reimburse hospitals a single bundled payment established on a prospective basis intended to cover all items and services provided to the patient during a single hospitalization. Hospitals bill third-party payors for all or a portion of the fees associated with the patient’s hospitalization and bill patients for any deductibles or co-payments. Because there is typically no separate reimbursement for drugs administered in a hospital inpatient setting, some of our target customers may be unwilling to adopt our product candidates in light of the additional associated cost. If we are forced to lower the price we charge for our product candidates, if approved, our gross margins may decrease, which would adversely affect our ability to invest in and grow our business.

To the extent SPR994, SPR741 or any other product candidate we develop is used in an outpatient setting, the commercial success of our product candidates will depend substantially, both domestically and abroad, on the extent to which coverage and reimbursement for these products and related treatments are available from government health programs and third-party payors. If coverage is not available, or reimbursement is limited, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investments. Government authorities and third-party payors, such as health insurers and managed care organizations, publish formularies that identify the medications they will cover and the related payment levels. The healthcare industry is focused on cost containment, both in the United States and elsewhere. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product candidates profitably.

Increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We cannot be sure that coverage will be available for SPR994, SPR741 or any other product candidate that we commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for outpatient drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any approved products used on an

 

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outpatient basis that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

We cannot predict whether bacteria may develop resistance to SPR994, SPR741 or our other product candidates, which could affect their revenue potential.

We are developing SPR994 and SPR741 to treat drug-resistant bacterial infections. The bacteria responsible for these infections evolve quickly and readily transfer their resistance mechanisms within and between species. We cannot predict whether or when bacterial resistance to SPR994 or SPR741 may develop.

Specifically, neither SPR994 nor SPR741 (as a potentiator in combination with a partner antibiotic) are highly active against infections caused by Pseudomonas aeruginosa . As with some commercially available carbapenems, SPR994 is not active against organisms expressing a resistance mechanism mediated by enzymes known as carbapenemases. Although occurrence of this resistance mechanism is currently rare, we cannot predict whether carbapenemase-mediated resistance will become widespread in regions where we intend to market SPR994 if it is approved. The growth of drug resistant infections in community settings or in countries with poor public health infrastructures, or the potential use of SPR994 and SPR741 outside of controlled hospital settings, could contribute to the rise of resistance. If resistance to SPR994 or SPR741 becomes prevalent, our ability to generate revenue from SPR994 or SPR741 could suffer.

If we are not successful in discovering, developing and commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

Although a substantial amount of our efforts will focus on planned clinical trials and potential approval of our lead product candidate, SPR994, and our lead potentiator product candidate, SPR741, a key element of our strategy is to discover, develop and commercialize a portfolio of therapeutics to treat drug resistant bacterial infections. We are seeking to do so through our internal research programs and are exploring, and intend to explore in the future, strategic partnerships for the development of new product candidates. Other than SPR741, all of our potential product candidates remain in the discovery and preclinical stages.

Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

 

    the research methodology used may not be successful in identifying potential product candidates;

 

    we may be unable to successfully modify candidate compounds to be active in Gram-negative bacteria or defeat bacterial resistance mechanisms or identify viable product candidates in our screening campaigns;

 

    competitors may develop alternatives that render our product candidates obsolete;

 

    product candidates that we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

 

    a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

 

    a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all;

 

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    a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors; and

 

    the development of bacterial resistance to potential product candidates may render them ineffective against target infections.

If we are unsuccessful in identifying and developing additional product candidates, our potential for growth may be impaired.

Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of any products that we may develop.

We face an inherent risk of product liability claims as a result of the clinical testing of our product candidates despite obtaining appropriate informed consents from our clinical trial participants. We will face an even greater risk if we obtain marketing approval for and commercially sell SPR994, SPR741 or any other product candidate. For example, we may be sued if any product that we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:

 

    reduced resources for our management to pursue our business strategy;

 

    decreased demand for our product candidates or products that we may develop;

 

    injury to our reputation and significant negative media attention;

 

    withdrawal of clinical trial participants;

 

    initiation of investigations by regulators;

 

    product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

    significant costs to defend resulting litigation;

 

    substantial monetary awards to trial participants or patients;

 

    loss of revenue; and

 

    the inability to commercialize any products that we may develop.

Although we maintain general liability insurance and clinical trial liability insurance, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. We will need to increase our insurance coverage if and when we receive marketing approval for and begin selling SPR994, SPR741 or any other product candidate. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidates, which could adversely affect our business, financial condition, results of operations and prospects.

 

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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

We maintain workers’ compensation insurance to cover us for costs and expenses that we may incur due to injuries to our employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. Moreover, we do not currently maintain insurance for environmental liability or toxic tort claims that may be asserted against us.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts, which could adversely affect our business, financial condition, results of operations or prospects. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.

Our internal computer systems, or those of our contract research organizations or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.

Despite the implementation of security measures, our internal computer systems and those of our contract research organizations and other contractors and consultants are vulnerable to damage or disruption from hacking, computer viruses, software bugs, unauthorized access, natural disasters, terrorism, war, and telecommunication, equipment and electrical failures. While we have not, to our knowledge, experienced any significant system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of our product candidates could result in delays in our development and 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 or theft of confidential or proprietary information, we could incur liability, the further development of our product candidates could be delayed or our competitive position could be compromised.

Risks Related to Our Dependence on Third Parties

We expect to depend on collaborations with third parties for the development and commercialization of some of our product candidates. Our prospects with respect to those product candidates will depend in part on the success of those collaborations.

Although we expect to commercialize SPR994 and SPR741 ourselves in the United States, we intend to commercialize both product candidates outside the United States through collaboration arrangements. If we develop SPR741 to be co-administered in combination with branded and not generic antibiotic compounds, then we will be required to obtain and maintain rights from third-party collaborators for the development and commercialization of SPR741 co-administered with such other branded antibiotic compounds. In addition, we

 

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may seek third-party collaborators for development and commercialization of other product candidates. Our likely collaborators for any marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We are not currently party to any such arrangements.

We may derive revenue from research and development fees, license fees, milestone payments and royalties under any collaborative arrangement into which we enter. Our ability to generate revenue from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. In addition, our collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms. As a result, we can expect to relinquish some or all of the control over the future success of a product candidate that we license to a third party.

We face significant competition in seeking and obtaining appropriate collaborators. Collaborations involving our product candidates may pose a number of risks, including the following:

 

    collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

    collaborators may not perform their obligations as expected;

 

    collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

 

    collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

    product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

 

    a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;

 

    disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;

 

    collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

 

    collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

 

    collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.

 

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Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a collaborator of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product candidate licensed to it by us.

We may have to alter our development and commercialization plans if we are not able to establish collaborations.

We will require additional funds to complete the development and potential commercialization of SPR994, SPR741 and our other product candidates. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. For SPR741, if we develop such product candidate to be co-administered in combination with branded and not generic antibiotic compounds, we will be required to obtain and maintain rights from third-party collaborators for such development and commercialization of SPR741 co-administered with such collaborator’s branded antibiotic compound. Moreover, we intend to utilize a variety of types of collaboration arrangements for commercialization outside the United States.

We face significant competition in seeking and obtaining appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include:

 

    the design or results of clinical trials;

 

    the likelihood of approval by the FDA or comparable foreign regulatory authorities;

 

    the potential market for the subject product candidate;

 

    the costs and complexities of manufacturing and delivering such product candidate to patients;

 

    the potential for competing products;

 

    our patent position protecting the product candidate, including any uncertainty with respect to our ownership of our technology or our licensor’s ownership of technology we license from them, which can exist if there is a challenge to such ownership without regard to the merits of the challenge;

 

    the need to seek licenses or sub-licenses to third-party intellectual property; and

 

    industry and market conditions generally.

The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or

 

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commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market and our business may be materially and adversely affected.

We rely on third parties to conduct some of our preclinical studies and all of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize any of our product candidates. If they do not perform satisfactorily, our business may be materially harmed.

We do not independently conduct nonclinical studies that comply with GLP requirements. We also do not have the ability to independently conduct clinical trials of any of our product candidates. We rely on third parties, such as contract research organizations, clinical data management organizations, medical institutions, and clinical investigators, to conduct our clinical trials of SPR994 and SPR741 and expect to rely on these third parties to conduct clinical trials of our other product candidates and potential product candidates. Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities.

Our reliance on these third parties for clinical development activities limits our control over these activities but we remain responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards. For example, notwithstanding the obligations of a contract research organization for a trial of one of our product candidates, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. While we will have agreements governing their activities, we control only certain aspects of their activities and have limited influence over their actual performance. The third parties with whom we contract for execution of our GLP studies and our clinical trials play a significant role in the conduct of these studies and trials and the subsequent collection and analysis of data. Although we rely on these third parties to conduct our GLP-compliant nonclinical studies and clinical trials, we remain responsible for ensuring that each of our nonclinical studies and clinical trials are conducted in accordance with applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities. The FDA and regulatory authorities in other jurisdictions also require us to comply with standards, commonly referred to as good clinical practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to assure that data and reported results are accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. The FDA enforces these GCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and institutional review boards. If we or our third-party contractors fail to comply with applicable 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 our product candidates, which would delay the regulatory approval process. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with GCPs. We are also required to register clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Furthermore, the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements with such contractors, we cannot control whether or not they devote sufficient time and resources to our ongoing development programs. These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates. If that

 

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occurs, we may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. In such an event, our financial results and the commercial prospects for SPR994, SPR741 or our other product candidates could be harmed, our costs could increase and our ability to generate revenue could be delayed, impaired or foreclosed.

We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of any resulting products, producing additional losses and depriving us of potential product revenue.

We contract with third parties for the manufacture of preclinical and clinical supplies of SPR994 and SPR741 and expect to continue to do so in connection with any future commercialization and for any future clinical trials and commercialization of our other product candidates and potential product candidates. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not currently have nor do we plan to build the internal infrastructure or capability to manufacture SPR994, SPR741 or our other product candidates for use in the conduct of our preclinical research, our clinical trials or for commercial supply. We currently rely on and expect to continue to rely on third-party contract manufacturers to manufacture supplies of SPR994 and SPR741 and our other product candidates, and we expect to rely on third-party contract manufacturers to manufacture commercial quantities of any product candidate that we commercialize following approval for marketing by applicable regulatory authorities, if any. Reliance on third-party manufacturers entails risks, including:

 

    manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreement between us;

 

    the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us;

 

    the possible breach of the manufacturing agreement by the third party;

 

    the failure of the third-party manufacturer to comply with applicable regulatory requirements; and

 

    the possible misappropriation of our proprietary information, including our trade secrets and know-how.

We currently rely on a small number of third-party contract manufacturers for all of our required raw materials, drug substance and finished product for our preclinical research and clinical trials. We do not have long-term agreements with any of these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates. If any of our existing manufacturers should become unavailable to us for any reason, we may incur delays in identifying or qualifying replacements.

If any of our product candidates are approved by any regulatory agency, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products. This process is difficult and time consuming and we may face competition for access to manufacturing facilities as there are a limited number of contract manufacturers operating under cGMPs that are capable of manufacturing our product candidates. Consequently, we may not be able to reach agreement with third-party manufacturers on satisfactory terms, which could delay our commercialization.

 

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Third-party manufacturers are required to comply with cGMPs and similar regulatory requirements outside the United States. Facilities used by our third-party manufacturers must be approved by the FDA after we submit an NDA and before potential approval of the product candidate. Similar regulations apply to manufacturers of our product candidates for use or sale in foreign countries. We do not control the manufacturing process and are completely dependent on our third-party manufacturers for compliance with the applicable regulatory requirements for the manufacture of our product candidates. If our manufacturers cannot successfully manufacture material that conforms to the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they will not be able to secure the applicable approval for their manufacturing facilities. If these facilities are not approved for commercial manufacture, we may need to find alternative manufacturing facilities, which could result in delays in obtaining approval for the applicable product candidate. In addition, our manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. Failure by any of our manufacturers to comply with applicable cGMPs or other regulatory requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates and have a material adverse effect on our business, financial condition and results of operations.

Our current and anticipated future dependence upon others for the manufacture of SPR994, SPR741 and our other product candidates and potential product candidates may adversely affect our future profit margins and our ability to commercialize any products for which we receive marketing approval on a timely and competitive basis.

If we fail to comply with our obligations in the agreements under which we in-license or acquire development or commercialization rights to products, technology or data from third parties, including those for SPR994, we could lose such rights that are important to our business.

We are a party to agreements with Meiji for SPR994, Northern for SPR741, Vertex Pharmaceuticals for SPR720 and PBB Distributions Limited for SPR206, and we may enter into additional agreements, including license agreements, with other parties in the future that impose diligence, development and commercialization timelines, milestone payments, royalties, insurance and other obligations on us.

For example, we have an exclusive know-how license with Meiji, or the Meiji License, that gives Spero rights outside of specified countries in Asia to develop, manufacture, and commercialize SPR994 as well as the right to use, cross-reference, file or incorporate by reference any information and relevant Meiji regulatory documentation to support any regulatory filings outside of Asia. In addition, Spero has the right to develop, manufacture and have manufactured SPR994 in Asia solely for the purpose of furthering development, manufacturing and commercialization of SPR994 outside of Asia. In exchange for those rights, Spero is obligated to satisfy diligence requirements, including using commercially reasonable efforts to develop and commercialize SPR994 and to implement a specified development plan, meeting specified development milestones and providing an update on progress on an annual basis. The Meiji License requires us to pay milestone payments of up to $3.0 million upon the achievement of specified clinical and regulatory milestones and royalties of a low single-digit percentage on net sales on a country-by-country basis.

If we fail to comply with our obligations to Meiji or any of our other partners, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product candidate that is covered by these agreements, which could materially adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.

 

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Our reliance on government funding for certain of our programs adds uncertainty to our research and commercialization efforts with respect to those programs and may impose requirements that increase the costs of commercialization and production of product candidates developed under those government-funded programs.

Aspects of our development programs are currently being supported, in part, with funding from CARB-X, the DoD and NIAID.

Contracts and grants awarded by the U.S. government, its agencies, and its partners, including our awards from CARB-X, the DoD and NIAID, include provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:

 

    terminate agreements, in whole or in part, for any reason or no reason;

 

    reduce or modify the government’s obligations under such agreements without the consent of the other party;

 

    claim rights, including intellectual property rights, in products and data developed under such agreements;

 

    audit contract-related costs and fees, including allocated indirect costs;

 

    suspend the contractor or grantee from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

 

    impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements;

 

    suspend or debar the contractor or grantee from doing future business with the government;

 

    control and potentially prohibit the export of products;

 

    pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions specific to government agreements; and

 

    limit the government’s financial liability to amounts appropriated by the U.S. Congress on a fiscal-year basis, thereby leaving some uncertainty about the future availability of funding for a program even after it has been funded for an initial period.

We may not have the right to prohibit the U.S. government from using certain technologies developed by us, and we may not be able to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts.

In addition, government contracts and grants, and subcontracts and subawards awarded in the performance of those contracts and grants, normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:

 

    specialized accounting systems unique to government awards;

 

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    mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;

 

    adhering to stewardship principals imposed by CARB-X as a condition of the award;

 

    public disclosures of certain award information, which may enable competitors to gain insights into our research program; and

 

    mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements.

As an organization, we are relatively new to government contracting and new to the regulatory compliance obligations that such contracting entails. If we fail to maintain compliance with those obligations, we may be subject to potential liability and to termination of our contracts.

As a U.S. government contractor, we are subject to financial audits and other reviews by the U.S. government of our costs and performance on their contracts, as well as our accounting and general business practices related to these contracts. Based on the results of its audits, the government may adjust our contract-related costs and fees, including allocated indirect costs. Although adjustments arising from government audits and reviews have not had a material adverse effect on our financial condition or results of operations in the past, we cannot assure you that future audits and reviews will not have those effects.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain sufficient patent protection for our technology or our product candidates, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary chemistry technology and product candidates. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage that we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our novel technologies and product candidates that are important to our business. The patent application and approval process is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds and technologies commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Furthermore, recent changes in patent laws in the United States, including the America Invents Act of 2011, may affect the scope, strength and enforceability of our patent rights or the nature of proceedings which may be brought by us related to our patent rights.

 

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Our pending and future patent applications may not result in patents being issued which protect our technology or product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

The laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, even assuming the other requirements for patentability are met, currently, in the United States, the first to make the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result of the America Invents Act of 2011, the United States transitioned to a first-inventor-to-file system in March 2013, under which, assuming the other requirements for patentability are met, the first inventor to file a patent application is entitled to the patent. However, as a result of the lag in the publication of patent applications following filing in the United States, we are still not be able to be certain upon filing that we are the first to file for patent protection for any invention. Moreover, we may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation, reexamination, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek to market generic versions of any approved products by submitting Abbreviated New Drug Applications to the FDA in which they claim that patents owned or licensed by us are invalid, unenforceable and/or not infringed. Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents, trademarks, copyrights or other intellectual property, or those of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims,

 

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which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patents do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.

In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

If we are sued for infringing intellectual property rights of third parties, or otherwise become involved in disputes regarding our intellectual property rights, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates and use our proprietary chemistry technology without infringing the intellectual property and other proprietary rights of third parties. Numerous third-party U.S. and non-U.S. issued patents and pending applications exist in the area of antibacterial treatment, including compounds, formulations, treatment methods and synthetic processes that may be applied towards the synthesis of antibiotics. If any of their patents or patent applications cover our product candidates or technologies, we may not be free to manufacture or market our product candidates as planned.

There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our technology or product candidates, including interference proceedings before the U.S. Patent and Trademark Office. Intellectual property disputes arise in a number of areas including with respect to patents, use of other proprietary rights and the contractual terms of license arrangements. Third parties may assert claims against us based on existing or future intellectual property rights. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. With respect to our Meiji License of certain know-how used in SPR994, we are neither a party to, nor an express third-party beneficiary of, the letter agreement between Meiji and Global Pharma consenting to Meiji’s arrangement with us. As such, if any dispute among the parties were to occur, our direct enforcement rights with respect to the letter agreement may be limited or uncertain. A termination or early expiration of the head license between Meiji and Global Pharma (which currently by its terms is set to expire in January 2022) or any restriction on our ability to use the Global Pharma know-how could have a negative impact on our development of SPR994 and adversely affect our business.

If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product.

 

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Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative effect on our business.

We may be subject to claims that we or our employees have misappropriated the intellectual property of a third party, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the intellectual property and other proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed such intellectual property or other proprietary information. Litigation may be necessary to defend against these claims.

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. To the extent that we fail to obtain such assignments or such assignments are breached, we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, in seeking to develop and maintain a competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our consultants, independent contractors, advisors, corporate collaborators, outside scientific collaborators, contract manufacturers, suppliers and other third parties. We, as well as our licensors, also enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and competitive position could be harmed.

We have not yet registered our trademarks. Failure to secure those registrations could adversely affect our business.

We have not yet registered our trademarks in the United States or other countries. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than

 

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we otherwise would, which could adversely affect our business. We have also not yet registered trademarks for any of our product candidates in any jurisdiction. When we file trademark applications for our product candidates those applications may not be allowed for registration, and registered trademarks may not be obtained, maintained or enforced. During trademark registration proceedings in the United States and foreign jurisdictions, we may receive rejections. We are given an opportunity to respond to those rejections, but we may not be able to overcome such rejections. In addition, in the United States Patent and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings.

In addition, any proprietary name we propose to use with SPR994, SPR741 or any other product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

Risks Related to Regulatory Approval and Other Legal Compliance Matters

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize SPR994, SPR741 or our other product candidates, and our ability to generate revenue will be materially impaired.

Our product candidates, including SPR994 and SPR741, and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable foreign regulatory authorities, with regulations differing from country to country. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We currently do not have any products approved for sale in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party contract research organizations to assist us in this process.

The time required to obtain approval, if any, by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Neither we nor any future collaborator is permitted to market any of our product candidates in the United States until we or they receive regulatory approval of an NDA from the FDA.

In order to obtain approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe that the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA may also require us to conduct additional nonclinical studies or clinical trials for our product candidates either prior to or post-approval, and it may otherwise object to elements of our clinical development program.

 

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We have not submitted an NDA for any of our product candidates. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and efficacy for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product candidate. Obtaining approval of an NDA is a lengthy, expensive and uncertain process. The FDA has substantial discretion in the review and approval process and may refuse to accept for filing any application or may decide that our data are insufficient for approval and require additional nonclinical, clinical or other studies. Foreign regulatory authorities have differing requirements for approval of drugs with which we must comply prior to marketing. Obtaining marketing approval for marketing of a product candidate in one country does not ensure that we will be able to obtain marketing approval in other countries, but the failure to obtain marketing approval in one jurisdiction could negatively affect our ability to obtain marketing approval in other jurisdictions. The FDA or any foreign regulatory bodies can delay, limit or deny approval of our product candidates or require us to conduct additional nonclinical or clinical testing or abandon a program for many reasons, including:

 

    the FDA or the applicable foreign regulatory agency’s disagreement with the design or implementation of our clinical trials;

 

    negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA or comparable foreign regulatory agencies for approval;

 

    serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;

 

    our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that our product candidates are safe and effective for the proposed indication;

 

    the FDA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from nonclinical studies or clinical trials;

 

    our inability to demonstrate the clinical and other benefits of our product candidates outweigh any safety or other perceived risks;

 

    the FDA’s or the applicable foreign regulatory agency’s requirement for additional nonclinical studies or clinical trials;

 

    the FDA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling and/or the specifications for our product candidates; or

 

    the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval.

Of the large number of drugs in development, only a small percentage complete the FDA or foreign regulatory approval processes and are successfully commercialized. The lengthy review process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval, which would significantly harm our business, financial condition, results of operations and prospects.

Even if we eventually receive approval of an NDA or foreign marketing application for our product candidates, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials, often referred to as Phase 4 clinical trials, and the FDA may require the implementation of a Risk Evaluation and Mitigation Strategy, or REMS, which may be required to ensure safe use of the drug after approval. The FDA or the applicable foreign regulatory agency also may approve a product candidate for a more limited indication or patient population than we originally requested, and

 

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the FDA or applicable foreign regulatory agency may not approve the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of that product candidate and would materially adversely impact our business and prospects.

We may seek fast track designation for SPR994, SPR741 or one or more of our other product candidates, but we might not receive such designation, and in any case, such designation may not actually lead to a faster development or regulatory review or approval process.

If a drug is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address unmet medical need for this condition, a drug sponsor may apply for fast track designation by the FDA for the particular indication under study. If fast track designation is obtained, the FDA may initiate review of sections of an NDA before the application is complete. This “rolling review” is available if the applicant provides and the FDA approves a schedule for the remaining information. If we seek fast track designation for a product candidate, we may not receive it from the FDA. However, even if we receive fast track designation, fast track designation does not ensure that we will receive marketing approval or that approval will be granted within any particular timeframe. We may not experience a faster development or regulatory review or approval process with fast track designation compared to conventional FDA procedures. In addition, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast track designation alone does not guarantee qualification for the FDA’s priority review procedures.

If we are unable to obtain marketing approval in international jurisdictions, we will not be able to market our product candidates abroad.

In order to market and sell SPR994, SPR741 or our other product candidates in the European Union and many other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. The approval procedure varies among countries and can involve additional testing. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis or at all.

If we receive regulatory approval for any product candidate, including SPR994 or SPR741, we will be subject to ongoing obligations and continuing regulatory review, which may result in significant additional expense. Our product candidates, including SPR994 and SPR741, if approved, could be subject to restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if approved.

Any product candidate, including SPR994 or SPR741, for which we obtain marketing approval will also be subject to ongoing regulatory requirements for labeling, packaging, storage, distribution, advertising, promotion, record-keeping and submission of safety and other post-market information. For example, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs. As such, we and our contract manufacturers will be subject to continual review and periodic inspections to assess compliance with cGMPs. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We will also be

 

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required to report certain adverse reactions and production problems, if any, to the FDA and to comply with requirements concerning advertising and promotion for our products.

In addition, even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed, may be subject to significant conditions of approval or may impose requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA may also require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure that drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling and regulatory requirements. The FDA also imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we do not restrict the marketing of our products only to their approved indications, we may be subject to enforcement action for off-label marketing.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on that product or us. In addition, if any product fails to comply with applicable regulatory requirements, a regulatory agency may:

 

    issue fines, warning letters, untitled letters or impose holds on clinical trials if any are still on-going;

 

    mandate modifications to promotional materials or require provision of corrective information to healthcare practitioners;

 

    impose restrictions on the product or its manufacturers or manufacturing processes;

 

    impose restrictions on the labeling or marketing of the product;

 

    impose restrictions on product distribution or use;

 

    require post-marketing clinical trials;

 

    require withdrawal of the product from the market;

 

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

 

    require recall of the product;

 

    require entry into a consent decree, which can include imposition of various fines (including restitution or disgorgement of profits or revenue), reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

 

    suspend or withdraw marketing approvals;

 

    refuse to permit the import or export of the product;

 

    seize or detain supplies of the product; or

 

    issue injunctions or impose civil or criminal penalties.

 

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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, including SPR994 and SPR741, for which we may obtain marketing approval. Our future arrangements with third-party payors and customers will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. These laws and regulations include, for example, the false claims and anti-kickback statutes and regulations. At such time as we market, sell and distribute any products for which we obtain marketing approval, it is possible that our business activities could be subject to challenge under one or more of these laws and regulations. Restrictions under applicable federal and state healthcare laws and regulations include the following:

 

    the federal healthcare Anti-Kickback Statute, among other things, prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federally funded healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate the statute in order to have committed a violation. In addition, the government may 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 Act;

 

    the federal False Claims Act imposes criminal and civil penalties, which can be enforced by private citizens through civil whistleblower and qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or for making any false statements relating to healthcare matters; as in the case of the federal healthcare Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate the statute in order to have committed a violation;

 

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, also imposes obligations on certain covered entities as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security 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;

 

   

the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, the ACA, requires manufacturers of drugs, devices, biologics and medical supplies to report to the U.S.

 

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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, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to implement compliance programs and to track and report gifts, compensation and other remuneration provided to physicians, in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and pricing information. State laws also govern the privacy and security of health information in some circumstances, and many such state laws differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

We will be required to spend substantial time and money to ensure that our business arrangements with third parties, and our business generally, comply with applicable healthcare laws and regulations. Even then, governmental authorities may conclude that our business practices, including arrangements we may have with physicians and other healthcare providers, some of whom may receive stock options as compensation for services provided, do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If governmental authorities find that our operations violate any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, imprisonment, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and we may be required to curtail or restructure our operations. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could affect our operations and business. The extent to which future legislation or regulations, if any, relating to healthcare fraud and abuse laws or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain.

Recently enacted and future policies and legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the reimbursement made for any product candidate for which we receive marketing approval.

The pricing and reimbursement environment may become more challenging due to, among other reasons, policies advanced by the new presidential administration, federal agencies, new healthcare legislation passed by the U.S. Congress or fiscal challenges faced by all levels of government health administration authorities. Among policy makers and payors in the United States and foreign countries, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale of any products for which we obtain marketing approval, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. Resulting legislative, administrative, or policy changes from payors may reduce payments for any products for which we obtain marketing approval and could affect future revenues.

The ACA became law in the United States in March 2010 with the goals of broadening access to health insurance, reducing or constraining the growth of healthcare spending, enhancing remedies against fraud and abuse, adding new transparency requirements for the health care and health insurance industries and imposing additional health policy reforms. Provisions of ACA may negatively affect our future revenues. For example, the ACA requires, among other things, that annual fees be paid by manufacturers for certain branded prescription drugs, that manufacturers participate in a discount program for certain outpatient drugs under Medicare Part D, and that manufacturers provide increased rebates under the Medicaid Drug Rebate Program for outpatient drugs dispensed to Medicaid recipients. The ACA also addresses a new methodology by which rebates owed by

 

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manufacturers under the Medicaid Drug Rebate Program are calculated for line extensions and expands oversight and support for the federal government’s comparative effectiveness research of services and products.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. As a result, there have been delays in the implementation of certain aspects of the ACA. Congress and President Trump have expressed their intentions to repeal or repeal and replace the Affordable Care Act. The President issued an Executive Order and both chambers of Congress passed bills all with the goal of fulfilling their intentions, however, to date the Executive Order has had limited effect and the Congressional activities have not resulted in passage of a law. If a law is enacted, many if not all of the provisions of the Affordable Care Act may no longer apply to prescription drugs. We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.

Beginning on April 1, 2013, Medicare payments for all items and services under Part A and B, including drugs and biologicals, and most payments to plans under Medicare Part D were reduced by 2%, or automatic spending reductions, required by the Budget Control Act of 2011, or BCA, as amended by the American Taxpayer Relief Act of 2012. The BCA requires sequestration for most federal programs, excluding Medicaid, Social Security, and certain other programs. The BCA caps the cuts to Medicare payments for items and services and payments to Part D plans at 2%. Subsequent legislation extended the 2% reduction, on average, to 2025. As long as these cuts remain in effect, they could adversely affect payment for our product candidates. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

Moreover, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. There have been several U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the effect of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

If we successfully commercialize one of our product candidates, failure to comply with our reporting and payment obligations under U.S. governmental pricing programs could have a material adverse effect on our business, financial condition and results of operations.

If we participate in the Medicaid Drug Rebate Program if and when we successfully commercialize a product candidate, we will be required to report certain pricing information for our product to the Centers for Medicare & Medicaid Services, the federal agency that administers the Medicaid and Medicare programs. We may also be required to report pricing information to the U.S. Department of Veterans Affairs. If we become subject to these reporting requirements, we will be liable for errors associated with our submission of pricing data, for failure to report pricing data in a timely manner, and for overcharging government payers, which can result in civil monetary penalties under the Medicaid statute, the federal civil False Claims Act, and other laws and regulations.

 

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Our employees, independent contractors, principal investigators, contract research organizations, consultants or vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk that our employees, independent contractors, principal investigators, contract research organizations, consultants or vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA; manufacturing standards; federal and state healthcare fraud and abuse laws and regulations; or laws that require the true, complete and accurate reporting of financial information or data. Specifically, 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. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished potential profits and future earnings, and curtailment of our operations, any of which could adversely affect our business, financial condition, results of operations or prospects.

Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development, regulatory, commercialization and business development expertise of Ankit Mahadevia, M.D., our President and Chief Executive Officer, as well as the other principal members of our management, scientific and clinical team. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time.

If we lose one or more of our executive officers or key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize product candidates successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be engaged by entities other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to develop and commercialize product candidates will be limited.

 

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We expect to grow our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of product candidate development, regulatory affairs and sales, marketing and distribution. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities to devote time to managing these growth activities. To manage these growth activities, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. Our inability to effectively manage the expansion of our operations may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our potential ability to generate revenue could be reduced and we may not be able to implement our business strategy.

If foreign approvals are obtained, we will be subject to additional risks in conducting business in international markets.

Even if we are able to obtain approval for commercialization of a product candidate in a foreign country, we will be subject to additional risks related to international business operations, including:

 

    potentially reduced protection for intellectual property rights;

 

    the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;

 

    unexpected changes in tariffs, trade barriers and regulatory requirements;

 

    economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

    workforce uncertainty in countries where labor unrest is more common than in the United States;

 

    production shortages resulting from any events affecting a product candidate and/or finished drug product supply or manufacturing capabilities abroad;

 

    business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires; and

 

    failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act.

These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.

 

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We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.

In the future, we may enter into transactions to acquire other businesses, products or technologies. If we do identify suitable candidates, we may not be able to make such acquisitions on favorable terms, or at all. Any acquisitions we make may not strengthen our competitive position, and these transactions may be viewed negatively by customers or investors. We may decide to incur debt in connection with an acquisition or issue our common stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We could incur losses resulting from undiscovered liabilities of the acquired business that are not covered by the indemnification we may obtain from the seller. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and nondisruptive manner. Acquisitions may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results.

Risks Related to Our Common Stock and This Offering

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

The initial public offering price of our common stock is substantially higher than the pro forma as adjusted 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 the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $        per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering and the initial public offering price. Purchasers of common stock in this offering will have contributed approximately     % of the aggregate consideration paid by all purchasers of our stock but will own only approximately     % of our common stock outstanding after this offering, excluding any shares of our common stock that they may have acquired prior to this offering. Furthermore, if the underwriters exercise their option to purchase additional shares in this offering or our previously granted options to acquire common stock at prices below the assumed initial public offering price are exercised, you will experience further dilution. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.”

An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the underwriters. This price may not reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. Although we have applied to list our common stock on The NASDAQ Global Market, an active trading market for our shares may never develop or, if developed, be maintained following this offering. If an active market for our common stock does not develop or is not maintained, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares or at all. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

Our stock price may be volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to

 

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the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

 

    the success of existing or new competitive products or technologies;

 

    the timing of clinical trials of SPR994, SPR741 and any other product candidate;

 

    results of clinical trials of SPR994, SPR741 and any other product candidate;

 

    failure or discontinuation of any of our development programs;

 

    results of clinical trials of product candidates of our competitors;

 

    regulatory or legal developments in the United States and other countries;

 

    developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

    the recruitment or departure of key personnel;

 

    the level of expenses related to any of our product candidates or clinical development programs;

 

    the results of our efforts to develop, in-license or acquire additional product candidates or products;

 

    actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

    announcement or expectation of additional financing efforts;

 

    sales of our common stock by us, our insiders or other stockholders;

 

    variations in our financial results or those of companies that are perceived to be similar to us;

 

    changes in estimates or recommendations by securities analysts, if any, that cover our stock;

 

    changes in the structure of healthcare payment systems;

 

    market conditions in the pharmaceutical and biotechnology sectors;

 

    general economic, industry and market conditions; and

 

    the other factors described in this “Risk Factors” section.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us, or provide favorable coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price would likely decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

 

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We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In this prospectus, we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

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

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors.

We are currently evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

 

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Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an Annual Report on Form 10-K with the Securities and Exchange Commission, or the SEC, after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

A significant portion of our total outstanding shares is restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to decline significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. After this offering, we will have                  shares of common stock outstanding based on the                  shares outstanding as of August 31, 2017 and giving effect to the automatic conversion of all outstanding shares of our preferred stock into 48,998,475 shares of our common stock immediately prior to the completion of this offering. Of these shares, the                  shares sold by us in this offering may be resold in the public market immediately, unless purchased by our affiliates. The remaining                  shares are currently restricted under securities laws or as a result of lock-up agreements, but will be able to be sold after this offering as described in the “Shares Eligible for Future Sale” section of this prospectus. Moreover, after this offering, holders of an aggregate of                  shares of our common stock, will have rights, subject to conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all                  shares of common stock that we may issue under the 2017 Plan. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates and the lock-up agreements described in the “Underwriting” section of this prospectus.

We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Accordingly, stockholders must rely on capital appreciation, if any, for any return on their investment.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the operation, development and growth of our business. To the extent that we enter into any future debt agreements, the terms of such agreements may also preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to control all matters submitted to stockholders for approval.

Upon the completion of this offering, our executive officers and directors, combined with our stockholders who owned more than 5% of our outstanding common stock before this offering will, in the aggregate, beneficially own shares representing approximately     % of our capital stock. As a result, if these

 

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stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:

 

    delay, defer or prevent a change in control;

 

    entrench our management and/or our board of directors; or

 

    impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and amended and restated by-laws that will become effective upon the completion of this offering may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

 

    establish a classified board of directors such that all members of the board are not elected at one time;

 

    allow the authorized number of our directors to be changed only by resolution of our board of directors;

 

    limit the manner in which stockholders can remove directors from our board of directors;

 

    establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on at stockholder meetings;

 

    require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

 

    limit who may call a special meeting of stockholders;

 

    authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

 

    require the approval of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast to amend or repeal certain provisions of our certificate of incorporation or by-laws.

 

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Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. This could discourage, delay or prevent someone from acquiring us or merging with us, whether or not it is desired by, or beneficial to, our stockholders.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

    our use of the net proceeds from this offering;

 

    the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;

 

    our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

 

    our ability to advance product candidates into, and successfully complete, clinical trials;

 

    the timing or likelihood of regulatory filings and approvals;

 

    the commercialization of our product candidates, if approved;

 

    the pricing, coverage and reimbursement of our product candidates, if approved;

 

    the implementation of our business model, strategic plans for our business and product candidates and our Potentiator Platform;

 

    the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and our Potentiator Platform;

 

    our ability to enter into strategic arrangements and/or collaborations and the potential benefits of such arrangements;

 

    our estimates regarding expenses, capital requirements and needs for additional financing;

 

    our financial performance; and

 

    developments relating to our competitors and our industry.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking

 

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statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to new information, actual results or to changes in our expectations, except as required by law.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $        million from our sale of common stock in this offering, or approximately $        million if the underwriters exercise their option to purchase additional shares in full, based on 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.

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 net proceeds to us from this offering by approximately $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares 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 from this offering by approximately $        million, assuming the assumed initial public offering price stays the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering as follows:

 

    approximately $        million to fund our planned Phase 1 clinical trial of SPR994 and initiate our planned pivotal Phase 3 clinical trial of SPR994;

 

    approximately $        million to fund additional preclinical activities relating to SPR741 and our planned Phase 2 clinical trial of SPR741;

 

    approximately $        million to fund additional preclinical and IND-enabling studies to develop SPR206 and SPR720; and

 

    the remainder, if any, balance for working capital and other general corporate purposes.

We believe opportunities may exist from time to time to expand our current business through acquisitions or in-licensing of complementary companies, medicines or technologies. While we have no current agreements, commitments or understandings for any specific acquisitions or in-licensing at this time, we may use a portion of the net proceeds for these purposes.

Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. Due to the uncertainties inherent in the product development process, it is difficult to estimate with certainty the exact amounts of the net proceeds from this offering that may be used for the above purposes. The amounts and timing of our actual expenditures will depend upon numerous factors, including the factors described in “Risk Factors.” Accordingly, our management will have broad discretion in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.

Based on our current plans, we believe that our existing cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through              . We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We do not expect the net proceeds from this offering and our existing cash and cash equivalents to be sufficient to fund the development of our product candidates through regulatory approval and commercialization. We believe the amount of net proceeds from this offering currently allocated to SPR206 and SPR720 would only be sufficient to fund those programs to

 

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the point where we would be in a position to file an IND with respect to each. We will need to raise substantial additional funds before we can expect to commercialize any products, if approved. We may satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit, corporate collaborations or license agreements, grant funding, interest income earned on invested cash balances or a combination of one or more of these sources.

Pending their use as described above, we plan to invest the net proceeds from this offering in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to declare and pay dividends will be made at the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, our financial condition, our capital requirements, general business conditions, our future prospects and other factors that our board of directors may deem relevant. Additionally, our ability to pay dividends on our capital stock could be limited by terms and covenants of any future indebtedness. Investors should not purchase our common stock with the expectation of receiving cash dividends.

 

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REORGANIZATION

On June 30, 2017, we completed a series of transactions pursuant to which Spero Therapeutics, LLC, our former sole stockholder and holding company parent, merged with and into Spero Therapeutics, Inc., a Delaware corporation (formerly known as Spero OpCo, Inc.), which continued to exist as the surviving corporation. Throughout this prospectus, we refer to these transactions and the related transactions enumerated below collectively as the Reorganization. To consummate the Reorganization, we filed a certificate of merger with the Secretary of State of the State of Delaware. In connection with the Reorganization:

 

    holders of Spero Therapeutics, LLC’s outstanding Class C preferred units received one share of our Series C preferred stock for each Class C preferred unit held immediately prior to the Reorganization, with an aggregate of 29,647,582 shares of our Series C preferred stock issued in the Reorganization;

 

    holders of Spero Therapeutics, LLC’s outstanding Class B preferred units received one share of our Series B preferred stock for each Class B preferred unit held immediately prior to the Reorganization, with an aggregate of 5,909,089 shares of our Series B preferred stock issued in the Reorganization;

 

    holders of Spero Therapeutics, LLC’s outstanding Class A preferred units received one share of our Series A preferred stock for each Class A preferred unit held immediately prior to the Reorganization, with an aggregate of 4,202,278 shares of our Series A preferred stock issued in the Reorganization;

 

    holders of Spero Therapeutics, LLC’s outstanding Junior preferred units received one share of our Junior preferred stock for each Junior Preferred Unit held immediately prior to the Reorganization, with an aggregate of 3,438,318 shares of our Junior preferred stock issued in the Reorganization;

 

    holders of Spero Therapeutics, LLC’s outstanding common units received one share of our common stock for each common unit held immediately prior to the Reorganization, with an aggregate of 2,037,662 shares of our common stock issued in the Reorganization; and

 

    as all incentive units issued by Spero Therapeutics LLC were intended to be profits interest within the meaning of Internal Revenue Service Revenue Procedures 93-27 and 2001-43, such incentive units were cancelled as they were deemed to be valueless based on a liquidation valuation basis for federal income tax purposes and pursuant to contractual rights under the operating agreement of Spero Therapeutics, LLC.

Our Series C preferred stock, Series B preferred stock, Series A preferred stock and Junior preferred stock are designated as preferred stock under our amended and restated certificate of incorporation. All outstanding shares of our preferred stock convert to shares of common stock at the then-effective conversion ratios. In connection with the Reorganization, by operation of law, we acquired all assets of Spero Therapeutics, LLC and assumed all of its liabilities and obligations. The purpose of the Reorganization was to reorganize our corporate structure so that Spero Therapeutics, Inc. would continue as a corporation and so that our existing investors would own our capital stock rather than equity interests in a limited liability company. For the convenience of the reader, except as context otherwise requires, all information included in this prospectus is presented giving effect to the Reorganization.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2017:

 

    on an actual basis;

 

    on a pro forma basis to give effect to (i) our issuance and sale in July 2017 of 61,880 shares of Series C preferred stock for gross proceeds of $0.1 million and the resulting change to the conversion ratios of our Series A and Series B preferred stock; (ii) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 48,998,475 shares of common stock immediately prior to the completion of this offering; (iii) our payment of $2.6 million to Northern upon the completion of this offering under our license and exchange agreement with Northern; and (iv) the filing and effectiveness of our amended and restated certificate of incorporation; and

 

    on a pro forma as adjusted basis to give further effect to our issuance and sale of              shares of our 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information below is illustrative only, and our capitalization following the completion 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 this table together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the “Reorganization,” “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus.

 

     As of June 30, 2017  
     Actual    

Pro Forma

   

Pro Forma
As Adjusted

 
     (in thousands, except share and per
share data)
 

Cash and cash equivalents

   $ 36,299     $ 33,809     $               
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock (Series A, B, C and Junior), $0.001 par value; 43,297,267 shares authorized, 43,197,267 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   $ 103,760     $ —       $  
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

      

Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual;              shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted

     —         —      

Common stock, $0.001 par value; 61,917,986 shares authorized, 2,037,662 shares issued and outstanding, actual;              shares authorized, 51,036,137 shares issued and outstanding, pro forma;              shares authorized,              shares issued and outstanding, pro forma as adjusted

     2       51    

Additional paid-in capital

     —         103,821    

Accumulated deficit

     (71,979     (74,579  
  

 

 

   

 

 

   

 

 

 

Total Spero Therapeutics, Inc. stockholders’ equity (deficit)

     (71,977     29,293    

Non-controlling interests

     1,472       1,472    
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (70,505     30,765    
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 33,255     $ 30,765     $  
  

 

 

   

 

 

   

 

 

 

 

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A $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, total stockholders’ equity and total capitalization by $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares 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 amount of each of cash and cash equivalents, total stockholders’ equity and total capitalization by $        million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The table above does not include:

 

    10,850,693 shares of our common stock available for future issuance under the 2017 Plan as of June 30, 2017 (of which options to purchase an aggregate of 9,373,425 shares of common stock, at an exercise price of $0.97 per share, were granted in July 2017); and

 

                     additional shares of our common stock that will become available for future issuance under the 2017 Plan in connection with this offering, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under the 2017 Plan.

 

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DILUTION

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

Our historical net tangible book value (deficit) as of June 30, 2017 was $(70.8) million, or $(34.73) per share of common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and the carrying value of our redeemable convertible preferred stock, which is not included within stockholders’ equity (deficit). Historical net tangible book value (deficit) per share represents historical net tangible book value (deficit) divided by the 2,037,662 shares of common stock outstanding as of June 30, 2017.

Our pro forma net tangible book value as of June 30, 2017 was $30.5 million, or $0.60 per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to (i) our issuance and sale in July 2017 of 61,880 shares of Series C preferred stock for gross proceeds of $0.1 million and the resulting change to the conversion ratios of our Series A and Series B preferred stock, (ii) the automatic conversion immediately prior to the completion of this offering of all outstanding shares of our preferred stock into an aggregate of 48,998,475 shares of common stock and (iii) our payment of $2.6 million to Northern upon the completion of this offering under our license and exchange agreement with Northern. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of June 30, 2017, after giving effect to the pro forma adjustments described above.

After giving further effect to our issuance and sale of              shares of our 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, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2017 would have been $        million, or $        per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $        to existing stockholders and immediate dilution of $        in pro forma as adjusted net tangible book value per share to new investors purchasing common stock 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 assumed initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $               

Historical net tangible book value (deficit) per share as of June 30, 2017

   $ (34.73  

Increase per share attributable to the pro forma adjustments described above

     35.33    
  

 

 

   

Pro forma net tangible book value per share as of June 30, 2017

     0.60    

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing common stock in this offering

    
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

    
    

 

 

 

Dilution per share to new investors purchasing common stock in this offering

     $  
    

 

 

 

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. 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) our pro forma as adjusted net tangible book value per share after this offering by $        and dilution per share to new investors purchasing common stock in this offering by $        , assuming that the number of shares offered by us, as set forth on the cover page of this

 

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prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase our pro forma as adjusted net tangible book value per share after this offering by $        and decrease the dilution per share to new investors purchasing common stock in this offering by $        , assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease our pro forma as adjusted net tangible book value per share after this offering by $        and increase the dilution per share to new investors purchasing common stock in this offering by $        , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $        , representing an immediate increase in pro forma as adjusted net tangible book value per share of $        to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $        to new investors purchasing common stock 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.

The following table summarizes, as of June 30, 2017, on the pro forma as adjusted basis described above, the total number of shares of common stock purchased from us on an as converted to common stock basis, the total consideration paid or to be paid, and the average price per share paid or to be paid by existing stockholders and by new investors 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, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 

     Shares Purchased
    Total Consideration     Average
Price

Per Share
 
     Number      Percentage     Amount      Percentage    

Existing stockholders

     51,036,137               $ 96,337,521               $ 1.89  

Investors participating in this offering

             $  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $        100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

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 total consideration paid by new investors by $        million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by              percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by              percentage points, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $        million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by              percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by percentage points, assuming no change in the assumed initial public offering price per share.

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters exercise their option to purchase additional shares in full, the number of shares of our common stock held by existing stockholders would be reduced to     % of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors

 

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participating in this offering would be increased to     % of the total number of shares of our common stock outstanding after this offering.

The tables and discussion above are based on the number of shares of our common stock outstanding as of June 30, 2017, and exclude:

 

    10,850,693 shares of our common stock available for future issuance under the 2017 Plan as of June 30, 2017 (of which options to purchase an aggregate of 9,373,425 shares of common stock, at an exercise price of $0.97 per share, were granted in July 2017); and

 

                     additional shares of our common stock that will become available for future issuance under the 2017 Plan in connection with this offering, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under the 2017 Plan.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. The selected consolidated financial data contained in this section are not intended to replace our consolidated financial statements and the related notes. We have derived the consolidated statement of operations data for the years ended December 31, 2015 and 2016 and the consolidated balance sheet data as of December 31, 2015 and 2016 from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statement of operations data for the six months ended June 30, 2016 and 2017 and the consolidated balance sheet data as of June 30, 2017 have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus and have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial information in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and our results for any interim period are not necessarily indicative of results that may be expected for any full year.

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2015     2016     2016     2017  
     (in thousands, except per share data)  

Consolidated Statement of Operations Data:

        

Revenue

   $ —       $ 335     $ —       $ 389  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     11,125       26,333       13,401       13,456  

General and administrative

     2,202       7,223       3,096       4,697  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,327       33,556       16,497       18,153  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (13,327     (33,221     (16,497     (17,764
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Change in fair value of derivative liabilities

     174       580       (33     1,549  

Interest income and other income (expense), net

     —         —         4       41  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     174       580       (29     1,590  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (13,153     (32,641     (16,526     (16,174

Less: Net loss attributable to non-controlling interests

     (2,999     (7,150     (4,562     (1,129
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Spero Therapeutics, Inc.

     (10,154     (25,491     (11,964     (15,045

Cumulative dividends on redeemable convertible preferred shares

     (932     (3,441     (1,607     (3,261

Accretion of bridge units and redeemable convertible preferred shares to redemption value

     (2,341     (996     (614     (945
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders of Spero Therapeutics, Inc.

   $ (13,427   $ (29,928   $ (14,185   $ (19,251
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted(1)

   $ (8.74   $ (15.78   $ (7.72   $ (9.52
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted(1):

     1,536       1,897       1,837       2,021  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted (unaudited)(1):

     $ (1.71     $ (0.37
    

 

 

     

 

 

 

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)(1):

       14,887         40,140  
    

 

 

     

 

 

 

 

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(1) See Note 15 to our consolidated financial statements appearing elsewhere in this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. and on the calculation of pro forma basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc.

 

     As of December 31,    

As of

June 30, 2017

 
     2015     2016    
     (in thousands)  

Consolidated Balance Sheet Data:

      

Cash and cash equivalents

   $ 5,691     $ 10,315     $ 36,299  

Working capital (deficit)(1)

     (433     4,954       31,064  

Total assets

     7,176       13,772       40,099  

Bridge units

     —         7,924       —    

Redeemable convertible preferred units

     18,296       47,685       —    

Redeemable convertible preferred stock

     —         —         103,760  

Total stockholders’ deficit

     (18,553     (49,248     (70,505

 

(1) We define working capital (deficit) as current assets less current liabilities.

 

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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 “Selected Consolidated Financial Data” section of this prospectus and our consolidated financial statements and related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a multi-asset, clinical-stage biopharmaceutical company focused on identifying, developing and commercializing novel treatments for MDR bacterial infections. Our most advanced product candidate, SPR994, is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use in adults to treat MDR Gram-negative infections. Treatment with effective orally administrable antibiotics may prevent hospitalizations for serious infections and enable earlier, more convenient and cost-effective treatment of patients after hospitalization. We also have a platform technology known as our Potentiator Platform that we believe will enable us to develop drugs that will expand the spectrum and potency of existing antibiotics, including formerly inactive antibiotics, against Gram-negative bacteria. Our lead product candidates generated from our Potentiator Platform are two IV-administered agents, SPR741 and SPR206, designed to treat MDR Gram-negative infections in the hospital setting. In addition, we are developing SPR720, an oral antibiotic designed for the treatment of pulmonary non-tuberculous mycobacterial infections. We believe that our novel product candidates, if successfully developed and approved, would have a meaningful patient impact and significant commercial applications for the treatment of MDR infections in both the community and hospital settings.

Since our inception in 2013, we have focused substantially all of our efforts and financial resources on organizing and staffing our company, business planning, raising capital, acquiring and developing product and technology rights, building our intellectual property portfolio and conducting research and development activities for our product candidates. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations with proceeds from the sale of preferred units and bridge units and payments received under a concluded collaboration agreement and funding from government contracts. Through June 30, 2017, we received gross proceeds of $96.2 million from sales of our preferred units (including proceeds from bridge units, which later converted into preferred units), $3.0 million under a concluded collaboration agreement and $0.5 million from government contracts. Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. As of June 30, 2017, we had an accumulated deficit of $72.0 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

 

    conduct additional clinical trials for our product candidates, including the commencement of clinical trials of SPR994 and SPR741, which include our planned Phase 1 clinical trial of SPR994 in the fourth quarter of 2017, our planned pivotal Phase 3 clinical trial of SPR994 in the second half of 2018 and our planned Phase 2 clinical trial of SPR741 in the first half of 2018;

 

    continue to discover and develop additional product candidates;

 

    establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval;

 

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    establish manufacturing and supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain marketing approval;

 

    maintain, expand and protect our intellectual property portfolio;

 

    hire additional clinical, scientific and commercial personnel;

 

    add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public reporting company; and

 

    acquire or in-license other product candidates and technologies.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Further, upon the completion of this offering, we expect to incur additional costs associated with operating as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, government funding arrangements, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of June 30, 2017, we had cash and cash equivalents of $36.3 million. We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements through              .

The Reorganization

As more fully described in the section of this prospectus titled “Reorganization,” on June 30, 2017, we completed a series of transactions pursuant to which Spero Therapeutics, LLC merged with and into Spero Therapeutics, Inc., a Delaware corporation (formerly known as Spero OpCo, Inc.), with Spero Therapeutics, Inc. continuing as the surviving corporation. As part of the transactions, each issued and outstanding preferred and common unit of Spero Therapeutics, LLC outstanding immediately prior to the Reorganization was converted into and exchanged for shares of Spero Therapeutics, Inc. capital stock of the same class and/or series on a one-for-one basis, and previously outstanding incentive units of Spero Therapeutics, LLC were cancelled. In July 2017, previous holders of the cancelled incentive units who were still employed by us at the time of the Reorganization received stock options under our 2017 Stock Incentive Plan. Such stock options were granted for the same number of shares of our common stock as the number of incentive units cancelled, and the stock options were granted on the same vesting terms as the incentive units. All such stock options have an exercise price of $0.97 per share.

 

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Upon consummation of the Reorganization, the historical consolidated financial statements of Spero Therapeutics, LLC became the historical consolidated financial statements of Spero Therapeutics, Inc., the entity whose shares are being offered in this offering.

Except as otherwise indicated or the context otherwise requires, all information included in this prospectus is presented giving effect to the Reorganization.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

To date, all of our revenue has been derived from government awards. We expect that our revenue for the next several years will be derived primarily from payments under our government awards that we may enter into in the future.

U.S. Department of Defense

In September 2016, we were awarded a cooperative agreement with the DoD to further develop anti-infective agents to combat Gram-negative bacteria. The agreement is structured as a single, two-year $1.5 million award. We are eligible for the full funding from DoD and there are no options to be exercised at a later date. The DoD funding supports next-generation potentiator discovery and screening of SPR741 partner antibiotics. We receive funding under the DoD award as we incur qualifying expenses. During the year ended December 31, 2016 and the six months ended June 30, 2017, we recognized revenue of $0.3 million and $0.3 million, respectively, under this agreement.

NIAID

In February 2017, we received an award from NIAID to conduct additional preclinical studies of SPR720. The award is structured as a 12-month $0.6 million base period and $0.4 million option period. To date, only the base period funds have been committed. We receive funding under the NIAID award as we incur qualifying expenses. During the six months ended June 30, 2017, we recognized less than $0.1 million of revenue under this agreement.

CARB-X

In April 2017, we received an award from CARB-X, a public-private partnership funded by BARDA, within the U.S. Department of Health and Human Services, to be used to screen, identify and complete Phase 1 clinical trials with at least one partner compound for SPR741, our lead potentiator product candidate. The award commits to funding of $1.5 million over a 12-month period, with the possibility of up to a total of $6.8 million in funding over 36 months based on the successful achievement of specified milestones. We receive funding from CARB-X as we incur qualifying expenses. During the six months ended June 30, 2017, we recognized $0.1 million of revenue under this award.

 

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Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:

 

    employee-related expenses, including salaries, related benefits, travel and share-based compensation expense for employees engaged in research and development functions;

 

    expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with CROs;

 

    the cost of consultants and contract manufacturing organizations, or CMOs, that manufacture drug products for use in our preclinical studies and clinical trials;

 

    facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies; and

 

    payments made under third-party licensing agreements.

In April 2014, we entered into a research and development services and support agreement and an option agreement with Hoffmann-La Roche, Inc. and certain of its affiliates, or Roche, whereby we were required to use our best efforts to research and develop a specified asset while Roche would provide partial funding as well as participate in a joint steering committee for the development of this asset. The nonrefundable payments we received in 2014 and 2015 from Roche were recognized as reductions to research and development expense. We terminated our agreement with Roche in August 2016.

In June 2016, we entered into agreements with Pro Bono Bio PLC, or PBB, a corporation organized under the laws of England, and certain of its affiliates, including PBB Distributions Limited and Cantab Anti-Infectives Limited, or CAI, in order to acquire certain intellectual property and government funding arrangements relating to SPR206. Under these agreements, CAI agreed to submit a request to NIAID to assign the CAI-held NIAID contract to us. The NIAID contract provides for development funding of up to $5.7 million over a base period and three option periods. As of June 30, 2017, the base funding amount of $1.7 million and the first option of $1.6 million had been committed to CAI by NIAID. Under our agreements with PBB and certain of its affiliates, CAI continues to perform research and development at our direction. We pay CAI for such research and development services at an agreed-upon rate that takes into consideration costs incurred by CAI, net of amounts reimbursed to CAI by NIAID. Thus, prior to assignment of the NIAID contract to us, the amount we record as research and development expenses is net of the NIAID reimbursement amount that CAI receives. We also pay CAI a portion of the NIAID reimbursement received at rates specified in the agreement, which we also record as research and development expense.

Since the fourth quarter of 2016, we have recorded research and development expenses for our SPR741 program conducted by our Australian subsidiary net of a 43.5% research and development tax incentive we receive for qualified expenses from the Australian government.

We expense research and development costs as incurred. Nonrefundable advance payments we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to consultants, contractors, CMOs and CROs in connection with our

 

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preclinical and clinical development activities. License fees and other costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in direct research and development expenses for that program. License fees and other costs incurred prior to designating a product candidate are included in early stage research programs. We do not allocate employee costs, costs associated with our preclinical programs or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. The table below summarizes our research and development expenses incurred by development program:

 

     Year Ended
December 31,
     Six Months Ended
June 30,
 
     2015      2016      2016      2017  
     (in thousands)  

SPR994

   $ —        $ 989      $ —        $ 3,745  

SPR741

     6,144        11,728        5,557        3,495  

SPR720

     —          1,181        —          966  

SPR206 and other preclinical programs

     2,479        6,510        5,396        1,141  

Unallocated expenses

     2,502        5,925        2,448        4,109  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 11,125      $ 26,333      $ 13,401      $ 13,456  
  

 

 

    

 

 

    

 

 

    

 

 

 

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned clinical and preclinical development activities in the near term and in the future. In particular, we intend to conduct additional clinical trials for our product candidates, including the commencement of our planned Phase 1 clinical trial of SPR994 in the fourth quarter of 2017, our planned pivotal Phase 3 clinical trial of SPR994 in the second half of 2018 and our planned Phase 2 clinical trial of SPR741 in the first half of 2018, continue to discover and develop additional product candidates, hire additional clinical, scientific and commercial personnel and acquire or in-license other product candidates and technologies. As a result, we expect our research and development expenses will be higher in the second half of 2017 compared to the first half of 2017 and will increase further in 2018. This expected increase in expenses includes the impact of an anticipated total payment to Northern of $2.6 million upon the completion of this offering and an anticipated payment of $1.0 million to Meiji upon the enrollment of the first patient in clinical trials. See “—Contractual Obligations and Commitments.”

At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following:

 

    successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

 

    receipt of marketing approvals from applicable regulatory authorities;

 

    establishment of arrangements with third-party manufacturers to obtain manufacturing supply;

 

    obtainment and maintenance of patent, trade secret protection and regulatory exclusivity, both in the United States and internationally, including our ability to maintain our license agreement with Meiji with respect to SPR994;

 

    protection of our rights in our intellectual property portfolio;

 

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    launch of commercial sales of SPR994 and SPR741, if approved, whether alone or in collaboration with others;

 

    acceptance of SPR994 and SPR741, if approved, by patients, the medical community and third-party payors;

 

    competition with other therapies; and

 

    a continued acceptable safety profile of SPR994 and SPR741 following approval.

A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Other Income (Expense)

Change in Fair Value of Derivative Liabilities

Tranche Rights . Our Class A preferred units and Class B preferred units provided our investors with the right to participate in subsequent offerings of Class A and Class B preferred units in the event that specified milestones were achieved, which we refer to as tranche rights. We classified the tranche rights as derivative liabilities on our consolidated balance sheet that we remeasured to fair value at each reporting date, and we recognized changes in the fair value of the derivative associated with the tranche rights as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. The tranche rights were settled in 2016.

Anti-Dilution Rights . In connection with the issuance of non-controlling interests in certain of our subsidiaries, specifically Spero Potentiator, Inc., Spero Europe, Ltd. and Spero Gyrase, Inc., we granted the minority investors the right to maintain ownership interests at no additional cost, subject to a maximum ownership percentage, which rights we refer to collectively as anti-dilution rights. We classify the anti-dilution rights as derivative liabilities on our consolidated balance sheet that we remeasure to fair value at each reporting date, and we recognize changes in the fair value of the derivative liabilities associated with the anti-dilution rights as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. As of December 31, 2016, anti-dilution rights related to Spero Potentiator, Inc. were fully settled as the maximum number of shares to be issued to the minority investor had been reached in August 2016. In May 2017, we repurchased 100% of the minority investor’s outstanding shares in Spero Europe, Ltd. and settled the anti-dilution rights associated with the shares.

Contingent Prepayment Options . Bridge units issued to our investors in 2015 and 2016 were automatically convertible into equity units sold in a subsequent round of qualified financing at a discounted rate. We refer to these automatic conversion features as contingent prepayment options. We classified the contingent

 

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prepayment options as derivative liabilities on our consolidated balance sheet that we remeasured to fair value at each reporting date, and we recognized changes in the fair value of the derivative liabilities associated with the contingent prepayment options as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. The contingent prepayment option associated with the bridge units issued in 2015 was settled in 2015 upon the issuance of Class A preferred units. The contingent prepayment option associated with the bridge units issued in 2016 was settled in the first quarter of 2017 upon the issuance of Class C preferred units.

Investment Option . Our concluded collaboration agreement provided our collaboration partner with the option to participate in our next round of financing subsequent to April 2014 in an amount up to $2.0 million at 90.0% of the per unit price of the related financing, which option we referred to as the investment option. We classified the investment option as a derivative liability on our consolidated balance sheet that we remeasured to fair value at each reporting date, and we recognized changes in the fair value of the derivative liability associated with the investment option as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. The subsequent financing occurred in June 2015 and our collaboration partner elected not to exercise the investment option, which then expired.

As of June 30, 2017, the derivative liability of $0.2 million recorded on our consolidated balance sheet relates only to the anti-dilution rights held by the minority investor in Spero Gyrase, Inc.

Interest Income and Other Income (Expense), Net

Interest income consists of interest earned on our cash equivalents, which are invested in money market accounts. Our interest income has not been significant due to nominal investment balances and low interest earned on those balances. Other income (expense), net, consists of insignificant amounts of miscellaneous income and expenses unrelated to our core operations.

Income Taxes

Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. As of December 31, 2016, we had federal and state net operating loss carryforwards of $39.8 million and $39.6 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2033. In addition, as of December 31, 2016, we had foreign net operating loss carryforwards of $3.8 million, which may be available to offset future income tax liabilities and do not expire. As of December 31, 2016, we also had federal and state research and development tax credit carryforwards of $0.6 million and $0.2 million, respectively, which begin to expire in 2033 and 2028, respectively. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Prior to the Reorganization, our former parent company, Spero Therapeutics, LLC, was treated as a partnership for federal income tax purposes and, therefore, its owners, and not itself, were subject to U.S. federal or state income taxation on the income of Spero Therapeutics, LLC. Prior to the Reorganization, all of Spero Therapeutics, LLC’s directly held subsidiaries (including Spero Therapeutics, Inc.) were treated as corporations for U.S. federal income tax purposes and were subject to taxation in the United States or in other countries. Upon the Reorganization, Spero Therapeutics, Inc., whose consolidated financial statements are presented in this prospectus, became the parent company for Spero Therapeutics, LLC’s former subsidiaries and these entities continue to be subject to taxation in the United States or in other countries.

Net Income (Loss) Attributable to Non-Controlling Interests

Net income (loss) attributable to non-controlling interests in our consolidated statement of operations and comprehensive loss is a result of minority investments in our subsidiaries, Spero Europe, Ltd., Spero

 

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Potentiator, Inc., Spero Cantab, Inc. and Spero Gyrase, Inc., and consists of the portion of the net income or loss of these subsidiaries that is not allocated to us. Changes in the amount of net income (loss) attributable to non-controlling interests are directly impacted by changes in the net income or loss of our consolidated subsidiaries and by the ownership percentage of the minority investors.

In May 2017, we repurchased 100% of the issued and outstanding shares of Spero Europe, Ltd. held by the minority investor. In June 2017, we repurchased 100% of the issued and outstanding shares of Spero Potentiator, Inc. held by the minority investor. In July 2017, we repurchased 100% of the issued and outstanding shares of Spero Cantab, Inc. held by the minority investor. As a result of these repurchases of the non-controlling interests, for periods subsequent to each repurchase, we no longer attribute net income (loss) to the non-controlling interest. As of August 31, 2017, the remaining non-controlling interest relates only to Spero Gyrase, Inc.

Results of Operations

Comparison of the Six Months Ended June 30, 2016 and 2017

The following table summarizes our results of operations for the six months ended June 30, 2016 and 2017:

 

     Six Months Ended
June 30,
       
     2016     2017    

Change

 
     (in thousands)  

Revenue

   $ —       $ 389     $ 389  
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development

     13,401       13,456       55  

General and administrative

     3,096       4,697       1,601  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     16,497       18,153       1,656  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (16,497     (17,764     (1,267
  

 

 

   

 

 

   

 

 

 

Other income (expense):

      

Change in fair value of derivative liabilities

     (33     1,549       1,582  

Interest income and other income (expense), net

     4       41       37  
  

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     (29     1,590       1,619  
  

 

 

   

 

 

   

 

 

 

Net loss

     (16,526     (16,174     352  

Less: Net loss attributable to non-controlling interests

     (4,562     (1,129     3,433  
  

 

 

   

 

 

   

 

 

 

Net loss attributable to Spero Therapeutics, Inc.

   $ (11,964   $ (15,045   $ (3,081
  

 

 

   

 

 

   

 

 

 

Revenue

Revenue recognized during the six months ended June 30, 2017 of $0.4 million was primarily due to the reimbursement of qualifying expenses incurred in connection with the SPR741 program under our research and development award from the DoD and, to a lesser extent, revenue recognized under our awards from CARB-X and NIAID related to our SPR741 program and SPR720 program, respectively. No revenue was recognized during the six months ended June 30, 2016.

 

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Research and Development Expenses

 

     Six Months Ended
June 30,
        
     2016      2017     

Change

 
     (in thousands)  

Direct research and development expenses by program:

        

SPR994

   $ —        $ 3,745      $ 3,745  

SPR741

     5,557        3,495        (2,062

SPR720

     —          966        966  

SPR206 and other preclinical programs

     5,396        1,141        (4,255

Unallocated expenses:

        

Personnel related (including share-based compensation)

     1,529        2,814        1,285  

Facility related and other

     919        1,295        376  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 13,401      $ 13,456      $ 55  
  

 

 

    

 

 

    

 

 

 

We designated SPR994 as a product candidate in the second half of 2016. Direct costs related to our SPR994 program during the six months ended June 30, 2017 were primarily due to preclinical and manufacturing costs as we focused efforts on formulation development, manufacturing process and manufacturing of clinical trial material in anticipation of a Phase 1 clinical trial. We also incurred $0.6 million of research and development expense for an upfront license fee paid to Meiji.

Direct costs related to our SPR741 program decreased by $2.1 million primarily due to a decrease in preclinical costs resulting from costs incurred in the prior year to support our clinical trial notification, or CTN, filing in Australia in the fourth quarter of 2016, partially offset by an increase in clinical trial costs and manufacturing costs. The increase in clinical trial costs and manufacturing costs was due to our Phase 1 clinical trial of SPR741, which was initiated in the fourth quarter of 2016. Research and development expenses for our SPR741 program conducted by our Australian subsidiary were recorded net of a 43.5% research and development tax incentive for qualified expenses from the Australian government of $0.7 million in the six months ended June 30, 2017.

We designated SPR720 as a product candidate in the second half of 2016. Direct costs related to our SPR720 program during the six months ended June 30, 2017 were primarily due to preclinical and manufacturing costs related to IND-enabling toxicology studies.

Direct costs related to our SPR206 program and other preclinical programs decreased by $4.3 million due primarily to the cost of in-licensing technology incurred in the first half of 2016 of $5.1 million, partially offset by an increase in spending on our preclinical programs in the first half of 2017. The cost of in-licensing technology incurred in the first half of 2016 of $5.1 million was a result of the issuance of equity and anti-dilution rights to Promiliad Biopharma Inc., or Promiliad, Biota Pharmaceuticals, Inc. (now Aviragen Therapeutics, Inc.), or Aviragen, and PBB, and a license fee payment of $0.5 million we made to Vertex Pharmaceuticals Inc., or Vertex, during the first half of 2016. We incurred increased research and development expenses related to our preclinical programs in the first half of 2017 as we focused development efforts on our in-licensed technology. Direct costs related to our preclinical programs were recorded net of the recognition of funding received from a concluded collaboration agreement of $0.7 million during the six months ended June 30, 2016. In July 2017, we designated SPR206 as a product candidate.

The increase in personnel-related costs of $1.3 million included in unallocated expenses was due to an increase in headcount in our research and development function. Personnel-related costs for each of the six months ended June 30, 2016 and 2017 included share-based compensation expense of less than $0.1 million. The increase in facility-related and other costs of $0.4 million was primarily due to new laboratory space and the increased costs of supporting a larger group of research and development personnel and their research efforts.

 

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General and Administrative Expenses

 

    

    Six Months Ended    
June  30,

        
    

    2016    

    

    2017    

    

Change

 
     (in thousands)  

Personnel related (including share-based compensation)

   $ 928      $ 1,596      $ 668  

Professional and consultant fees

     1,841        2,696        855  

Facility related and other

     327        405        78  
  

 

 

    

 

 

    

 

 

 

Total general and administrative expenses

   $ 3,096      $ 4,697      $ 1,601  
  

 

 

    

 

 

    

 

 

 

The increase in personnel-related costs of $0.7 million was primarily a result of an increase in headcount in our general and administrative function. Personnel-related costs for the six months ended June 30, 2016 and 2017 included share-based compensation expense of less than $0.1 million and $0.1 million, respectively.

The increase in professional and consultant fees of $0.9 million primarily consisted of an increase in professional fees, including accounting, audit and legal fees as well as costs associated with ongoing business activities and our preparations to operate as a public company. We also incurred increased legal fees in connection with the Reorganization.

Other Income (Expense), Net

Other income, net was $1.6 million for the six months ended June 30, 2017, compared to less than $0.1 million of other expense, net for the six months ended June 30, 2016. The increase in other income was primarily due to a decrease of $1.6 million in the fair value of the derivative liability for anti-dilution rights granted to minority investors in Spero Gyrase Inc. and Spero Europe Ltd. resulting from our discontinuation of the underlying development programs of these subsidiaries.

Comparison of the Years Ended December 31, 2015 and 2016

The following table summarizes our results of operations for the years ended December 31, 2015 and 2016:

 

     Year Ended
December 31,
       
     2015     2016    

Change

 
     (in thousands)  

Revenue

   $ —       $ 335     $ 335  
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development

     11,125       26,333       15,208  

General and administrative

     2,202       7,223       5,021  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,327       33,556       20,229  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (13,327     (33,221     (19,894
  

 

 

   

 

 

   

 

 

 

Other income (expense):

      

Change in fair value of derivative liabilities

     174       580       406  

Interest income and other income (expense), net

     —         —         —    
  

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     174       580       406  
  

 

 

   

 

 

   

 

 

 

Net loss

     (13,153     (32,641   $ (19,488

Less: Net loss attributable to non-controlling interests

     (2,999     (7,150     (4,151
  

 

 

   

 

 

   

 

 

 

Net loss attributable to Spero Therapeutics, Inc.

   $ (10,154   $ (25,491   $ (15,337
  

 

 

   

 

 

   

 

 

 

 

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Revenue

During the year ended December 31, 2016, all recognized revenue related to the reimbursement of qualifying expenses incurred in connection with our SPR741 program under our research and development award from the DoD.

Research and Development Expenses

 

    

Year Ended
        December 31,         

        
    

    2015    

    

    2016    

    

Change

 
     (in thousands)  

Direct research and development expenses by program:

        

SPR994

   $ —        $ 989      $ 989  

SPR741

     6,144        11,728        5,584  

SPR720

     —          1,181        1,181  

SPR206 and other preclinical programs

     2,479        6,510        4,031  

Unallocated expenses:

        

Personnel related (including share-based compensation)

     1,742        3,633        1,891  

Facility related and other

     760        2,292        1,532  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 11,125      $ 26,333      $ 15,208  
  

 

 

    

 

 

    

 

 

 

We designated SPR994 as a product candidate in the second half of 2016. Direct costs related to our SPR994 program during the year ended December 31, 2016 were primarily due to preclinical and manufacturing costs as we focused efforts on formulation development, manufacturing process and manufacturing of clinical trial material in anticipation of a Phase 1 clinical trial.

Direct costs related to our SPR741 program increased by $5.6 million, primarily due to an increase of $8.4 million in preclinical costs, partially offset by the cost of in-licensing technology under the program incurred in 2015 of $3.5 million. The increase in preclinical costs was primarily due to costs incurred to support our CTN filing in Australia in the fourth quarter of 2016. The cost of in-licensing technology under the SPR741 program incurred in 2015 of $3.5 million was a result of the issuance of equity and anti-dilution rights to Northern Antibiotics Oy Ltd., or Northern. Research and development expenses for our SPR741 program conducted by our Australian subsidiary were recorded net of a 43.5% research and development tax incentive from the Australian government of $0.1 million in the year ended December 31, 2016.

We designated SPR720 as a product candidate in the second half of 2016. Direct costs related to our SPR720 program during the year ended December 31, 2016 were primarily due to preclinical costs related to IND-enabling toxicology studies and other preclinical studies.

Direct costs related to our SPR206 program and other preclinical programs increased by $4.0 million primarily due to the cost of in-licensing technology of $5.1 million, partially offset by a decrease in preclinical costs as we increased our focus on our more advanced programs, including SPR994 and SPR720, which we designated as product candidates in the second half of 2016. The cost of in-licensing technology incurred in 2016 of $5.1 million was a result of the issuance of equity and anti-dilution rights to Promiliad, Aviragen and PBB and a license fee payment of $0.5 million we made to Vertex in the first half of 2016. Our preclinical programs expense was recorded net of the recognition of funding received from a concluded collaboration agreement of $1.5 million and $0.9 million in the years ended December 31, 2015 and 2016, respectively.

The increase in personnel-related costs included in unallocated expenses of $1.9 million was due to an increase in headcount in our research and development function. Personnel-related costs for the years ended December 31, 2015 and 2016 included share-based compensation expense of less than $0.1 million and $0.1

 

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million, respectively. The increase in facility-related and other costs was primarily due to new laboratory space and the increased costs of supporting a larger group of research and development personnel and their research efforts.

General and Administrative Expenses

 

     Year Ended
December 31,
        
     2015      2016      Change  
     (in thousands)  

Personnel related (including share-based compensation)

   $ 896      $ 2,243      $ 1,347  

Professional and consultant fees

     1,109        4,145        3,036  

Facility related and other

     197        835        638  
  

 

 

    

 

 

    

 

 

 

Total general and administrative expenses

   $ 2,202      $ 7,223      $ 5,021  
  

 

 

    

 

 

    

 

 

 

The increase in professional and consultant fees of $3.0 million was primarily due to increases in legal fees relating to business development, regulatory and patent costs, accounting and audit fees and public and investor relations fees due to ongoing business activities. Personnel-related costs increased by $1.3 million as a result of an increase in headcount in our general and administrative function. Personnel-related costs for the years ended December 31, 2015 and 2016 included share-based compensation expense of less than $0.1 million and $0.1 million, respectively. The increase in facility-related and other costs of $0.6 million was primarily due to the lease of office space that we entered into at the end of 2015, software costs and general support costs for the increase in headcount.

Other Income (Expense), Net

Other income, net was $0.6 million for the year ended December 31, 2016, compared to $0.2 million for the year ended December 31, 2015. The increase of $0.4 million was primarily due to a decrease of $0.6 million in the fair value of the derivative liability associated with the Class B tranche rights resulting from a decrease in the fair value of our Class B preferred units over the same period, partially offset by an increase of $0.2 million in the fair value of the derivative liability associated with the investment option held by our former collaboration partner.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from funding arrangements with the DoD, NIAID and CARB-X. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. To date, we have funded our operations with proceeds from the sales of preferred units and bridge units, payments received under a concluded collaboration agreement and funding from government contracts. Through June 30, 2017, we had received gross proceeds of $96.2 million from our sales of preferred units (including proceeds from bridge units, which later converted into preferred units), $3.0 million under a concluded collaboration agreement and $0.5 million from government contracts. As of June 30, 2017, we had cash and cash equivalents of $36.3 million.

 

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Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2015     2016     2016     2017  
     (in thousands)  

Cash used in operating activities

   $ (9,608   $ (28,959   $ (13,220   $ (15,856

Cash used in investing activities

     (232     (830     (364     —    

Cash provided by financing activities

     15,275       34,413       25,913       41,840  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ 5,435     $ 4,624     $ 12,329     $ 25,984  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Activities

During the six months ended June 30, 2017, operating activities used $15.9 million of cash, primarily resulting from our net loss of $16.2 million and net non-cash income of $1.3 million, partially offset by cash provided by changes in our operating assets and liabilities of $1.6 million. Net cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2017 consisted primarily of a $1.8 million increase in accrued expenses and other current liabilities, a $0.3 million decrease in prepaid expenses and other current assets, partially offset by a $0.6 million increase in receivables related to the Australian research and development tax incentive.

During the six months ended June 30, 2016, operating activities used $13.2 million of cash, primarily resulting from our net loss of $16.5 million and cash used by changes in our operating assets and liabilities of $1.5 million, partially offset by non-cash charges of $4.8 million. Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2016 consisted primarily of a $0.5 million increase in prepaid expenses and other current assets, a $0.7 million decrease in advance payments from collaborator and a $0.8 million decrease in accounts payable, partially offset by a $0.6 million increase in accrued expenses and other current liabilities. The decrease in advance payments from collaborator was a result of the recognition of research funding received in prior periods as an offset to research and development expense.

During the year ended December 31, 2016, operating activities used $29.0 million of cash, primarily resulting from our net loss of $32.6 million and cash used by changes in our operating assets and liabilities of $0.8 million, partially offset by net non-cash charges of $4.5 million. Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2016 consisted primarily of a $1.0 million increase in prepaid expenses and other current assets, a $0.9 million decrease in advance payments from collaborator, a $0.6 million decrease in accounts payable, a $0.4 million increase in receivables related to our government awards and the Australian research and development tax incentive, partially offset by a $2.3 million increase in accrued expenses and other current liabilities. The decrease in advance payments from collaborator was primarily a result of the recognition of research funding received in prior periods as an offset to research and development expense as well as the termination of our collaboration agreement in August 2016, at which time we recognized the remaining portion of the liability that had been recorded in a prior year.

During the year ended December 31, 2015, operating activities used $9.6 million of cash, primarily resulting from our net loss of $13.2 million, partially offset by net non-cash charges of $3.4 million and cash provided by changes in our operating assets and liabilities of $0.2 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2015 consisted primarily of a $0.7 million increase in accounts payable and a $0.4 million increase in accrued expenses and other current liabilities, partially offset by a decrease in advance payments from collaborator of $0.5 million as a result of the recognition of payments received in 2014 as an offset to research and development expenses, an increase in prepaid expenses and other current assets of $0.3 million and an increase in deposits of $0.2 million.

 

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Changes in accounts payable, accrued expenses and other current liabilities, and prepaid expenses and other current assets in all periods were generally due to growth in our business, the advancement of our development programs and the timing of vendor invoicing and payments.

Investing Activities

We did not use any cash for investing activities during the six months ended June 30, 2017. During the six months ended June 30, 2016, net cash used in investing activities was $0.4 million, consisting of purchases of property and equipment, primarily for our new office and laboratory spaces.

During the years ended December 31, 2016 and 2015, net cash used in investing activities was $0.8 million and $0.2 million, respectively, consisting of purchases of property and equipment, primarily for our new office and laboratory spaces.

Financing Activities

During the six months ended June 30, 2017, net cash provided by financing activities was $41.8 million, consisting primarily of net proceeds of $43.0 million from the sale of our Class C preferred units, partially offset by $1.0 million of cash used to purchase outstanding shares of Spero Potentiator, Inc. from the minority interest holder.

During the six months ended June 30, 2016, net cash provided by financing activities was $25.9 million, consisting of net proceeds from the sale of our Class B preferred units.

During the year ended December 31, 2016, net cash provided by financing activities was $34.4 million, consisting of net proceeds of $25.9 million from the sale of our Class B preferred units and proceeds of $8.5 million the sale of our 2016 bridge units.

During the year ended December 31, 2015, net cash provided by financing activities was $15.3 million, consisting primarily of proceeds of $8.0 million from the sale of our 2015 bridge units and net proceeds of $7.3 million from the sale of our Class A preferred units.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. In addition, upon the completion of this offering, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on:

 

    the timing and costs of our planned clinical trials of SPR994;

 

    the timing and costs of our planned clinical trials of SPR741;

 

    the initiation, progress, timing, costs and results of preclinical studies and clinical trials of our other product candidates and potential product candidates;

 

    the amount of funding that we receive under government contracts that we have applied for;

 

    the number and characteristics of product candidates that we pursue;

 

    the outcome, timing and costs of seeking regulatory approvals;

 

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    the costs of commercialization activities for SPR994, SPR741 and other product candidates if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

 

    the receipt of marketing approval and revenue received from any potential commercial sales of SPR994 or SPR741;

 

    the terms and timing of any future collaborations, licensing or other arrangements that we may establish;

 

    the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;

 

    the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property related claims;

 

    the costs of operating as a public company; and

 

    the extent to which we in-license or acquire other products and technologies.

We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements through              . We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including those listed above.

Without giving effect to the anticipated net proceeds from this offering, we expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through February 2018. To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured. We have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern within one year after the August 25, 2017 issuance date of our consolidated financial statements for the year ended December 31, 2016 and the six months ended June 30, 2017. See Note 1 to our consolidated financial statements included elsewhere in this prospectus for additional information on our assessment.

Similarly, in its report on our financial statements for the year ended December 31, 2016, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations since inception and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not currently have any committed external source of funds. 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 acquisitions or capital expenditures or declaring dividends. If

 

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we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product 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 when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2016 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1 to 3
Years
     4 to 5
Years
     More Than
5 Years
 
     (in thousands)  

Operating lease commitments(1)

   $ 2,930      $ 803      $ 1,628      $ 499      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,930      $ 803      $ 1,628      $ 499      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Reflects payments due for our leases of office and laboratory space under operating lease agreements that expire in 2019 and 2020.

As further described below, under various licensing and related agreements with third parties, we have agreed to make milestone payments and pay royalties to third parties. We have not included any contingent payment obligations, such as milestones or royalties, in the table above as the amount, timing and likelihood of such payments are not known.

Under our license agreement with Meiji, we are obligated (i) to make milestone payments of up to $3.0 million upon the achievement of specified clinical and regulatory milestones, (ii) to pay royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement and (iii) to pay to Meiji a low double-digit percentage of any sublicense fees received by us up to $7.5 million. A payment of $1.0 million will be due by us to Meiji upon the enrollment of the first patient in clinical trials, which we anticipate will occur in the fourth quarter of 2017.

Under our license agreement with Northern, we are obligated to make milestone payments of up to an aggregate of $7.0 million upon the achievement of specified clinical, commercial and other milestones, including a total payment of $2.5 million upon the completion of this offering. In addition, under an exchange agreement we entered into with Northern, we are obligated to make a payment to Northern of $0.1 million upon the completion of this offering.

Under an agreement we entered into with PBB, we are obligated to make milestone payments of up to $5.8 million upon the achievement of specified clinical milestones and a payment of £5.0 million ($6.5 million as of June 30, 2017) upon the achievement of a specified commercial milestone. In addition, we have agreed to pay to PBB royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement.

Under our agreement with Vertex, we are obligated to make milestone payments of up to $81.1 million upon the achievement of specified clinical, regulatory and commercial milestones and to pay to Vertex tiered royalties, on a product-by-product and country-by-country basis, of a mid single-digit to low double-digit percentage based on net sales of products licensed under the agreement.

 

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Under our agreement with Aviragen, we are obligated to make milestone payments of up to an aggregate of $12.0 million upon the achievement of specified clinical, regulatory and commercial milestones and to pay royalties of low single-digit percentages based on net sales of products we acquired under the agreement. We are no longer pursuing development of the technology acquired under the agreement.

We enter into contracts in the normal course of business with CROs, CMOs and other third parties for clinical trials, preclinical research studies and testing, manufacturing and other services. These contracts are cancelable by us upon prior notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. These payments are not included in the table of contractual obligations and commitments above.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Funding Received from Government Contracts, Tax Incentives and Collaborations

Since our inception, we have been able to obtain partial funding for our research and development activities from government contracts, government tax incentives and a collaboration arrangement. The classification within our statement of operations and comprehensive loss of the funding received under these arrangements is subject to management judgment based on the nature of the arrangements we enter into, the source of the funding and whether the funding is considered central to our business operations.

Government Contracts

We generate revenue from government contracts that reimburse us for certain allowable costs for funded projects. For contracts with government agencies, when we have concluded that we are the principal in conducting the research and development expenses and where the funding arrangement is considered central to our ongoing operations, we classify the recognized funding received as revenue.

We have concluded to recognize funding received from the DoD, NIAID and CARB-X as revenue, rather than as a reduction of research and development expenses, because we are the principal in conducting the research and development activities and these contracts are central to our ongoing operations. Revenue is recognized as the qualifying expenses related to the contracts are incurred. Revenue recognition commences only once persuasive evidence of a contract exists, services have been rendered, the reimbursement amounts under the contract are fixed or determinable, and collectibility is reasonably assured. Revenue recognized upon incurring qualifying expenses in advance of receipt of funding is recorded in our consolidated balance sheet as other receivables. The related costs incurred by us are included in research and development expenses in our consolidated statements of operations and comprehensive loss.

 

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Government Tax Incentives

For available government tax incentives that we may earn without regard to the existence of taxable income and that require us to forego tax deductions or the use of future tax credits and net operating loss carryforwards, we classify the funding recognized as a reduction of the related qualifying research and development expenses incurred.

Since the fourth quarter of 2016, our operating subsidiary in Australia has met the eligibility requirements to receive a 43.5% tax incentive for qualifying research and development activities. We recognize these incentives as a reduction of research and development expenses in our consolidated statements of operations in the same period that the related qualifying expenses are incurred. Reductions of research and development expense recognized upon incurring qualifying expenses in advance of receipt of tax incentive payments are recorded in our consolidated balance sheet as tax incentive receivables. Related to these incentives, we recognized reductions of research and development expense of $0.1 million during the year ended December 31, 2016 and of $0.7 million during the six months ended June 30, 2017.

Collaboration Agreements

For collaboration agreements with a third party, to determine the appropriate statement of operations classification of the recognized funding, we first assess whether the collaboration arrangement is within the scope of the accounting guidance for collaboration arrangements. If it is, we evaluate the collaborative arrangement for proper classification in the statement of operations based on the nature of the underlying activity and we assess the payments to and from the collaborative partner. If the payments to and from the collaborative partner are not within the scope of other authoritative accounting guidance, we base the statement of operations classification for the payments received on a reasonable, rational analogy to authoritative accounting guidance, applied in a consistent manner. Conversely, if the collaboration arrangement is not within the scope of accounting guidance for collaboration arrangements, we assess whether the collaboration arrangement represents a vendor/customer relationship. If the collaborative arrangement does not represent a vendor/customer relationship, we then classify the funding payments received in our statement of operations and comprehensive loss as a reduction of the related expense that is incurred.

For example, in 2014, we entered into a research and development services and support agreement with Roche and concluded that the agreements were not within the scope of the accounting guidance for collaboration arrangements. Due to the co-funded nature of the payments and our assessment that we did not have a vendor/customer relationship with Roche, we recognized the nonrefundable payments received under the agreement as a reduction to the research and development expenses incurred. We terminated our agreement with Roche in August 2016. Related to payments received under this concluded collaboration, we recognized reductions of research and development expense of $1.5 million and $0.9 million during the years ended December 31, 2015 and 2016, respectively, and of $0.7 million during the six months ended June 30, 2016.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, 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 costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically

 

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confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:

 

    vendors in connection with the preclinical development activities;

 

    CMOs in connection with the production of preclinical and clinical trial materials;

 

    CROs in connection with preclinical and clinical studies; and

 

    investigative sites in connection with clinical trials.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Share-Based Compensation

Prior to the Reorganization, our former parent company, Spero Therapeutics, LLC, had granted incentive units, which we accounted for as equity-classified awards. Subsequent to the Reorganization on June 30, 2017, we began granting common stock options.

We measure all share-based awards granted to employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model, and we recognize compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. Generally, we issue awards with only service-based vesting conditions and record the expense for these awards using the straight-line method.

For share-based awards granted to non-employee consultants, we recognize compensation expense over the period during which services are rendered by such consultants until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock or common units and updated assumption inputs in the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model uses as inputs the fair value of our common stock or common units and assumptions we make for the volatility of our common stock or common units, the expected term of our common stock options and incentive units, the risk-free interest rate for a period that approximates the expected term of our common stock options and incentive units, and our expected dividend yield.

Determination of the Fair Value of Common Units and Common Stock

As there has been no public market for our common units and common stock to date, the estimated fair value of our common units and common stock has been determined by our board of directors as of the date of

 

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each award grant, with input from management, considering our most recently available third-party valuations and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our common unit and common stock valuations were prepared using the option pricing method, or OPM, which used a market approach to estimate our enterprise value. The OPM treats the company’s securities as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock and, prior to the Reorganization, the common units, have value only if the funds available for distribution to stockholders exceeded the value of the preferred share liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for lack of marketability of the common units or common stock is then applied to arrive at an indication of value for the common units or common stock. These third-party valuations were performed at various dates, which resulted in valuations of our common units of $0.67 per unit as of February 26, 2016 and $0.32 per unit as of March 10, 2017, and a valuation of our common stock of $0.97 per share as of June 30, 2017. In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common units and common stock as of each grant date, which may be a date later than the most recent third-party valuation date, including:

 

    the prices at which we sold preferred units and the superior rights and preferences of the preferred stock and preferred units relative to our common stock and common units at the time of each grant;

 

    the progress of our research and development programs, including the status of preclinical studies and clinical trials for our product candidates;

 

    our stage of development and commercialization and our business strategy;

 

    external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;

 

    our financial position, including cash on hand, and our historical and forecasted performance and operating results;

 

    the lack of an active public market for our common and preferred stock and our common units and preferred units;

 

    the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or a sale of our company in light of prevailing market conditions; and

 

    the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different.

Following the completion of this offering, the fair value of our common stock will be determined based on the quoted market price of our common stock.

 

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Grants of Stock-Based Awards

The following table sets forth by grant date the number of incentive units or the number of shares of common stock subject to awards granted between October 1, 2016 and August 31, 2017, the per share exercise price of the options or strike price of the incentive units, the fair value per share of common stock or common unit on each grant date and the per share/unit estimated fair value of the award:

 

Grant Date                        

   Type of
Award
  

Number of
Shares/Units
Underlying
Awards

    

Per
Share/Unit
Exercise
Price or

Strike
Price

    

Fair Value
of Common
Units or
Common
Stock per
Share/Unit
on Grant
Date

    

Per
Share/Unit
Estimated
Fair Value
of Awards

 

October 28, 2016

   Incentive unit      14,750      $ 0.21      $ 0.67      $ 0.56  

March 7, 2017

   Incentive unit      55,500      $ 0.21      $ 0.32      $ 0.25  

July 6, 2017

   Option      9,187,971      $ 0.97      $ 0.97      $ 0.65  

July 17, 2017

   Option      185,454      $ 0.97      $ 0.97      $ 0.66  

Valuation of Derivative Liabilities

Tranche Rights

Our Class A preferred units and Class B preferred units provided our investors with tranche rights, which provided these investors the right to participate in subsequent offerings of Class A and Class B preferred units in the event certain milestones were achieved. We classified each of the tranche rights as a derivative liability on our consolidated balance sheet because they met the definition of freestanding financial instruments that may require us to transfer assets upon exercise. We remeasured to fair value of the derivative liabilities associated with the tranche rights at each reporting date, and we recognized changes in the fair value of the derivative liabilities as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. The tranche rights were settled in 2016, and we stopped recognizing changes in the fair value of the derivative liability related to the tranche rights at that time.

The fair value of these derivative liabilities was determined using the probability-weighted expected return method, or PWERM, which considered as inputs the probability and time that a milestone would be achieved, the potential fair value of our preferred stock upon the exercise of the tranche right and the risk-adjusted discount rate.

Anti-Dilution Rights

In connection with the issuance of non-controlling interests in certain of our subsidiaries, specifically Spero Potentiator, Inc., Spero Europe, Ltd. and Spero Gyrase, Inc., we granted anti-dilution rights to the minority investors. We classify the anti-dilution rights as derivative liabilities on our consolidated balance sheet because they are freestanding instruments that represent a conditional obligation to issue a variable number of shares. We remeasure the derivative liabilities associated with the anti-dilution rights to fair value at each reporting date, and we recognize changes in the fair value of the derivative liabilities as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. As of December 31, 2016, anti-dilution rights related to Spero Potentiator, Inc. were fully settled as the maximum number of shares to be issued to the minority investor had been reached in August 2016. In May 2017, we repurchased 100% of the minority investor’s outstanding shares in Spero Europe, Ltd., at which time the anti-dilution rights were settled. In periods subsequent to the settlement of any anti-dilution rights, we no longer recognize changes in the fair value of the derivative liability related to the settled anti-dilution right.

 

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The fair value of these derivative liabilities was determined using a discounted cash flow model. The most significant assumption in the discounted cash flow model impacting the fair value of the anti-dilution rights is the probability that we would fund the maximum amount of investment providing anti-dilution protection.

Contingent Prepayment Option

Bridge units issued to our investors in 2015 and 2016 contained contingent prepayment options, whereby such units were automatically convertible into equity units sold in a subsequent round of qualified financing at a discounted rate. We classified the contingent prepayment options as derivative liabilities on our consolidated balance sheet because the bridge units were deemed to be more akin to debt than equity and the embedded prepayment options were at a substantial discount, thus meeting the definition of derivative liabilities. We remeasured the fair value of the derivative liabilities at each reporting date, and we recognized changes in the fair value of the derivative liabilities associated with the contingent prepayment options as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. The contingent prepayment option associated with the bridge units issued in 2015 was settled in 2015 upon the issuance of Class A preferred units. The contingent prepayment option associated with the bridge units issued in 2016 was settled in the first quarter of 2017 upon the issuance of Class C preferred units in March 2017. In periods subsequent to the settlement of any contingent prepayment option, we no longer recognize changes in the fair value of the derivative liability related to the settled contingent prepayment option.

The fair value of these derivative liabilities was determined using the PWERM, which considered as inputs the probability and time that a subsequent round of preferred stock financing would occur and the risk-adjusted discount rate.

Investment Option

Our concluded collaboration agreement provided our collaboration partner with an investment option, whereby the collaboration partner could participate in our next round of financing subsequent to April 2014 in an amount up to $2.0 million at 90.0% of the per unit price of the related financing. We classified the investment option as a derivative liability on our consolidated balance sheet because it met the definition of a freestanding financial instrument that may require us to transfer assets upon exercise. We remeasured the fair value of the derivative liability at each reporting date, and we recognized changes in the fair value of the derivative liability associated with the investment option as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. The subsequent financing occurred in June 2015 and our collaboration partner elected not to exercise the investment option, which then expired. We stopped recognizing changes in the fair value of the derivative liability related to the investment option at that time.

The fair value of this derivative liability was determined using the PWERM, which considered as inputs the probability and time that a qualified round of preferred stock financing would occur and the risk-adjusted discount rate.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this prospectus.

 

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Quantitative and Qualitative Disclosures about Market Risks

Our cash and cash equivalents as of June 30, 2017 consisted of cash and money market accounts. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates. Because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our financial position or results of operations.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

For so long as we are an emerging growth company we expect that:

 

    we will present in this prospectus only two years of audited financial statements, in addition to any required unaudited financial statements, with correspondingly reduced Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

 

    we will avail ourselves of the exemption from the requirement to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act; and

 

    we will provide less extensive disclosure about our executive compensation arrangements.

We will remain an emerging growth company for up to five years, although we will cease to be an “emerging growth company” upon the earliest of: (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the first fiscal year in which our annual revenues are $1.07 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act.

 

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BUSINESS

Overview

We are a multi-asset, clinical-stage biopharmaceutical company focused on identifying, developing and commercializing novel treatments for MDR bacterial infections. Our most advanced product candidate, SPR994, is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use in adults to treat MDR Gram-negative infections. Treatment with effective orally administrable antibiotics may prevent hospitalizations for serious infections and enable earlier, more convenient and cost-effective treatment of patients after hospitalization. We also have a platform technology known as our Potentiator Platform that we believe will enable us to develop drugs that will expand the spectrum and potency of existing antibiotics, including formerly inactive antibiotics, against Gram-negative bacteria. Our lead product candidates generated from our Potentiator Platform are two IV-administered agents, SPR741 and SPR206, designed to treat MDR Gram-negative infections in the hospital setting. In addition, we are developing SPR720, an oral antibiotic designed for the treatment of pulmonary non-tuberculous mycobacterial infections. We believe that our novel product candidates, if successfully developed and approved, would have a meaningful patient impact and significant commercial applications for the treatment of MDR infections in both the community and hospital settings.

Antibiotic-resistant bacteria are one of the largest threats to global health, and their prevalence is increasing. While the majority of life-threatening infections historically resulting from antibiotic-resistant bacteria are acquired in the hospital setting, there is an increasing incidence of MDR pathogens in the community setting. Antibiotics used currently for first-line empiric treatment of MDR bacterial infections suffer from significant limitations and risks, including narrow spectrums of coverage and safety and tolerability concerns, and they can be associated with serious adverse effects. In addition, there are no oral antibiotics commercially available that can reliably be used in adults with MDR Gram-negative bacterial infections, which limits the ability of physicians to prevent hospitalizations and transition patients home from the hospital after receiving IV-administered therapy. This increasing prevalence of drug resistance and MDR Gram-negative bacteria, as well as the limitations of existing therapies and traditional drug development approaches, highlights the critical need for novel therapies, and in particular orally administrable agents, that are capable of overcoming these obstacles to effective patient treatment.

To address the foregoing, we are developing a portfolio of novel product candidates, including:

 

    SPR994: Novel Antibiotic with Potential to be the First Broad-Spectrum Oral Carbapenem for Use in Adults . SPR994 is our novel oral formulation of tebipenem, a carbapenem-class antibiotic marketed by Meiji in Japan as Orapenem since 2009 for common pediatric infections. While we are developing SPR994 to be effective against a broad spectrum of MDR bacterial infections, our initial focus is on the treatment of cUTIs. Carbapenems are an important class of antibiotics because they are safe and effective against MDR bacterial infections. Carbapenems have emerged as the standard-of-care for many MDR and other bacterial infections, but they have been available to date only intravenously for such indications.

Based on our pre-IND meeting with the FDA, and subject to our receiving favorable results from our Phase 1 clinical trial of SPR994 acceptable to the FDA, we believe we will be able to progress directly to a pivotal Phase 3 clinical trial of SPR994 for the treatment of cUTI. We filed a CTN in Australia in September 2017 and plan to initiate in the fourth quarter of 2017 a Phase 1 dose-selection clinical trial of SPR994 in Australia. A CTN enables conduct of clinical trials in Australia similar to an IND in the United States. We expect to report top-line data from this trial in mid-2018. Thereafter, we plan to hold a pre-Phase 3 meeting with the FDA to confirm that no additional clinical trials or preclinical studies are required prior to initiating a Phase 3 clinical trial. Subject to feedback from the FDA, we plan to submit an IND and commence in the second half of 2018 a

 

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pivotal Phase 3 clinical trial of SPR994 for the treatment of cUTI in support of an NDA. We expect to receive data from the planned lead-in cohort evaluating the pharmacokinetics and safety of SPR994 in cUTI patients in the first half of 2019 and to receive top-line data from our planned pivotal Phase 3 clinical trial in mid-2020.

Our clinical strategy is supported by extensive safety data underlying tebipenem’s regulatory approval in Japan and long-standing use in Japan for common pediatric infections. Approximately 1,200 subjects, including approximately 741 adults, have been dosed with tebipenem at a range of doses in clinical and pharmacologic studies. We have rights to use all clinical data generated by Meiji, including two exploratory Phase 2 trials that were conducted in Japan in patients with cUTI, the first indication in which we intend to study SPR994. Further, we have received QIDP designation from the FDA for SPR994 for the treatment of cUTI, CABP and moderate to severe DFI, which provides priority review of SPR994 for regulatory approval by the FDA. The QIDP designation for SPR994, however, does not guarantee a faster development process or ensure FDA approval.

We have global commercialization rights to SPR994, except in certain contractually specified Asian countries. We believe that our intellectual property portfolio will provide SPR994 protection globally, including in the United States and Europe, through 2038.

 

    Potentiator Platform (SPR741 and SPR206): Our Technology Designed to Enhance the Effectiveness of Existing Antibiotics Against MDR Gram-Negative Bacterial Infections . Our Potentiator Platform is our novel and proprietary technology that we believe will enable us to develop drugs to expand the spectrum and potency of existing antibiotics, including formerly inactive antibiotics, against Gram-negative bacteria. Gram-negative bacteria are a subset of bacterial organisms distinguished by the presence of an outer cell membrane. Our Potentiator Platform relies on our unique chemical and biological insights that enable us to design molecules that specifically increase the permeability of this outer cell membrane. Our Potentiator Platform molecules are designed to treat Gram-negative bacterial infections through interactions with the bacteria’s outer cell membrane as a monotherapy or by co-administering our potentiator molecules with existing antibiotics, thereby making the existing antibiotics more effective by clearing a path for them to enter and kill the bacteria. Specifically, our Potentiator Platform molecules utilize a mechanism of action whereby they interact with constituents of the outer cell membrane called LPS, resulting in a loss of outer membrane integrity and increased permeability, thereby potentially allowing antibiotics that were previously excluded to enter the Gram-negative bacteria where they become active. Since we began work on our Potentiator Platform in 2015, we have generated two development-stage product candidates: SPR741 and SPR206.

Our lead potentiator product candidate is SPR741, an IV-administered agent that has demonstrated in vitro the ability to expand the spectrum and increase the potency of a co-administered antibiotic against Gram-negative bacteria, including organisms identified by the CDC and the WHO as urgent and serious threats to human health. SPR741 has demonstrated an ability to potentiate over two dozen existing antibiotics by expanding their activity against Gram-negative pathogens. While previous attempts by others to develop agents that interact with the bacteria’s outer membrane using the mechanism of action employed by SPR741 have, to our knowledge, failed in preclinical testing and Phase 1 clinical trials due to safety concerns, data from our Phase 1 SAD and MAD clinical trial of SPR741 demonstrate it was well tolerated at single doses up to and including 800 mg and at doses up to and including 600 mg every 8 hours for 14 days. We are scheduled to hold a pre-IND meeting with the FDA in November 2017. We plan to submit a CTA in the United Kingdom in the fourth quarter of 2017 and thereafter initiate a Phase 1b drug-drug

 

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interaction clinical trial of SPR741 in the United Kingdom. Subject to the outcome of our pre-IND meeting and the results of our Phase 1b drug-drug interaction clinical trial of SPR741, we expect to submit an IND and initiate a Phase 2 combination clinical trial of SPR741 with a generic antibiotic for the treatment of cUTI in the first half of 2018. We also intend to apply to the FDA for QIDP designation for SPR741 during the fourth quarter of 2017.

In addition, we are developing next-generation potentiator molecules, exemplified by our product candidate SPR206. SPR206 is designed to also have antibiotic activity as a single agent against MDR and XDR bacterial strains, including variants isolated in Pseudomonas aeruginosa and Acinetobacter baumannii .

We believe that our intellectual property portfolio for SPR741 will provide SPR741 protection globally, including in the United States and Europe, through 2038. Additionally, we have multiple patent applications pending for SPR206 that we believe will provide SPR206 protection globally, including in the United States and Europe, through 2035.

 

    SPR720: Novel Antibiotic with Potential to be the First Oral Treatment for Pulmonary Non-tuberculous Mycobacterial Infections . SPR720 is our novel oral therapy product candidate designed for the treatment of NTM, a rare lung infection often occurring in patients with compromised immune systems, including HIV, or respiratory conditions, such as cystic fibrosis, chronic obstructive pulmonary disease, asthma and bronchiectasis. The annual prevalence of NTM is increasing at an estimated rate of 8% per year. The current treatment for NTM is lengthy and involves combination therapy, often including three or more antibiotics, including injectables. None of these treatments are approved for use in NTM. Treatment failure is common and is often due to poor compliance or patients’ inability to tolerate the regimen. Many patients experience progressive lung disease and mortality is high. We believe SPR720, if successfully developed, has the potential to be the first oral antibiotic approved for the treatment of this debilitating orphan disease. In vitro and in vivo studies have demonstrated the potency of SPR720 against a range of bacteria causing NTM, including Mycobacterium abscessus , a highly resistant strain causing infections with high mortality.

SPR720 is currently in preclinical development. We have conducted 28-day toxicity studies in rats and non-human primates in accordance with GLP regulations. We have also observed activity as good as or better than positive controls in in vitro and in vivo studies, including in an acute model infection caused by Mycobacterium abscessus murine pneumonia. We are currently testing SPR720 in in vivo studies to assess activity across other pathogens of interest. Pending further evidence of in vivo activity and positive results from our additional toxicity studies, we plan to initiate a Phase 1 clinical trial of SPR720 in the first half of 2019.

We believe that our intellectual property portfolio for SPR720 will provide protection globally, including in the United States and Europe, through 2033.

 

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Our Pipeline

The following table sets forth our product candidates, their status, our current estimated development timeline and anticipated milestones. We have distinguished between ongoing development activities and planned development activities that have yet to occur. Our ability to advance our product candidates and achieve our anticipated milestones on the timeline depicted in the table will depend on our successful completion of preclinical and clinical studies with results that are satisfactory to the FDA or comparable foreign regulatory authorities. See “Risk Factors—Risks Related to Product Development and Commercialization.” Without such success, our planned development activities and anticipated milestones will not occur on the timeline depicted in the table, or at all. Our planned development activities and anticipated milestones are based on our current assumptions, estimates and plans, which may change.

LOGO

 

* Our ability to progress SPR994 to a pivotal Phase 3 clinical trial is subject to a pre-Phase 3 meeting with the FDA to confirm that no additional clinical trials or preclinical studies are required prior to initiating a Phase 3 clinical trial.

 

** Our ability to progress SPR741 to a Phase 2 clinical trial depends on obtaining results from our Phase 1 and Phase 1b clinical trials that are satisfactory to the FDA.

Our Strategy

Our goal is to identify, develop and commercialize novel treatments for MDR bacterial infections, focusing on areas of high unmet medical need for safe and effective antibiotic treatments. Key elements of our strategy are as follows:

 

   

Rapidly advance our lead product candidate SPR994 through clinical development and regulatory approval . We intend to initiate a Phase 1 dose-selection clinical trial of SPR994 in Australia in the fourth quarter of 2017, and we expect to report top-line data from this trial in mid-2018. Following completion of this trial, leveraging data and know-how we have licensed from Meiji, we intend to hold a pre-Phase 3 meeting with the FDA, file an IND and commence in the second half of 2018 a pivotal Phase 3 clinical trial of SPR994 for the treatment of cUTI in support

 

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of an NDA. We expect to receive data from the planned lead-in cohort assessing the pharmacokinetics and safety of SPR994 in cUTI patients in the first half of 2019 and to receive top-line data from our Phase 3 clinical trial in mid-2020. In addition to cUTI, we believe SPR994 has the potential to treat other serious and life-threatening infections.

 

    Rapidly advance our lead potentiator product candidate SPR741 through clinical development and regulatory approval and advance our other product candidates . We recently completed a Phase 1, two-part, randomized, double-blind, placebo-controlled, dose-escalation clinical trial of SPR741. The SAD and MAD data from this clinical trial indicated that SPR741 was well tolerated at single doses up to and including 800 mg and at doses up to and including 600 mg every 8 hours for 14 days. We are scheduled to hold a pre-IND meeting with the FDA in November 2017. We plan to submit a CTA in the United Kingdom in the fourth quarter of 2017 and thereafter initiate a Phase 1b drug-drug interaction clinical trial of SPR741 in the United Kingdom. Subject to the outcome of our pre-IND meeting and the results of our Phase 1b drug-drug interaction clinical trial of SPR741, we expect to submit an IND and initiate a Phase 2 combination clinical trial of SPR741 with a generic antibiotic for the treatment of cUTI in the first half of 2018. In addition, we expect to continue to advance our other product candidates, including SPR206 and SPR720, through preclinical and clinical development.

 

    Maximize the value of our Potentiator Platform through collaborations with other pharmaceutical companies . We intend to pursue strategic collaborations with other pharmaceutical companies to leverage our Potentiator Platform. These may include global collaborations to advance the entire Potentiator Platform, or product-specific deals pairing our product candidates with collaborators’ antibiotics, whether generic or novel, with the intention of enhancing those antibiotics’ performance and efficacy. We believe this approach will facilitate the capital-efficient development and commercialization of our Potentiator Platform.

 

    Continue to pursue collaborations with non-commercial organizations for scientific expertise and funding support . We are currently receiving funding support of up to an aggregate of $15.0 million from NIAID, the DoD and CARB-X, a public-private partnership funded by BARDA within the U.S. Department of Health and Human Services. We intend to continue to collaborate with government agencies and non-profit foundations to support the development of our product candidates.

 

    Expand our portfolio of product candidates for the treatment of MDR infections .   Since our inception, we have focused on identifying and developing antibiotics to treat MDR infections, and we are using our expertise to aggressively build and expand a portfolio of product candidates for the treatment of such infections. Our management team has deep-rooted relationships in the academic, medical and corporate infectious disease community, which provide us visibility into new and innovative therapies under development. We believe the greatest unmet medical needs for safe and effective antibiotic treatments lie among infections due to MDR bacteria, as patients with these infections often have limited or inadequate therapeutic options, leading to high rates of mortality. The increasing prevalence of drug resistance and MDR bacteria, and the limitations of existing therapies and traditional drug development approaches, highlight the critical need for novel therapies capable of overcoming resistance, particularly orally administrable agents.

 

   

Establish global commercialization and marketing capabilities . We have global commercialization rights to all of our product candidates, with the exception of SPR994 in certain contractually specified Asian countries. Our management team has significant expertise in the commercialization of infectious disease treatments. Prior to joining us, members of our management team have collectively played leading roles in the approval and launch of 11 infectious disease products. We intend to build a targeted sales force and directly commercialize our product candidates in the United States in both hospital and community settings. Outside the United States, we intend to enter into collaborations with third parties to develop and market our product

 

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candidates in targeted geographical markets. By collaborating with companies that have an existing commercial presence and experience in such markets, we believe we can efficiently maximize the commercial potential of our product candidates.

The Problem: Antibiotics and Drug Resistance

Antibiotic Background

Antibiotics are drugs used to treat infections that are caused by bacteria. Prior to the introduction of the first antibiotics in the 1930s and 1940s, bacterial infections were often fatal. Today, antibiotics are used routinely to treat and prevent infections. There are two main varieties of bacteria, Gram-negative bacteria and Gram-positive bacteria, which are distinguished by structural differences in their cell envelope. Gram-positive bacteria are surrounded by a single lipid membrane and a thick cell wall, while Gram-negative bacteria are encircled by two lipid membranes, an inner membrane and an outer membrane, with a thinner cell wall in between, as shown in the illustration below.

 

 

LOGO

Antibiotics that target Gram-negative bacteria must be specifically designed to cross both the inner and outer membranes to enter the bacteria. The outer membrane, with its LPS-containing outer leaflet, represents a significant barrier to the entry into the bacteria by antibiotics and is a significant contributor toward reduced potency of many agents in treating Gram-negative bacterial infections. A study of 13,796 patients in intensive care units around the world reported in 2009 that 51% of patients experienced bacterial infections, and of these patients 62% were infected by Gram-negative organisms.

Antibiotics are evaluated according to several criteria, including:

 

    Spectrum . Antibiotics that are effective against a wide variety of bacteria are considered to be broad-spectrum, while those that act upon only a limited number of bacteria are considered to be narrow-spectrum.

 

    Potency . Potency is the measure of the microbiological ability of an antibiotic to kill or inhibit growth of bacteria in vitro . Potency is commonly expressed as the minimum inhibitory concentration, or MIC, in µg/mL, which is the lowest concentration at which the drug inhibits growth of the bacteria. Antibiotics with lower MICs are considered to be more potent.

 

    Resistance . Antibiotic resistance refers to the inability of an antibiotic to effectively control bacterial growth. Some bacteria are naturally resistant to certain types of antibiotics. Antibiotic resistance can also occur due to genetic mutations or changes in gene expression. There are numerous mechanisms responsible for antibiotic resistance, and resistance mechanisms are often found together and can be transferred between different bacteria, leading to multi-drug resistance.

 

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Growing Antibiotic Resistance in the Hospital and Community Settings

Antibiotic resistance is one of the largest threats to global health, and resistance rates are increasing. Antibiotic resistance can affect anyone, of any age and in any country. According to the CDC, each year in the United States at least 2 million people become infected with bacteria that are resistant to antibiotics, and at least 23,000 people die each year as a direct result of these infections. Approximately 70% of the pathogens that cause these infections are resistant to at least one drug, meaning the incidence rate of serious infections is increasing and the proportion of the infections caused by MDR pathogens is increasingly seen as an emerging threat to world health. The CDC estimates that the excess annual cost resulting from these infections in the United States is as high as $20 billion.

According to the CDC, among all of the bacterial resistance problems, Gram-negative pathogens, which cause a majority of all bacterial infections, are particularly worrisome because they are becoming resistant to nearly all drugs that would be considered for treatment. In February 2017, the WHO published a list of Gram-negative bacteria based on the urgency of need for new antibiotics and highlighted a critical group of MDR Gram-negative bacteria that pose a particular threat to human health, including Acinetobacter , Pseudomonas and various Enterobacteriaceae (including Klebsiella , E. coli , Serratia and Proteus ). These pathogens are associated with significant mortality because the increased incidence of antibiotic resistance has limited the number of effective treatment options.

There is an acute need for new antibiotics to treat MDR bacterial infections, as few new antibiotics capable of addressing such infections have been approved recently for commercialization or are in clinical development. Further, the majority of MDR bacterial infections historically have been acquired in the hospital setting, where they have been treated using IV-administered antibiotics. However, increasingly such infections are being acquired in the community setting, emphasizing the need for orally administrable antibiotics that can effectively treat such infections.

Our Product Candidates Overcome Limitations of Available Treatment Options

Antibiotics currently used for first-line empiric treatment of MDR bacterial infections and NTM suffer from significant limitations. We believe that our product candidates will overcome these limitations, as described below:

 

    SPR994 is designed to address the lack of orally administrable antibiotics to prevent hospitalization and permit IV-to-oral switch therapy in resistant Gram-negative infections . Many of the most commonly used antibiotics for MDR Gram-negative infections are only available in an IV-administered formulation. Treatment with effective orally administrable antibiotics may prevent hospitalizations for serious infections and enable earlier, more convenient and cost-effective treatment of patients following hospitalization. However, currently there are no oral antibiotics commercially available that can reliably be used in adults with MDR Gram-negative infections. SPR994 is an orally administrable tablet that we believe has the potential to treat such infections in both the community and hospital settings, thereby preventing certain hospitalizations and enabling patients to transition to oral treatment.

 

    SPR741 and SPR206 are designed to address the decline of novel and effective IV-administered antibiotics to treat MDR Gram-negative infections in the hospital setting . First-line empiric antibiotics, such as levofloxacin, ceftazidime and piperacillin-tazobactam, have experienced diminished utility as the number of bacterial strains resistant to these antibiotics has increased. Due to gaps in the spectrum of coverage of antibiotics currently on the market, physicians are often confronted with the need to design complicated multi-drug cocktails for patients with serious infections. We believe that SPR741 has the potential to address the need for more effective treatments against MDR Gram-negative bacterial infections by expanding the spectrum and potency of existing antibiotics, including formerly inactive antibiotics.

 

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    SPR720 is designed to be the first oral treatment for NTM where treatment failure is common and no approved therapies exist . The current treatment for NTM is lengthy and involves combination therapy, often including three or more antibiotics, including injectables. None of these combination treatments are currently approved for use in NTM. Treatment failure is common and is often due to poor compliance or patients’ inability to tolerate the regimen. Many patients experience progressive lung disease as a result of NTM, and mortality rates are high, ranging from 29% to 69% within five years of diagnosis. We believe SPR720, if successfully developed, has the potential to be the first approved oral agent for NTM, and it has demonstrated effectiveness in vitro and in vivo against a range of pathogens, including Mycobacterium abscessus , a highly resistant organism causing NTM with a high rate of mortality.

Our Product Candidates

SPR994 (Tebipenem Pivoxil Extended Release)

Our lead product candidate, SPR994, is designed to be a broad-spectrum oral carbapenem for use in adults to treat MDR Gram-negative infections. Currently, there are no commercially available oral carbapenems for use in adults, and we believe SPR994 has the potential to address this unmet need. Carbapenems have been utilized for over 30 years and are considered the standard of care for many serious MDR Gram-negative bacterial infections, but to date they have only been available as IV-administered formulations. SPR994 is an oral extended-release tablet formulation of tebipenem. Tebipenem was approved in 2009 in Japan for sale under the name Orapenem for pediatric use in common infections, including pneumonia, otitis media and sinusitis. It has been sold by Meiji in Japan as a granule presentation for children that is combined with food and dosed twice per day. To accelerate our clinical development of SPR994, in June 2017 we exclusively licensed certain data and know-how from Meiji and Global Pharma, which we intend to use to support our clinical development of SPR994. The FDA has designated SPR994 as a QIDP for the treatment of cUTI, CABP and DFI under the GAIN Act, which provides priority review for regulatory approval by the FDA. The QIDP designation for SPR994, however, does not guarantee a faster development process or ensure FDA approval. We believe, if approved, that SPR994, which incorporates our proprietary formulation technology and benefits from know-how and data we have licensed from Meiji, has the potential to further increase the clinical demand for the carbapenem class of antibiotics.

We have global commercialization rights to SPR994, except in certain contractually specified Asian countries. If SPR994 is approved for treatment of cUTI, CABP or DFI, the QIDP designation for SPR994 will extend by an additional five years any non-patent exclusivity period awarded for SPR994 in the United States, such as a five-year New Chemical Entity, or NCE, exclusivity granted under the Hatch-Waxman Act, for a total of 10 years. In Europe, exclusivity for NCEs is 10 years (eight years for data exclusivity and an additional two years for market exclusivity), with the possibility of a one-year extension if the chemical entity is approved for use in an additional indication. Additionally, we believe that our intellectual property portfolio for SPR994, which includes multiple patent applications pending, will provide SPR994 protection globally, including in the United States and Europe, through 2038.

Potential Advantages of SPR994

We believe that the following key attributes differentiate SPR994 from other antibiotics targeting MDR Gram-negative infections. We believe these attributes have the potential to make SPR994 a safe and effective treatment for cUTI and other serious and life-threatening infections for which we may develop SPR994.

 

   

Potential to be the first oral carbapenem in adults . SPR994 is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use in adults to treat MDR Gram-negative infections. Unlike other carbapenems, which are only available as IV-administered infusions, SPR994 is an orally administered tablet. Oral administration may potentially allow physicians to avoid

 

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IV-administered antibiotics for otherwise healthy or stable patients and/or allow for a reduction in costs associated with avoiding or shortening hospitalization.

 

    Favorable safety, efficacy and tolerability profile suggested by clinical studies of tebipenem in Japanese populations . A granule formulation of tebipenem has been approved for use in Japan in pediatric patients since 2009, where it has demonstrated a favorable safety and efficacy profile. Approximately 1,200 subjects have been dosed with the active pharmaceutical ingredient of SPR994, tebipenem, in clinical and pharmacologic studies during development of this drug by Meiji and Global Pharma in Japan. This data set includes 741 adults, including 88 patients with cUTIs, the initial indication for which we plan to develop SPR994. In each case tebipenem has demonstrated a favorable safety, pharmacokinetic and tolerability profile.

 

    Broad spectrum of activity against a variety of MDR Gram-negative, Gram-positive and anaerobic bacteria, with a potency consistent with certain IV-administered carbapenems . In  in vitro  studies, SPR994 displayed potent antibiotic activity against Gram-negative bacteria, including E. coli producing extended spectrum beta lactamases, or ESBLs, and ESBL-producing  Klebsiella pneumoniae. ESBL-producing bacteria are Gram-negative bacteria that hydrolyze, or break down, cephalosporins and render them ineffective for treatment. ESBL-producing pathogens are associated with poor clinical outcomes in severe infections. Further, SPR994’s potency against Enterobacteriaceae has been observed to be similar to IV-administered ertapenem and imipenem. As a result, we believe that SPR994 has the potential to be used for the treatment of cUTI and other serious and life-threatening infections caused by resistant Gram-negative pathogens.

 

    Favorable pharmacokinetic profile . SPR994 is a novel, proprietary form and formulation of tebipenem that extends residence time of tebipenem in plasma, which we believe increases the potential efficacy of tebipenem for a given dose and reduces the frequency of dose administration. In primate studies, SPR994 has shown bioavailability of 50%. In addition, in Meiji’s studies of tebipenem in which adult patients received doses of tebipenem at or above our intended commercial dose, at doses up to and including 500 mg, dose linearity and urine concentrations of tebipenem exceeded the level required to eradicate E. coli . As a result, we believe that SPR994 has the potential to maintain a favorable safety and efficacy profile for the treatment of cUTI at a variety of dose levels.

 

    Potential to enable IV-to-oral transition of antibiotic treatment to assist with reduction in hospital stays and/or eliminate the need for hospitalization .  We believe SPR994’s unique oral formulation may enable patients who begin IV-administered treatment for ESBLs in the hospital setting to transition to oral dosing of SPR994 either in the hospital or upon discharge for convenient home-based care. We believe that the availability and use of an oral carbapenem as a transition therapy may eliminate hospitalization or reduce the length of a patient’s hospital stay and the overall cost of care.

We believe the foregoing advantages of SPR994 also significantly differentiate SPR994 from fluoroquinolones. Fluoroquinolones are the most widely used antibiotic class in treating community and hospital Gram-negative infections, but they have encountered increasing resistance among MDR Gram-negative bacteria and are associated with significant adverse effects. The table below reflects resistance rates in the United States in the community and hospital settings.

 

cUTIs in the United States

  

2013-2014  E. coli  Resistance

Rates to Fluoroquinolones

   

2000-2004  E.  coli  Resistance
Rates to Fluoroquinolones

 

Community Setting

     11.7     0

Hospital Setting

     34.5     3.5

 

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Currently, fluoroquinolones are the most frequently selected antibiotic for empirical UTI treatment in the community and hospital settings. Current UTI treatment guidelines published by the Infectious Diseases Society of America identify fluoroquinolones as an appropriate empirical therapy option. This recommendation, however, is contingent on local resistance rates being less than 10%. The endemicity (high rates) of fluoroquinolone-resistant E. coli found in the United States today in the community and hospital settings based on the table above would suggest that fluoroquinolones should not be used empirically for cUTI patients.

The following table highlights the observed in vitro potency differences between SPR994 and levofloxacin, the most widely used fluoroquinolone. As shown below, SPR994 has a MIC 90 value of 0.03 µg/mL, which compares favorably (i.e., at or below) to the potency value obtained by levofloxacin.

 

Compound

  

E. coli

MIC 90

(µg /mL)

 

SPR994

     .03  

Levofloxacin

     >4  

In addition, the FDA has issued several warnings against the use of fluoroquinolones in certain patients. In particular, an FDA Advisory Committee stated in November 2015 that the risk of serious side effects caused by fluoroquinolones generally outweighs the benefits for patients with acute bacterial sinusitis, acute exacerbation of chronic bronchitis and uncomplicated UTIs. The FDA has determined that fluoroquinolones should be reserved for use in patients with these conditions who have no alternative treatment options. In Japan, Orapenem (tebipenem pivoxil) does not have a black box warning and has been studied in approximately 1,200 subjects. We believe SPR994 could become a potential alternative to oral fluoroquinolones based on its safety and efficacy profile.

Significant Market Opportunity for SPR994

Given the observed activity of SPR994 against different bacteria, we view the market opportunity for SPR994, if approved, to be substantial, including for the following uses:

 

    Treating urinary tract infections acquired in the community setting without the need for patient hospitalization.

 

    Transitioning patients hospitalized for UTIs or cUTIs to an oral therapy as they are discharged from the hospital.

 

    Transitioning other patients hospitalized with complicated Gram-negative infections, such as cIAI, hospital-acquired, or nosocomial, pneumonia and blood stream infections as they are discharged from the hospital.

UTIs are among the most common bacterial diseases worldwide, with significant clinical and economic burden. QuintilesIMS estimates that between 33 and 34 million patients either visit their physician or are hospitalized for a UTI or otherwise suspected of experiencing a UTI in the United States annually. While drugs such as trimethoprim/sulfamethoxazole (Bactrim/Septra) and fluoroquinolones (levofloxacin, ciprofloxacin) have been the primary oral options for treatment of UTIs caused by Gram-negative organisms, nearly 30% to 35% of UTIs are resistant, which has led to increased use of IV-administered therapeutics such as carbapenems.

QuintilesIMS completed a market assessment in August 2017 in the community and hospital settings in which it estimated that there were 11 to 12 million patients annually who presented in the community physician’s office with a UTI and 3.5 to 4.5 million patients annually in the hospital with a UTI in the United States alone. Of these UTIs, 10 to 11 million are suspected to be caused by Gram-negative bacteria, and 4 to 5 million of these patients had an infection that is resistant to or failed first-line therapy, such as the fluoroquinolone class, or require IV therapy due to the severity of infection. Physicians in the survey reported high concern with growing

 

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fluoroquinolone resistance and lack of oral options for MDR Gram-negative infections. We believe SPR994 is well positioned to meet the unmet need for an oral therapy for community-acquired UTI and may offer physicians an option for treating MDR UTIs while avoiding patient hospitalization. In addition, we believe SPR994 has the potential to accelerate hospital discharge and obviate the need for continued IV-administered therapy at home by transitioning discharged patients to an at-home oral therapy. Our initial study for SPR994 will focus on patients who suffer from a subset of UTIs called cUTIs, which affect approximately 4.9 million patients in the United States annually. A significant majority of UTIs, including cUTIs, are caused by a group of MDR Gram-negative bacteria called Enterobacteriaceae .

SPR994 Clinical Development Program

Based on our pre-IND meeting with the FDA, we intend to initiate a Phase 1 pharmacokinetics and safety clinical trial in Australia of SPR994 in the fourth quarter of 2017, and expect to report top-line data from this trial in mid-2018. Following completion of this trial to select a dose for pivotal trials, we intend to hold a pre-Phase 3 meeting with the FDA to confirm that no additional clinical trials or preclinical studies are required prior to initiating a Phase 3 clinical trial. Subject to feedback from the FDA, and using know-how we have licensed from Meiji, we plan to submit an IND and commence in the second half of 2018 a pivotal Phase 3 clinical trial with a lead-in cohort for the treatment of cUTI in support of an NDA. We expect to review data from our lead-in cohort evaluating pharmacokinetics and safety of SPR994 in cUTI patients in the first half of 2019 and to receive top-line data from our Phase 3 clinical trial in mid-2020.

The FDA has designated SPR994 as a QIDP for the treatment of cUTI, CABP and DFI under the GAIN Act, which provides priority review for regulatory approval by the FDA. The QIDP designation for SPR994, however, does not guarantee a faster development process or ensure FDA approval. Further, if SPR994 is successfully developed and approved for the treatment of CUTI, CABP or DFI, the FDA’s QIDP designation for SPR994 should extend any non-patent exclusivity period awarded to SPR994 in the United States for five years, such as a five-year New Chemical Entity data exclusivity granted under The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act.

Planned SPR994 Phase 1 Clinical Trial

We filed a Clinical Trial Notification, or CTN, in Australia in September 2017 and plan to initiate in the fourth quarter of 2017 a Phase 1 clinical trial in Australia of SPR994 in approximately 60 healthy volunteers. A CTN enables conduct of a clinical trial in Australia similar to an IND in the United States. The Phase 1 clinical trial will evaluate our proprietary extended release oral tablet formulation of SPR994 across SAD cohorts and multiple dose cohorts. The objectives of the trial include pharmacokinetics, safety and tolerability for up to 14 days and food effect. Data from the clinical trial will support dose selection for our planned pivotal Phase 3 clinical trial. We expect to report top-line data from the Phase 1 clinical trial in mid-2018.

Planned Pivotal SPR994 Phase 3 Clinical Trial

Based on our pre-IND meeting with the FDA, we believe that results from our planned Phase 1 clinical trial of SPR994, together with nonclinical studies, PK/PD, and other supporting data, will be acceptable to FDA to allow us to commence a pivotal Phase 3 clinical trial of SPR994 under a U.S. IND. After we report top-line data from our Phase 1 clinical trial, we plan to hold a pre-Phase 3 meeting with the FDA to confirm that no additional clinical trials or preclinical studies are required prior to initiating our Phase 3 clinical trial. Subject to feedback from the FDA, we plan to submit an IND and commence the pivotal Phase 3 trial in the second half of 2018. Clinical trial applications will also be submitted in Europe and other regions, as needed, to support study enrollment. Our planned pivotal Phase 3 clinical trial of the efficacy and safety of SPR994 is currently designed as a double-blind, double-dummy trial to compare SPR994 with an IV-administered carbapenem in approximately 1,100 patients randomized 1:1 in each arm. We believe that the primary endpoint of the trial will be non-inferiority versus a standard of care antibiotic, with a 10% non-inferiority margin. We intend to

 

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commence our pivotal Phase 3 clinical trial with a lead-in cohort with intensive pharmacokinetics in order to analyze exposure prior to initiating the pivotal Phase 3 clinical trial cohort. We believe that efficacy of SPR994 in the Phase 3 clinical trial will be determined by assessments of clinical response and microbiological response, with the primary efficacy endpoint being microbiological clearance and test of cure and with secondary efficacy parameters that include medical judgment, which is an endpoint that European regulators require.

We expect to receive data from the lead-in cohort of our Phase 3 clinical trial evaluating the pharmacokinetics and safety of SPR994 in cUTI patients in the first half of 2019 and to receive top-line data from our Phase 3 clinical trial in mid-2020. Following receipt of top-line data from this pivotal Phase 3 clinical trial, with requisite safety data, drug-drug interaction studies and other studies, we intend to submit to the FDA an NDA for SPR994 to treat cUTI including acute pyelonephritis. These data, if positive, may also support marketing applications in other global regions. We also intend to reach an agreement with the FDA on a Pediatric Study Plan and initiate development of SPR994 in pediatrics for cUTI upon receipt of top-line data in adult patients.

Data Supporting the Use of SPR994 for the Treatment of cUTI

We have tested SPR994 in vitro and in animal models. We believe that nonclinical assays are generally predictive of clinical efficacy for antibiotics, particularly in the case of a well-understood class such as carbapenems. In addition, approximately 1,200 subjects have been dosed with tebipenem in clinical and pharmacologic studies during the development of this drug by Meiji in Japan. The data set from these studies includes 741 adults, including 88 patients with cUTIs, the initial indication for which we plan to develop SPR994.

In vitro Activity Against MDR Enterobacteriaceae

Results from multiple susceptibility testing studies against MDR Enterobacteriaceae demonstrate that SPR994 remained potent against strains resistant to several other classes of antibiotics, including aminoglycosides and fluoroquinolones. In these studies, we measured the potency, or MIC, of each drug by determining the concentration of drug required to inhibit the growth of 50% and 90% of the isolate set (i.e., the MIC 50 or MIC 90 ). The graph below depicts the in vitro activity of SPR994 compared to two commercially available intravenously delivered antibiotics commonly used to treat cUTI against a large number of clinical isolates, namely Invanz (ertapenem, or ETP) from Merck and generically available imipenem, or IMI.

SPR994 Activity Against Contemporary Isolates of E. coli

 

 

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SPR994 has showed MIC 50 and MIC 90 values of less than or equal to 0.015 µg/mL and 0.03 µg/mL, which compare favorably (i.e., at or below) to the values obtained by competitive agents ertapenem and imipenem.

Regarding a more resistant set of E. coli isolates, including fluoroquinolone-resistant strains, SPR994 again showed in vitro activity similar to commercially available intravenously delivered drugs such as Merrem (meropenem), as shown in the graph below.

SPR994 is Active Against E. coli , Including Fluoroquinolone-Resistant Isolates

 

 

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SPR994 has also shown activity in preclinical in vitro studies against a wide variety of ESBL-producing E. coli and ESBL-producing K. pneumoniae strains, as highlighted in the table below.

SPR994 Has Potent Activity Against A Variety of ESBL Enzymes

 

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We believe this data shows the ability of orally available SPR994 to deliver similar activity to comparative IV-administered agents.

Tebipenem Phase 1 Clinical Trial Data Support Development of SPR994 for the Treatment of cUTI

Tebipenem was also tested by Meiji in healthy volunteers to determine urinary concentrations as a predictor of efficacy in the cUTI population. Results from this single-ascending dose study are shown in the graph below.

Single-Ascending Dose Calculated Urine Levels of Tebipenem

 

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In early clinical studies in Japan, healthy volunteers received doses up to 600 mg/day. At each dose level, and in a dose dependent manner, the urine concentration of tebipenem exceeded the MIC 90 for E. coli of 0.03 µg/ml (defined as the level that is expected to inhibit 90% of E. coli isolates).

A food effect clinical study was performed to evaluate the impact of meals or dairy products on tebipenem-pivoxil granule pharmacokinetics. The study showed comparable plasma AUC (a measure of drug exposure over time) and urinary excretion rates of tebipenem pivoxil among the study’s subjects in both the fed and fasted states. The effect of a meal or dairy products on tebipenem absorption was observed to be limited, and no adverse safety or tolerability effects were observed in dosing in the fed state.

 

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Primate Data Support BID Dosing of SPR994 for the Treatment of cUTI

We also administered doses of SPR994 in monkeys and measured the concentration over time in plasma samples. As shown in the graph below, the plasma concentration achieved by SPR994 exceeded the 30 ng/ml level required to eradicate E. coli beyond 15 hours and compared favorably to the immediate release formulation. We believe these data indicate human twice daily, or BID, dosing for SPR994 and the possibility for daily dosing as well, given that half-life measurements in primates typically translate to higher values in humans.

Concentration from Dosing SPR994 in Monkey Plasma

 

 

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Meiji Phase 2 Clinical Trial Data of Tebipenem in cUTI

Meiji and Global Pharma conducted two exploratory, dose-ranging Phase 2 clinical trials of tebipenem in patients with cUTI including patients with acute pyelonephritis. These trials were conducted in Japan between 2001 and 2004. Study L-084 04 (report date 2003), a multicenter open-label study to evaluate the efficacy (clinical and microbiological) and safety (adverse events and laboratory tests) of tebipenem at doses of 100 mg administered three times daily, or TID, (Group A), 150 mg administered BID (Group B), and 150 mg administered TID (Group C), for seven days in patients with cUTI. There were 51 adult patients, aged 20-74 years inclusive, enrolled with 40 being evaluable for efficacy (14 in Group A; 17 in Group B; 9 in Group C). Study ME1211 (report date 2004), a multicenter, open-label study to evaluate efficacy (early and late assessments) and safety (adverse events and laboratory tests) of tebipenem at doses of 250 mg administered BID (500 mg Group) and 300 mg administered TID (900 mg Group) for seven days in patients with cUTI. There were 37 adult patients, aged 20 to 74 years inclusive, enrolled with all being evaluable for efficacy (19 in 500-mg Group; 18 in 900-mg Group).

Although the design of the Phase 2 clinical trials in Japan was different from what is recommended in FDA guidance for clinical trials in patients with cUTI, including acute pyelonephritis, we believe these results support our plan to develop SPR994 in cUTI. With respect to these results, which are summarized in the chart below, the efficacy rate refers to the proportion of subjects judged to have experienced a “markedly effective” or “effective” tebipenem dosage versus the total number of subjects tested, and the negative conversion rate refers to the proportion of subjects with negative urine cultures versus the total number of subjects tested.

 

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Observed Efficacy of Tebipenem in Meiji Phase 2 Trials in cUTI

 

Study L-084 04  
    

Subjects

    

Efficacy
Rate*

   

Negative
Conversion
Rate

 

300-mg group A

(100 mg administered TID)

     14        92.9     92.9

300-mg group B

(150 mg administered BID)

     17        94.1     94.1

450-mg group C

(150 mg administered TID)

     9        100     100

 

* Based on overall clinical outcome.

 

Study ME1211  
     Subjects      Early
Efficacy
Assessment*
    Negative
Conversion
Rate**
 

500-mg group A

(250 mg administered BID)

     16        93.8 %***      87.5

900 mg group B

(300 mg administered TID)

     16        93.8     93.8

 

* Based on overall clinical effect at the end of therapy.

 

** Early assessment, at end of therapy. For the purpose of this assessment, negative conversion rate is defined as the rate of subjects with negative urine cultures.

 

*** “Markedly effective” or “effective.”

Safety of Tebipenem

Tebipenem pivoxil is a prodrug that is metabolized to tebipenem, its therapeutically active form. We view the clinical safety profile of tebipenem pivoxil established by Meiji as relevant and supportive of SPR994 because both metabolize to the active metabolite, tebipenem, in plasma. The extended release formulation has been designed to improve target concentration while maintaining the exposure per dose.

Tebipenem pivoxil is an orally administered carbapenem, which is a sub-group of the beta-lactam class of antibiotics. The safety of tebipenem pivoxil was evaluated in approximately 1,200 subjects supporting the application for approval in Japan. In this safety data set, there are 741 adult subjects across 17 trials and 440 pediatric subjects across six trials. These 23 trials in total, included one double-blind, comparator-controlled trial in children, five open-label trials in children, five trials enrolling adult patients (including two open-label cUTI trials), and 12 Phase 1 clinical pharmacology trials. Among the pharmacology trials, tebipenem pivoxil was studied for an effect on QT interval, and for the known effect of the pivoxil prodrug on serum carnitine concentrations.

In these studies, tebipenem pivoxil was generally safe and well tolerated, with an adverse event, or AE, profile comparable to common, approved oral beta lactam antibiotics and IV-administered carbapenems. The most common AEs were gastrointestinal (e.g., diarrhea, loose stools) in both children and adults, and in the Phase 3 clinical trial of otitis media, the incidence was similar to that reported for the comparator, cefditoren (also a pivoxil prodrug), an oral cephalosporin antibiotic. No effect of the administration of tebipenem pivoxil on the

 

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prolongation of the QT interval was observed, and the effect on serum carnitine concentrations was reversed post treatment and not associated with AEs. A side effect seen with beta-lactam antibiotics is seizures; however, there have been no reports of inducement of seizures due to the administration of tebipenem pivoxil in clinical trials.

A clinical study evaluating the effect of tebipenem pivoxil dosing over one week on intestinal flora was also performed. Total, aerobic, and anaerobic bacterial counts were evaluated. Total bacterial count was reduced by day 7 of the study in both the 100 and 200 mg TID groups. However, no additional change in bacterial count was observed on subsequent examination days. Importantly, neither fecal C. difficile nor its toxin was detected in any of the subjects during or following completion of the 7-day dosing period.

Our Potentiator Platform (SPR741 and SPR206)

Our lead potentiator product candidate is SPR741, an IV-administered derivative of Polymyxin B, or PMB, that has demonstrated in vitro the ability to expand the spectrum and increase the potency of a co-administered antibiotic against Gram-negative bacteria, including organisms identified by the CDC and the WHO as urgent and serious threats to human health. In preclinical studies, SPR741 has shown an ability to potentiate over two dozen existing antibiotics and enable activity against Gram-negative pathogens. SPR741 has also shown an ability to make active formerly inactive antibiotics. In addition, we are developing next-generation potentiator molecules, such as our product candidate SPR206. SPR206 is designed to have antibiotic activity as a single agent against MDR and XDR bacterial strains, including variants isolated in Pseudomonas aeruginosa and Acinetobacter baumannii .

We recently completed a Phase 1, two part, randomized, double-blind, placebo-controlled, dose- escalation trial of SPR741. We are scheduled to hold a pre-IND meeting with the FDA in November 2017. We plan to submit a CTA in the United Kingdom in the fourth quarter of 2017 and thereafter initiate a Phase 1b drug-drug interaction clinical trial of SPR741 in the United Kingdom. Subject to the outcome of our pre-IND meeting and the results of our Phase 1b drug-drug interaction clinical trial of SPR741, we expect to submit an IND and initiate a Phase 2 combination clinical trial of SPR741 with a generic antibiotic for the treatment of cUTI in the first half of 2018. We also intend to apply to the FDA for QIDP designation for SPR741 during the fourth quarter of 2017.

We believe that our intellectual property portfolio for SPR741, which includes multiple issued patents and patent applications pending, will provide SPR741 protection globally, including in the United States and Europe, through 2038. Additionally, we have multiple patent applications pending for SPR206 that we believe will provide SPR206 protection globally, including in the United States and Europe, through 2035.

How Our Potentiator Molecules Are Designed to Work

Gram-positive and Gram-negative bacteria are classified by the lab staining test known as the “Gram stain”, but their nature is due to structural differences in their cell envelope, with Gram-positive bacteria surrounded by a single lipid membrane and a thick cell wall and Gram-negative bacteria encircled by two lipid membranes, an inner membrane and an outer membrane, with a thinner cell wall in between. The outer membrane, with its LPS-containing outer leaflet, represents a significant barrier to the entry into the bacteria by antibiotics and is a significant contributor to reduced potency of many agents in treating Gram-negative bacterial infections. Each membrane in Gram-negative bacteria excludes different types of chemical entities, requiring Gram-negative active antibiotics to be specifically designed to permeate both membranes. Gram-negative bacteria include Pseudomonas aeruginosa , Acinetobacter baumannii , and the Enterobacteriaceae , a family of related organisms that includes E.  coli , Klebsiella pneumoniae , Enterobacter, Salmonella, and Shigella species.

Our potentiator molecules are charged cyclic peptides designed to specifically interact with the outer membrane of Gram-negative bacteria, thereby permitting access for antibiotics that otherwise, and traditionally, would only exhibit activity against Gram-positive bacteria. Specifically, our positively charged potentiator molecules are designed to interact with the negatively charged core of LPS via an electrostatic interaction,

 

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resulting in a loss of outer membrane integrity. This destabilization of the outer membrane is visible in electron micrographs and other forms of microscopy and is what enables the increased permeability of the affected bacterial membrane. The increase in permeability potentially allows antibiotics that were previously excluded to enter the Gram-negative bacteria where they become active. Additionally, this increase in permeability may also enhance the potency of antibiotics that have existing Gram-negative activity by maximizing the amount of antibiotic in the cell and offsetting specific class based mechanisms of resistance and other common mechanisms of resistance, such as efflux.

Potentiators May Allow Entry of Antibiotics into Gram-Negative Bacteria

 

 

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We intend to leverage our Potentiator Platform to develop multiple potentiator molecules to be co-administered with multiple antibiotics. Each combination is designed to have unique antibiotic and pharmacokinetic capabilities, creating a complementary set of combinations.

Advantages of our Potentiator Platform

We believe that the following key attributes of our Potentiator Platform generally, and of SPR741 in particular, have the potential to support the clinical utility and commercial value of our Potentiator Platform for the safe and effective treatment of serious infections:

 

    Potential to Expand the Potency of Standard-of-Care Antibiotics . We believe SPR741 has the potential to expand the potency of standard-of-care antibiotics by restoring and expanding their Gram-negative activity, thereby improving therapeutic outcomes, decreasing physicians’ reliance on drugs of last resort and encouraging improved antibiotic stewardship. We believe SPR741-based combinations have the potential to meet a significant need in the market to expand and prolong the utility of standard-of-care agents for Gram-negative infections and preserve agents such as colistin as drugs of last resort. We believe the ability to add SPR741 to older standard therapies, such as piperacillin/tazobactam or ceftazidime, has the potential to not only expand their spectrum and increase their potency, but also prolong their life and utility, allowing the newer agents to be preserved for special clinical circumstances.

 

   

Broad Applicability of Potentiator Platform . We have seen that our potentiators are capable of potentiating the activity of many generic and novel antibiotics from various classes in preclinical studies. In multiple animal models of varying infection types, this potentiation effect has resulted in a significant reduction in the bacterial burden of infections caused by several common drug-resistant pathogens, including E. coli, Acinetobacter baumannii , and Klebsiella pneumoniae . We

 

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believe that forms of drug-resistant bacteria specifically targeting the mechanism of action of our potentiator molecules will not impact the activity of SPR741. Our studies have shown that SPR741 is capable of potentiating a range of antibiotics and antibiotic classes that include some cephalosporins, extended-spectrum penicillins, some BL/BLIs, rifamycins, pleuromutilins, macrolides, fusidic acid, clindamycin, iclaprim, synercid, quinolones, oxazolidinones, glycopeptides, novobiocin and fidaxomycin.

 

    Our potentiator molecules have a proven record of being well tolerated . Data from our Phase 1 SAD and MAD clinical trial of SPR741 demonstrate SPR741 was well tolerated at single doses up to and including 800 mg and at doses up to and including 600 mg every 8 hours for 14 days.

 

    Our potentiator molecules may result in decreased reliance on drugs of last resort . The emergence of resistance to ESBL-producing bacteria has led to broader use of agents such as carbapenems and drugs of last resort, such as colistin. These drugs of last resort are often associated with serious safety issues such as increased kidney toxicity. As a result, physicians are faced with a dilemma of choosing efficacy over safety to treat these Gram-negative MDR infections. Greater reliance on drugs of last resort is leading to a rise in resistance to these drugs, and if this trend continues, there will be even fewer options to treat MDR and XDR organisms.

 

    Resistance to standard-of-care agents is increasing at an alarming rate . The rate of antibiotic resistance to many of the commonly used antibiotics has increased dramatically over the last decade. This is primarily due to the increase in the number of ESBL-producing organisms, which renders many of these drugs ineffective. According to Study for Monitoring Antibiotic Resistance Trends, or SMART, published in 2016, the rate of increase in ESBL-producing organisms doubled from 2010 to 2014 to approximately 20%. We believe this increase will continue to erode the utility of standard-of-care antibiotics.

 

    Our next-generation molecule SPR206 may potentially be a safe and potent IV-administered direct-acting agent . Like SPR741, our next-generation potentiator candidate SPR206 is designed to interact with LPS to disrupt the outer membrane. However, SPR206 is designed to have direct antibiotic activity, while retaining potentiator activity, including activity against Pseudomonas and Acinetobacter . We are developing SPR206 as a treatment for high-risk patients with suspected or known Gram-negative infections such as carbapenem-resistant Enterobacteriaceae , or CRE, carbapenem resistant Acinetobacter baumannii , or CRAB, and MDR Pseudomonas aeruginosa , or MDR PA, to prevent mortality and reduce the length of stay in the hospital setting.

Significant Market Opportunity for SPR741, including Gram-Negative IV Market

We believe SPR741 has the key characteristics to be developed as a potentiator to be used in combination with multiple first-line empiric therapies for a wide variety of life-threatening infections caused by Gram-negative pathogens. We believe SPR741, when combined with such other approved drugs, will potentiate the safe and effective treatment of cUTI infections and a wide range of other infections caused by drug-resistant Enterobacteriaceae . Based on our discussions with key opinion leaders, there is a need to expand the clinical utility of widely used antibiotic agents such as cephalosporins and BL/BLIs by addressing the loss of potency of such drugs against Gram-negative strains of bacteria in high-risk patients. In the United States, the Decision Resources’ Hospital Gram-Negative Infections Report from 2015 estimates that Gram-negative infections make up more than 45 million days of therapy, or DOT, annually. Approximately 45% of infections are treated with first-line agents such as cephalosporins (i.e., ceftazidime), and piperacillin-tazobactam. Over 64% of these infections are treated empirically.

 

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SPR741—Phase 1 Clinical Trial and Clinical Development

Data from our Phase 1 SAD and MAD clinical trial show SPR741 administered intravenously in single doses up to and including 800 mg and multiple daily doses up to and including 600 mg every 8 hours for 14 days was well tolerated in healthy adult subjects. There were no deaths or serious adverse events. All subjects completed the study. As shown in the chart below, the pharmacokinetics observed in the SAD portion of the trial were dose linear and dose proportional with a half-life of between two and four hours, consistent with expectations from preclinical modeling. Similarly, the pharmacokinetics observed in the MAD portion of the trial were dose linear and dose proportional, with only minor accumulation noted in the top dose cohort (600 mg every 8 hours).

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We are scheduled to hold a pre-IND meeting with the FDA in November 2017. We intend to study SPR741 administered in combination with compounds from the beta-lactam class of antibiotics, including cephalosporins (such as ceftazidime), monobactams (such as aztreonam) and BL/BLIs (such as pipercillin/tazobactam). We believe that this multiple-compound testing strategy will be initiated with a Phase 1b drug-drug interaction clinical trial that will be used to assess the impact, if any, on the standalone pharmacokinetics of SPR741 or the standalone pharmacokinetics of the beta-lactam combination drug when the two are dosed together. We plan to submit a CTA in the United Kingdom for such clinical trial in the fourth quarter of 2017 and thereafter initiate such trial in the United Kingdom. Subject to the outcome of our pre-IND meeting and receipt of favorable safety and combination pharmacokinetics data from our Phase 1b drug-drug interaction clinical trial, we intend to submit an IND and investigate the efficacy of SPR741 in combination with a beta-lactam antibiotic in cUTI patients in a Phase 2 clinical trial beginning in the first half of 2018. We anticipate top-line data from this first SPR741 combination trial during the second half of 2018. We will then engage with regulatory authorities on the final design of a pivotal Phase 3 trial.

We intend to apply to the FDA for QIDP designation by the end of 2017 for the development and regulatory review of SPR741 to treat serious and life-threatening CRE infections. Our Potentiator Platform is funded in part with non-dilutive funding from the DoD and CARB-X, consisting of $1.5 million over a one-year period with the possibility of up to a total of $6.8 million in funding based on the successful progression of specified milestones. We have global commercialization rights to SPR741, which has global patent protection extending through 2038.

 

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Data Supporting the Use of SPR741 for the Treatment of Gram-Negative Infections

Nonclinical Data Supporting Use of SPR741 for the Treatment of Gram-Negative Infections

We have tested in vitro SPR741 combined with numerous Gram-positive and Gram-negative antibiotics in order to assess improved potency and spectrum of activity of the combination against representative Gram-negative pathogens. We have also tested combinations of SPR741 with numerous Gram-positive and Gram-negative antibiotics in animal models of infection in order to assess in vivo efficacy and to establish pharmacokinetic/pharmacodynamic relationships. We have also conducted GLP-toxicology studies of SPR741 to further support our clinical development of SPR741 for the treatment of Gram-negative infections.

In Vitro Activity of SPR741 Against MDR Gram-Negative Bacteria

Results from multiple susceptibility testing studies against MDR Enterobacteriaceae suggests that SPR741 is capable of potentiating the activity of several classes of antibiotics, including some beta-lactams and macrolides. We ascertained the potential clinical profile of combinations of SPR741 against MDR Enterobacteriaceae encountered in the hospital setting by testing the combinations against a large number of clinical isolates collected from unique patients with different types of infections from hospitals around the world. In one such study, we measured the ability of SPR741 to enhance the activity of ceftazidime, or CAZ, or piperacillin-tazobactam (Zosyn, or TZP) against a large collection of clinical isolates expressing the drug-resistant phenotype ESBL. In each case, as shown in the graph and summarized in the table below, SPR741 potentiated the activity of the antibiotics resulting in an MIC 90 shift from 256 to 8 for CAZ and from 256 to 1 for TZP. We believe that this data demonstrates SPR741’s ability to restore the combined antibiotic’s therapeutic activity against a resistant strain of bacteria.

 

Potency of Piperacillin-Tazobactam and Ceftazidime with and without SPR741

in Global Set of Clinical Isolates Classified as ESBL Producers

 

 

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MIC 90 and % of Bacteria Susceptible to Piperacillin-Tazobactam and Ceftazidime

with and without SPR741 in Global Set of Clinical Isolates Classified as ESBL Producers

 

    

MIC90

(mg/mL)

    

%
Susceptible(1)

 

CAZ

     256        20

CAZ+SPR741

     8        88

TZP

     256        75

TZP+SPR741

     1        98

 

(1) Breakpoints for CAZ+SPR741 and TZP+SPR741 are defined by regulatory bodies only upon approval of NDA(s) and as such none exist today. As a surrogate, we have used the clinically approved breakpoints for CAZ and TZP to define anticipated susceptibility for our combinations.

In Vivo Activity of SPR741 Against Drug-Resistant Gram-Negative Bacteria

Results from multiple mouse infection studies using MDR Enterobacteriaceae as the infecting pathogen also suggest that SPR741 is capable of potentiating the activity of several classes of antibiotics, including beta-lactams and macrolides. We have assessed combinations for efficacy in models of thigh, pneumonia, and urinary tract infection with pathogens exhibiting different resistant phenotypes and have observed positive results in these models.

In one such study, we measured the ability of SPR741 to enhance the activity of CAZ in a mouse thigh infection study where the infecting organism was a Klebsiella pneumoniae expressing ESBL bla CTX-M-25 . CAZ administered alone at 50 mg/kg, TID (orange bar) resulted in ~1 log cfu/g of growth in burden, compared to the starting inoculum. SPR741 administered alone at either 40 mg/kg or 60 mg/kg, TID (blue bars) resulted in ~1.5 log cfu/g of growth in burden, compared to the starting inoculum. However, when CAZ at 50 mg/kg, TID and SPR741 at 40 mg/kg or 60 mg/kg, TID were administered in combination (green bars), the growth in burden was reduced by ~1.6 log and 2.8 log cfu/g, respectively compared to the starting inoculum. For comparison, tigecycline administered alone at a high dose of 40 mg/kg TID (purple bar) reduced burden by ~2.5 log cfu/g compared to the starting inoculum. We believe that these data demonstrate in vitro SPR741’s ability to restore the combined antibiotic’s therapeutic activity against a resistant strain of bacteria, and also demonstrate that a first-line antibiotic like CAZ can achieve efficacy in line with a reserve agent like tigecycline when used in combination with SPR741.

 

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In Vivo Effect of Administration of SPR741 and Ceftazidime in

Klebsiella Pneumonia Mouse Thigh Infection Model

 

 

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SPR206—Next-Generation Potentiator Product Candidate

Our next-generation potentiator candidate, SPR206, like SPR741, is an agent that is designed to interact with the LPS to disrupt the outer membrane of Gram-negative bacteria. SPR206, unlike SPR741, has been observed to have direct antibiotic activity, while retaining potentiator activity, and has shown antibiotic activity against Pseudomonas and Acinetobacter . We are developing SPR206 as a treatment for high-risk patients with suspected or known Gram-negative infections such as CRE, CRAB and MDR PA to prevent mortality and reduce the length of stay in the hospital setting. We believe SPR206 has the potential, if successfully developed and approved, to become a new standard of care for these infections given the lack of coverage of these infections by generic and recently approved agents, and even new agents in development.

SPR206 Development Plan

In preclinical studies to date, SPR206 has demonstrated a favorable nephrotoxicity profile and toxicity profile. SPR206 has also shown favorable efficacy in multiple models of Gram-negative infection, including Pseudomonas and Acinetobacter lung models in mice. Our current plans for SPR206 are to initiate the scale-up manufacturing to support the initiation of GLP toxicology and safety pharmacology studies in 2018. Pending successful results, we plan to file an IND (or foreign equivalent) and begin Phase 1 clinical trials during the second half of 2018.

Market Opportunity for SPR206

The need for new antibiotics to treat CRE, CRAB and MDR PA is particularly acute, as together these represent among the top global threats in infectious disease. In February 2017, the WHO published a list of Gram-negative bacteria based on the urgency of need for new antibiotics: critical, high and medium priority. The most critical group of all includes MDR bacteria that pose a particular threat including Acinetobacter , Pseudomonas and various Enterobacteriaceae (including Klebsiella , E. coli , Serratia , and Proteus ). These

 

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bacteria can cause severe and often deadly infections. As such, there is an acute need for new drugs to treat MDR Gram-negative bacteria. Currently approved products are increasingly ineffective against Gram-negative bacteria due to increasing resistance, resulting in limited treatment options for patients with MDR infections. Few new therapeutic agents have been approved or are in clinical development to treat infections caused by Gram-negative bacteria.

Carbapenem-Resistant Acinetobacter Baumannii

Acinetobacter baumannii is an opportunistic bacterial pathogen primarily associated with hospital-acquired infections. The recent increase in incidence, largely associated with infected combat troops returning from conflict zones, coupled with a dramatic increase in the incidence of MDR strains, has significantly raised the profile of this emerging opportunistic pathogen. It is estimated between 50,000 to 80,000 infections annually in the United States and approximately 63% of isolates are MDR. Mortality rates for patients with Acinetobacter baumannii have been reported as high as 43%. Currently the only drugs to treat these resistant organisms are colistin and tigecycline, both of which have significant safety and tolerability issues. SPR206 would provide a much needed addition to the treatment of these very serious infections. The activity of SPR206 against a carbapenem resistant strain of Acinetobacter baumannii was superior to that of polymyxin B and tigecycline in a mouse lung infection model as shown below.

Activity of SPR206 vs. Comparators in a Mouse Lung Infection Model

 

 

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Carbapenem Resistant Pseudomonas Aeruginosa

Pseudomonas is one of the most common Gram-negative organisms in the hospital setting. Incidence ranges from 13% in UTIs and as high as 25% in respiratory tract infections. Resistance to commonly used agents such as cephalosporins, piperacillin/tazobactam and quinolones ranges from 10% in the non-ICU setting to upwards of 35% in the ICU. Even more problematic is the increase in resistance to carbapenems, which is reported to be as high as 19% in the ICU. Pseudomonas is a serious cause of infection with morbidity and mortality rates of 18% to 61%. In preclinical studies to date, SPR206 has demonstrated potent activity across a broad range of resistant strains of Pseudomonas aeruginosa . There are limited treatment options available today to treat these resistant organisms.

 

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CRE infections and need for new approaches

CRE infections are associated with significant mortality, with up to 50% mortality observed in patients with bloodstream infections. With limited treatment options available for CRE infections, physicians have resorted to older drugs such as colistin or more recently drugs such as tigecycline and ceftazidime/avibactam. However, there is evidence that these antibiotics are failing patients. For example, in bloodstream infections due to carbapenemase-producing Klebsiella pneumoniae , all-cause mortality for treatment with colistin, tigecycline, or combinations of antibiotics that do not include a carbapenem active in vitro against the infecting isolate was reported to be 46%, 47%, and 37%, respectively. Recently, resistance to even these last-resort treatments has begun to be reported, further increasing the urgency for new therapeutic options.

SPR206, if successfully developed, could become the first novel monotherapy approach to treat the growing threat of carbapenem resistant Gram-negative organisms

In our in vitro studies, SPR206 has covered a wide variety of these bacteria. We are developing SPR206 as a monotherapy because of its observed broad-spectrum coverage. The safety profile observed to date is also a key differentiator in treating these life-threatening infections.

Pulmonary Non-Tuberculous Mycobacterial Infection Program

A third area of our focus is anti-infective orphan disease. We are developing SPR720, a novel mechanism of action therapeutic candidate for the treatment of NTM.

Non-tuberculous mycobacteria are typically found in water and soil. NTM is a rare infection of the lung that is acquired through inhalation of this microbe. There are approximately 150 types of mycobacteria, with Mycobacterium avium complex , or MAC, and Mycobacterium abscessus the most common cause of NTM, together comprising almost 90% of all NTM.

NTM occurs in many different types of patients. NTM often occurs in people with compromised immune systems, such as those with HIV, or those with respiratory conditions such as cystic fibrosis, chronic obstructive pulmonary disease, asthma or bronchiectasis. According to Strollo et al. and Adjemian et al. , the diagnosed patient population is approximately 86,000 in the United States. The annual prevalence of NTM is increasing at an estimated rate of 8% per year. While NTM can affect people of any age, it mostly affects adults middle-aged to elderly, and is increasing among patients over 65, a population expected to nearly double by 2030. While relatively rare compared to other infectious diseases, the prevalence of NTM has more than doubled since 1997. By comparison, the prevalence of tuberculosis has declined.

There are currently no FDA-approved therapeutics indicated for NTM. The current treatment for NTM is lengthy and involves combination therapy, often including three or more drugs including an injectable. Treatment failure is common and is often due to poor compliance or inability to tolerate the regimen. Many patients experience progressive lung disease and mortality is high.

We believe that our intellectual property portfolio for SPR720, which includes multiple issued patents and patent applications pending, will provide SPR720 protection globally, including in the United States and Europe, through 2033.

Our SPR720 Development Plan

Our strategy is to develop SPR720 to become the first oral treatment FDA-indicated for NTM, and to enable refractory patients to regain a better quality of life. SPR720 is currently in preclinical development. We have conducted 28-day GLP toxicity studies in rats and non-human primates. We have also observed activity as good as or better than positive controls in in vitro and in vivo testing, including in an acute model infection

 

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caused by Mycobacterium abscessus . The activity observed was similar to and in some cases better than clarithromycin in other in vitro assays (macrophage and biofilm). We are currently testing SPR720 in in vivo studies to assess activity across other pathogens of interest. Pending further evidence of in vivo activity and positive results from our additional toxicity studies, we plan to initiate Phase 1 clinical trials by the first half of 2019.

Collaboration and License Agreements

In addition to our own patents and patent applications, we have acquired or licensed patents, patent applications and know-how from various third parties to access intellectual property covering product candidates that we are exploring and developing. We have certain obligations under these acquisition or licensing agreements, including diligence obligations and payments, that are contingent upon achieving various development, regulatory and commercial milestones. Also, pursuant to the terms of some of these license agreements, when and if commercial sales of a product commence, we may be obligated to pay royalties to such third parties on net sales of the respective products. Some of our license agreements include sublicenses of rights owned by third-party head licensors.

Meiji Agreements

To support our development of SPR994, in June 2017 we entered into an exclusive License Agreement with Meiji Seika Pharma Co., Ltd., or the Meiji License. Pursuant to the Meiji License, we obtained know-how, data and regulatory documents that will support the development of SPR994.

We retain exclusive rights to commercialize SPR994 throughout the world, except in Japan, Bangladesh, Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam, where Meiji will have exclusive rights to commercialize SPR994. With Meiji, we will establish a joint development committee for the management of the development of SPR994, including any joint, cross-territory studies that may be undertaken by the parties, if any. In addition, the parties will establish a joint commercialization committee to coordinate information sharing relative to commercialization of the new formulation.

Meiji and we have granted each other exclusive cross licenses to our respective tebipenem intellectual property, including know-how and regulatory documentation. The license granted to us by Meiji includes certain know-how that Meiji received from Global Pharma, as described below. As such, our rights to the Global Pharma know-how component are non-exclusive.

Under the Meiji License, we have paid Meiji a one-time nonrefundable upfront fee of $0.6 million and are obligated to pay Meiji future clinical and regulatory milestone payments up to an aggregate of $3.0 million and royalties of a low single-digit percentage based on net sales of SPR994. Additionally, we are obligated to pay Meiji a percentage of certain amounts received from any sublicensees, up to an aggregate of $7.5 million.

Some of the know-how that we received under the Meiji License to support SPR994 development was originally obtained by Meiji through a license from Global Pharma, which we refer to as the head license. Prior to entering into the Meiji License with us, Meiji received written approval from Global Pharma permitting Meiji to enter into the Meiji License with us. Specifically, in a letter agreement between Global Pharma and Meiji entered into in January 2017, Global Pharma consented to Meiji assisting us with the transfer or license of the Global Pharma know-how and Meiji know-how on a non-exclusive basis outside of those Asian countries identified above, as well as certain related matters. This letter agreement does not contemplate us having any right to sublicense the Global Pharma know-how. Global Pharma retains rights to its know-how outside of those Asian countries identified above.

 

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The Meiji License continues in effect until the expiration of all payment obligations thereunder (including royalty payments and licensee revenue) on a product-by-product and country-by-country basis, unless earlier terminated by the parties. Pursuant to the terms of the Meiji License, in addition to each party’s right to terminate the agreement upon the other party’s material breach (if not cured within a specified period after receipt of notice) or insolvency, we also have unilateral termination rights (i) in the event that we abandon the development and commercialization of SPR994 for efficacy, safety, legal or business factors, and (ii) under certain circumstances arising out of the head license with Global Pharma.

Potentiator Agreements

Northern License Agreement

In February 2015, our subsidiary, Spero Potentiator, Inc., or Spero Potentiator, entered into a license agreement, or the 2015 Northern License Agreement, with Northern Antibiotics Oy (Ltd.) of Finland pursuant to which Northern granted to Spero Potentiator an exclusive, worldwide, perpetual and irrevocable license to develop and commercialize certain licensed compounds under certain patents, patent applications and know-how of Northern. In exchange for such exclusive license, Spero Potentiator issued an equity interest in Spero Potentiator and entered into a subscription agreement and shareholders agreement with Northern. In June 2017, we repurchased Northern’s minority equity interest in Spero Potentiator in exchange for a one-time nonrefundable upfront fee of $1.0 million immediately and agreed to pay Northern $0.1 million within five days of the consummation of our initial public offering, and we also amended and restated the 2015 Northern License Agreement, which, as amended, we refer to as the 2017 Northern License Agreement, to include certain contingent cash payments as described below. The 2017 Northern License Agreement has a perpetual term and no express termination rights.

Under the 2017 Northern License Agreement, Northern granted to Spero Potentiator an exclusive, perpetual, irrevocable, worldwide license to develop and commercialize certain licensed compounds under certain Northern patents, patent applications and know-how in consideration for one or more near-term milestone payments up to an aggregate of $2.5 million based on either clinical milestones or the completion of our initial public offering, or a combination thereof, and in consideration for up to an aggregate of $4.5 million upon receipt of marketing approval of SPR741 or other compounds licensed from Northern which, in either case, is approved to be co-administered with a different antibiotic agent. With Northern, we have established a joint development committee for the exchange of information and ideas regarding development of the licensed compounds, to monitor conduct of activities and to provide and receive updates regarding new inventions. In addition, we provide periodic reports to Northern describing the development and commercialization of the licensed compounds, including SPR741.

Cantab Agreements

In June 2016, we entered into a stock purchase agreement, or the Cantab Agreement, with Pro Bono Bio PLC, a corporation organized under the laws of England, and its affiliates, including PBB Distributions Limited, or PBB, Cantab Anti-Infectives Ltd., or CAI and New Pharma License Holdings Limited, or NPLH, in order to acquire NPLH and its intellectual property rights and assets relating to our Potentiator Platform, and our next-generation potentiating agents in particular. The intellectual property portfolio we acquired includes patents which cover SPR206 as well as other novel potentiating agents, polymyxin derivatives and other LPS or outer-membrane bacterial disrupting agents. In exchange for the acquisition of NPLH, we paid PBB upfront consideration in the amount of $0.3 million and also agreed to pay a total of up to $5.8 million upon the achievement of specified clinical and regulatory milestones and to pay £5.0 million ($6.5 million as of June 30, 2017) upon the achievement of a specified commercial milestone. We also agreed to pay royalties of a low single-digit percentage based on net sales of products licensed under the agreement. In addition, Spero Cantab issued an equity interest in Spero Cantab and entered into a subscription agreement and shareholders agreement with PBB. In July 2017, we repurchased PBB’s minority equity interest in Spero Cantab in exchange for a

 

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one-time nonrefundable upfront fee of approximately $0.2 million and we also amended the Cantab Agreement to increase the contingent milestone payments to PBB by an aggregate of $0.1 million. The Cantab Agreement continues indefinitely, with royalty payment obligations thereunder continuing on a product-by-product and country-by-country basis until the later of ten years after the first commercial sale of such product in such country or the expiration in such country of the last to expire valid claim of any of the applicable patents.

In addition, CAI is party to a certain NIAID contract that partially funds the next-generation potentiating agent development program, which is in the process of being novated to us pursuant to the terms of the Cantab Agreement. CAI has submitted a request to NIAID with respect to such novation and we believe that such novation should be completed during 2017. If NIAID exercises future contract options and we receive further funding from NIAID, then we will pay a portion of the proceeds to PBB pursuant to the Cantab Agreement.

Vertex Assignment and License Agreement

In May 2016, we entered into an agreement with Vertex Pharmaceuticals Incorporated, or Vertex, pursuant to which Vertex assigned to us rights to patents relating to SPR720 and SPR719 (an active metabolite). The acquired patent portfolio includes protection for composition of matter, method of use, and specific key intermediates used in the manufacture of SPR719 and SPR720. We also obtained certain know-how and a license to research, develop, manufacture and sell products for a proprietary compound, as well as a transfer of materials as part of the transaction. In return, we granted Vertex an exclusive license to the assigned patents and know-how for use outside of the diagnosis, treatment or prevention of bacterial infections. In exchange for the assigned patents, we paid Vertex an upfront, one-time, non-refundable, non-creditable fee of $0.5 million, which was recognized as research and development expense, and we also agreed to pay Vertex future clinical, regulatory and commercial milestones up to $81.1 million in the aggregate and a royalty on the net sales of licensed products ranging from mid-single digits to low double digits. The agreement continues in effect until the expiration of all payment obligations thereunder, with royalty payment obligations continuing on a product-by-product and country-by-country basis until the later of a specified period after the first commercial sale of such product in such country or the date of expiration in such country of the last to expire applicable patent. Further, Vertex has the right to terminate the agreement if provided with notification from us of our intent to cease all development or if no material development or commercialization efforts occur for a period of 12 consecutive months.

Government Awards

We have commitments of up to an aggregate of $15.0 million in non-dilutive funding from NIAID, the DoD and CARB-X. As noted above, our potentiator program is partially funded by a $1.5 million award from the DoD and an award of up to $6.8 million from CARB-X. The DoD funding supports next-generation potentiator discovery and screening of SPR741 partner antibiotics. The CARB-X award supports screening and selection of SPR741 partner antibiotics (with the exception of azithromycin) with the goal of taking one SPR741/partner combination through IND-enabling studies, culminating in the completion of a Phase 1 clinical trial. Our NIAID award provides up to $1.0 million of support for our SPR720 program. The scope of the program includes in vitro and in vivo assessments of SPR720 against tuberculous as well as nonclinical and manufacturing activities in support of both tuberculous and NTM indications. Finally, NIAID is providing up to $5.7 million of funding for our next-generation potentiator molecules. CAI is the current contract holder, although novation of the contract to us is in progress.

Intellectual Property

We strive to protect the proprietary technology that we believe is important to our business, including seeking and maintaining patents intended to cover our product candidates and compositions, their methods of use and processes for their manufacture and any other inventions that are commercially important to the development of our business. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

 

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Our success will significantly depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology and inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how and continuing technological innovation to develop and maintain our proprietary position.

Spero-Owned Intellectual Property Relating to SPR994 and Other Compounds Under Development

We have patent applications directed to the composition of matter, formulation and/or use of SPR994, SPR741, SPR206 and SPR720 pending in the United States, Europe, Japan and other countries.

SPR994

Our SPR994 program contains three pending U.S. provisional applications covering novel preparations of tebipenem pivoxil as of August 31, 2017, all wholly owned by us. The provisional patent applications will be converted to Patent Cooperation Treaty, or PCT, applications within one year of their filing dates. U.S. and foreign patents issuing from our tebipenem pivoxil patent applications will have statutory expiration dates of December 2037 and February 2038. Patent term adjustments or patent term extensions could result in later expiration dates.

Potentiator Platform (Including SPR741)

The intellectual property portfolio for our Potentiator Platform contains patent applications and issued patents directed to composition of matter for SPR741 and analogs thereof, composition of matter with different structural features, combinations of SPR741 or other potentiators with other anti-bacterial compounds, and methods of use for these novel compounds and compositions. As of August 31, 2017, we owned or were exclusively licensed eight U.S. patents and one U.S. provisional application; 28 foreign patents and nine pending foreign patent applications in a number of jurisdictions, including Australia, Brazil, Canada, China, the European Union, Israel, India, Indonesia, Japan, South Korea, Mexico, New Zealand, Russia, Singapore, South Africa, and Taiwan; four pending PCT applications; and two pending U.S. provisional patent applications directed to our Potentiator Platform. Issued U.S. or foreign patents and any patents issuing any pending U.S., foreign or PCT applications covering SPR741 will have a statutory expiration date of August 2027, February 2029, April 2037, May 2037, May 2038 and July 2038. Patent term adjustments or patent term extensions could result in later expiration dates.

Next-Generation Polymyxin Program (Including SPR206)

The intellectual property portfolio for our next-generation polymyxin program contains patent applications and issued patents directed to composition of matter for polymyxin-like compounds with different structural features, pharmaceutical compositions comprising the same, and methods of use for these novel compounds and compositions. As of August 31, 2017, we owned one U.S. patent, three pending U.S. applications, four foreign patents and 47 pending foreign patent applications in a number of jurisdictions including Argentina, Australia, Brazil, Canada, China, Colombia, Eurasia, the European Union, the Gulf Coast Cooperation Treaty, Hong Kong, Israel, India, Indonesia, Japan, South Korea, Mexico, Russia, Singapore, South Africa, Taiwan and Vietnam. Issued U.S. or foreign patents and any patents issuing any pending U.S., foreign or PCT applications covering our next-generation polymyxin program will have a statutory expiration date of November 2032, May 2034, March 2035 and November 2035. Patent term adjustments or patent term extensions could result in later expiration dates.

 

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DNA Gyrase Inhibitor Program (SPR720)

Our intellectual property portfolio for our DNA Gyrase Inhibitor program includes issued patents and pending patent applications directed to composition of matter for SPR720, and its close analogs and prodrugs, novel solid forms of SPR720 and its prodrugs, methods of manufacture, and methods of treatment using SPR720 alone and in combination with other antibiotic compounds. All patents and patent applications in the portfolio are wholly owned by us. As of August 31, 2017, we owned ten issued U.S. patents, one pending U.S. patent application, 52 issued foreign patents, and 38 pending foreign patent applications. The issued and foreign patents are in a number of jurisdictions including the European Union and its member states, Argentina, Australia, Brazil, Canada, China, Hong Kong, Indonesia, Israel, Japan, South Korea, Mexico, New Zealand, the Philippines, Russia, Singapore, South Africa, and Taiwan. Issued U.S. and foreign patents, and patents issuing from pending U.S. and foreign applications will have statutory expiration dates of January 2032, June 2032 and July 2033. Patent term adjustments or patent term extensions could result in later expiration dates.

Patent Term and Patent Term Extensions

The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug, biological product or medical device approved pursuant to a pre-market approval may also be eligible for patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met. The length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension and only those claims reading on the approved drug are extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug.

Trade Secrets

We rely, in some circumstances, on trade secrets to protect our unpatented technology. However, trade secrets can be difficult to protect. We seek to protect our trade secrets and proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached. We may not have adequate remedies for any breach and could lose our trade secrets through such a breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting trade secrets, know-how and inventions.

Competition

The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical companies and generic drug companies. Many of our potential competitors have greater financial, technical human resources than we do, as well as greater experience in the discovery and development of product

 

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candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our potential competitors may be more successful than us in obtaining FDA approval drugs and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render our product candidates non-competitive or obsolete.

We believe the key competitive factors that will affect the development and commercial success of most advanced product candidate, SPR994, if approved, will be efficacy, coverage of drug-resistant strains bacteria, safety and tolerability profile, reliability, convenience of oral dosing, price, availability of reimbursement from governmental and other third-party payers and susceptibility to drug resistance.

We are developing SPR994 as an oral antibiotic for use as a monotherapy for the treatment of resistant and MDR infections. If approved, SPR994 would compete with several antibiotics currently in clinical development, including C-Scape from Achaogen, Inc., sulopenem from Iterum Therapeutics Limited, eravacycline from Tetraphase Pharmaceuticals, Inc. and omadacycline from Paratek Pharmaceuticals, Inc.

We also expect that SPR994, if approved, would compete with future and current generic versions marketed antibiotics.

If approved, we believe that SPR994 would compete effectively against these compounds on the basis of SPR994’s potential:

 

    broad range of activity against a wide variety of resistant and MDR Gram-negative bacteria;

 

    low probability of drug resistance;

 

    a favorable safety and tolerability profile;

 

    a convenient oral dosing regimen and opportunity to step-down from IV-administered therapy; and

 

    as a monotherapy treatment for MDR Gram-negative infections.

We are also developing SPR741 through our Potentiator Platform, an IV-administered agent that has demonstrated in vitro the ability to expand the spectrum and increase the potency of co-administered antibiotics. If approved, SPR741 would compete with several IV-administered product candidates marketed for the treatment of Gram-negative infections, including Avycaz from Allergan plc and Pfizer Inc. and Zerbaxa from Merck & Co. There are also a number of IV-administered product candidates in late-stage clinical development that are intended to treat Gram-negative infections, including plazomicin from Achaogen Inc., meropenem-vaborbactam from The Medicines Company, cefiderocol from Shionogi & Co. Ltd., eravacycline IV from Tetraphase Pharmaceuticals Inc. and relabactam from Merck & Co. Each of these products and product candidates employs a mechanism of action that differs from the mechanism of action employed by SPR741.

If approved, we believe that SPR741 would compete effectively and potentially occupy an earlier place in treatment against these compounds on the basis of SPR741’s potential, including:

 

    novel mechanism of action and ability to expand the utility of multiple antibiotics including many generic standard of care antibiotics and prolong the use of these agents to lessen the burden on newer expensive agents;

 

    broad-spectrum activity against a wide variety of multi-drug resistant Gram-negative bacteria;

 

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    low probability of drug resistance; and

 

    a favorable safety and tolerability profile.

Government Regulation and Product Approval

Government authorities in the United States, at the federal, state and local level, and in other countries, extensively regulate, among other things, the research, development, clinical trials, testing, manufacture, including any manufacturing changes, authorization, pharmacovigilance, adverse event reporting, recalls, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import and export of pharmaceutical products and product candidates such as those we are developing. The processes for obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.

Recent Changes in the Regulatory Landscape

The FDA’s Division of Anti-Infective Products, or DAIP, has undergone evolution in recent years, primarily driven by concerns that increasingly less effective antibiotics may have been approved in the last 10 to 15 years and a desire to bring what DAIP perceives to be greater statistical rigor to their analyses. The impact of this was a rethinking of how antibiotic efficacy is measured in clinical trials, and a review of the statistical tools used to analyze the data. In February 2015, the FDA published guidance documents for industry entitled “Complicated Urinary Tract Infections: Developing Drugs for Treatment” and guidance entitled “Complicated Intra-Abdominal Infections: Developing Drugs for Treatment.” The purpose of these guidance documents is to address considerations surrounding the clinical development of drugs for cUTI and cIAI indications, including clinical trial design and efficacy. Additionally, in August 2017, the FDA published a guidance document entitled “Antibacterial Therapies for Patients With an Unmet Medical Need for the Treatment of Serious Bacterial Diseases,” setting forth its current thinking with respect to development programs and clinical trial designs for antibacterial drugs to treat serious bacterial diseases.

On December 13, 2016, President Obama signed into law the Cures Act, which is intended to accelerate medal product development. Section 3042 of the Cures Act establishes the limited population pathway for certain antibacterial or antifungal drugs intended to treat targeted groups of patients suffering from serious or life-threatening infections where unmet need exists. Approvals of these limited population drugs are expected to rely on data from smaller clinical trials than would ordinarily be required by the FDA. To date, the FDA has not approved any drugs utilizing the limited population pathway. For drugs approved through this pathway, the statement “Limited Population” will appear prominently next to the drug’s name in labeling, which is intended to provide notice to healthcare providers that the drug is indicated for use in a limited and specific population of patients.

U.S. Government Regulation

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil and/or criminal penalties.

 

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The process required by the FDA before a drug may be marketed in the United States generally involves the following:

 

    completion of preclinical laboratory tests, animal studies and formulation studies in compliance with GLP regulations;

 

    submission to the FDA of an IND which must become effective before human clinical trials may begin;

 

    approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated;

 

    performance of adequate and well-controlled human clinical trials in accordance with GCP to establish the safety and efficacy of the proposed drug product for each indication;

 

    submission to the FDA of an NDA;

 

    satisfactory completion of an FDA advisory committee review, if applicable;

 

    satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practices, or cGMP, and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

 

    satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of clinical data; and

 

    payment of user fees and securing FDA review and approval of the NDA.

Preclinical Studies

Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy. Preclinical tests intended for submission to the FDA to support the safety of a product candidate must be conducted in compliance with GLP regulations and the United States Department of Agriculture’s Animal Welfare Act. A drug sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some preclinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical Trials

Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial along with the requirement to ensure that the data and results reported from the clinical trials are credible and accurate. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the criteria for determining subject eligibility, the dosing plan, the parameters to be used in monitoring safety, the procedure for timely reporting of adverse events, and the effectiveness criteria to be evaluated. A protocol for each clinical

 

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trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to the NIH for public dissemination on their www.clinicaltrials.gov website.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

Phase 1 : The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness. During Phase 1 clinical trials, sufficient information about the investigational drug’s or biological product’s pharmacokinetics and pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase 2 clinical trials.

Phase 2 : The drug is administered to a larger, but still limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dosage tolerance and optimal dosage. Phase 2 clinical trials are typically well-controlled and closely monitored.

Phase 3 : The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. Phase 3 clinical trials usually involve a larger number of participants than a Phase 2 clinical trial.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Results from one trial may not be predictive of results from subsequent trials. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the preclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision. Furthermore, the FDA is not required to complete its review within the established ten-month timeframe and may extend the review process by issuing requests for additional information or clarification.

In addition, under the Pediatric Research Equity Act of 2003, as amended and reauthorized, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults or full or partial waivers from the pediatric data requirements.

 

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Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

The FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, plan to mitigate any identified or suspected serious risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facilities in which it is manufactured, processed, packaged or held meet standards designed to assure the product’s continued safety, quality and purity.

The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical trial sites to assure compliance with GCP.

The FDA generally accepts data from foreign clinical trials in support of an NDA if the trials were conducted under an IND. If a foreign clinical trial is not conducted under an IND, the FDA nevertheless may accept the data in support of an NDA if the study was conducted in accordance with GCPs and the FDA is able to validate the data through an on-site inspection, if deemed necessary. Although the FDA generally requests that marketing applications be supported by some data from domestic clinical studies, the FDA may accept foreign data as the sole basis for marketing approval if (1) the foreign data are applicable to the U.S. population and U.S. medical practice, (2) the studies were performed by clinical investigators with recognized competence, and (3) the data may be considered valid without the need for an on-site inspection or, if the FDA considers the inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.

The testing and approval process for an NDA requires substantial time, effort and financial resources, and each may take several years to complete. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all.

After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinical testing in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction,

 

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the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling , require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Special FDA Expedited Review and Approval Programs

The FDA has various programs, including fast track designation, accelerated approval and priority review, that are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.

To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life threatening disease or condition and demonstrates the potential to address an unmet medical need, or if the drug qualifies as a QIDP under the GAIN Act. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. Fast track designation provides additional opportunities for interaction with the FDA’s review team and may allow for rolling review of NDA components before the completed application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. The FDA may decide to rescind the fast track designation if it determines that the qualifying criteria no longer apply.

The FDA may give a priority review designation to drugs that offer major advances in treatment for a serious condition, or provide a treatment where no adequate therapy exists. Most products that are eligible for fast track designation are also likely to be considered appropriate to receive a priority review. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of ten months under current PDUFA guidelines. Under the current PDUFA agreement, these six and ten month review periods are measured from the “filing” date rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review and decision from the date of submission.

In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, meaning that it may be approved on (i) the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or (ii) on an intermediate clinical endpoint that can be measured earlier than irreversible morbidity or mortality and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be subject to accelerated withdrawal procedures.

 

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Moreover, under the provisions of the Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012, a sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

The FDA strictly regulates the marketing, labeling, advertising and promotion of drug products that are placed on the market. A product cannot be commercially promoted before it is approved, and approved drugs may generally be promoted only for their approved indications. Promotional claims must also be consistent with the product’s FDA-approved label, including claims related to safety and effectiveness. The FDA and other federal agencies also closely regulate the promotion of drugs in specific contexts such as direct-to-consumer advertising, industry-sponsored scientific and education activities, and promotional activities involving the Internet and social media.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market.

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or

 

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other restrictions under a REMS program. Other potential consequences of regulatory non-compliance include, among other things:

 

    restrictions on, or suspensions of, the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

 

    interruption of production processes, including the shutdown of manufacturing facilities or production lines or the imposition of new manufacturing requirements;

 

    fines, warning letters or other enforcement letters or holds on post-approval clinical trials;

 

    refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;

 

    product seizure or detention, or refusal to permit the import or export of products; or

 

    injunctions or the imposition of civil or criminal penalties.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Exclusivity and Approval of Competing Products

Hatch-Waxman Exclusivity

Market and data exclusivity provisions under the FDCA can delay the submission or the approval of certain applications for competing products. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the activity of the drug substance. We believe that our product candidates are new chemical entities. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company that references the previously approved drug. However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA, or supplement to an existing NDA or 505(b)(2) NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant, are deemed by the FDA to be essential to the approval of the application or supplement. Three year exclusivity may be awarded for changes to a previously approved drug product, such as new indications, dosages, strengths or dosage forms of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general matter, does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. For drug products that contain an “antibiotic” ingredient approved prior to 1997, the statute imposes certain limitations on the award of non-patent exclusivity. However, we do not believe these limitations would apply to SPR994 or any of our other investigational antibiotics.

 

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Qualified Infectious Disease Product Exclusivity

Under the GAIN Act provisions of FDASIA, which was signed into law in July 2012, the FDA may designate a product as a qualified infectious disease product, or QIDP. In order to receive this designation, a drug must qualify as an antibiotic or antifungal drug for human use intended to treat serious or life-threatening infections, including those caused by either (i) an antibiotic or antifungal resistant pathogen, including novel or emerging infectious pathogens, or (ii) a so-called “qualifying pathogen” found on a list of potentially dangerous, drug-resistant organisms to be established and maintained by the FDA under the new law. A sponsor must request such designation before submitting a marketing application. We obtained a QIDP designation for the oral formulation of SPR994 for cUTI in November 2016 and CABP and DFI in April 2017, and expect to request QIDP designations for our other product candidates prior to submitting a marketing application for such product candidates, as appropriate.

Upon approving an application for a qualified infectious disease product, the FDA will extend by an additional five years any non-patent marketing exclusivity period awarded, such as a five-year exclusivity period awarded for a new molecular entity. This extension is in addition to any pediatric exclusivity extension awarded, and the extension will be awarded only to a drug first approved on or after the date of enactment.

The GAIN Act provisions prohibit the grant of an exclusivity extension where the application is a supplement to an application for which an extension is in effect or has expired, is a subsequent application for a specified change to an approved product, or is an application for a product that does not meet the definition of qualified infectious disease product based on the uses for which it is ultimately approved.

Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries or economic areas, such as the European Union and Australia, before we may commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product authorization, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure is compulsory for medicinal products produced by biotechnology or those medicinal products containing new active substances for specific indications such as the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, viral diseases and designated orphan medicines, and optional for other medicines which are highly innovative. Under the centralized procedure, a marketing application is submitted to the European Medicines Agency where it will be evaluated by the Committee for Medicinal Products for Human Use and a favorable opinion typically results in the grant by the European Commission of a single marketing authorization that is valid for all European Union member states within 67 days of receipt of the opinion. The initial marketing authorization is valid for five years, but once renewed is usually valid for an unlimited period. The decentralized procedure provides for approval by one or more “concerned” member states based on an assessment of an application performed by one member state, known as the “reference” member state. Under the decentralized approval procedure, an applicant submits an application, or dossier, and related materials to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.

 

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Pharmaceutical Coverage and Reimbursement

Sales of our products will depend, in part, on the availability and extent of coverage and reimbursement by third-party payors, such as government health programs, including Medicare and Medicaid, commercial insurance and managed healthcare organizations. These third-party payors are increasingly challenging the price and limiting the coverage and reimbursement amounts for medical products and services.

The containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could reduce physician usage of the product candidate and have a material adverse effect on our sales, results of operations and financial condition.

In the United States, the federal government provides health insurance for people who are 65 or older, and certain people with disabilities or certain conditions irrespective of their age, through the Medicare program, which is administered by the Centers for Medicare & Medicaid Services, or CMS. Coverage and reimbursement for products and services under Medicare are determined in accordance with the Social Security Act and pursuant to regulations promulgated by CMS, as well as the agency’s subregulatory coverage and reimbursement guidance and determinations. Drugs and other products that are utilized within the hospital in-patient setting are typically reimbursed under a prospective payment system, or a predetermined payment amount that is based on diagnosis related groups, or DRGs for Medicare patients and under a bundled payment for commercially insured patients. These payment amounts differ by type of diagnoses, procedures performed and the severity of the patient’s condition, among other things. A drug that is used in a treatment or procedure under a specific DRG or bundled payment is generally not eligible for any separate payment. For catastrophic cases where costs greatly exceed the bundled payment amount, the hospital may be eligible for an outlier payment that is intended to cover part of the expense above the standard payment.

Medicaid is a health insurance program for low-income children, families, pregnant women, and people with disabilities that is jointly funded by the federal and state governments, but administered by the states. In general, state Medicaid programs are required to cover drugs and biologicals of manufacturers that have entered into a Medicaid Drug Rebate Agreement, although such drugs and biologicals may be subject to prior authorization or other utilization controls.

The U.S. Congress and state legislatures from time to time propose and adopt initiatives aimed at cost containment, which could impact our ability to sell our products profitably. For example, the federal Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, known collectively as the ACA, among other things, contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Adoption of general controls and measures, coupled with the tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceutical drugs. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for manufacturers’ outpatient drugs furnished to Medicaid patients. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits.

 

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Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. Congress and President Trump have expressed their intentions to repeal and replace the ACA. President Trump issued an Executive Order and both chambers of Congress passed bills all with the goal of fulfilling their intentions. However, to date, the Executive Order has had limited effect and the Congressional activities have not resulted in the passage of a law. If a law is enacted, many if not all of the provisions of the ACA may no longer apply to prescription drugs. We cannot predict the full impact of the ACA or future reform measures on our operations.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, in the EU, the sole legal instrument at the EU level governing the pricing and reimbursement of medicinal products is Council Directive 89/105/EEC, or the Price Transparency Directive. The aim of this Directive is to ensure that pricing and reimbursement mechanisms established in the EU Member States are transparent and objective, do not hinder the free movement of and trade in medicinal products in the EU, and do not hinder, prevent or distort competition on the market. The Price Transparency Directive does not provide any guidance concerning the specific criteria on the basis of which pricing and reimbursement decisions are to be made in individual EU Member States, nor does it have any direct consequence for pricing or reimbursement levels in individual EU Member States. The EU Member States are free to restrict the range of medicinal products for which their national health insurance systems provide reimbursement, and to control the prices and/or reimbursement levels of medicinal products for human use. An EU Member State may approve a specific price or level of reimbursement for the medicinal product, or alternatively adopt a system of direct or indirect controls on the profitability of the company responsible for placing the medicinal product on the market, including volume-based arrangements, caps and reference pricing mechanisms.

Health Technology Assessment, or HTA, of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some EU Member States, including the United Kingdom, France, Germany, Ireland, Italy and Sweden. The HTA process in the EU Member States is governed by the national laws of these countries. HTA is the procedure according to which the assessment of the public health impact, therapeutic impact, and the economic and societal impact of use of a given medicinal product in the national healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost, and cost-effectiveness of individual medicinal products as well as their potential implications for the healthcare system. Those elements of medicinal products are compared with other treatment options available on the market. The outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities of individual EU Member States. The extent to which pricing and reimbursement decisions are influenced by the HTA of the specific medicinal product vary between EU Member States. A negative HTA of one of our products by a leading and recognized HTA body, such as the National Institute for Health and Care Excellence in the United Kingdom, could not only undermine our ability to obtain reimbursement for such product in the EU Member State in which such negative assessment was issued, but also in other EU Member States. For example, EU Member States that have not yet developed HTA mechanisms could rely to some extent on the HTA performed in countries with a developed HTA framework, such as the United Kingdom, when adopting decisions concerning the pricing and reimbursement of a specific medicinal product.

Other Healthcare Laws

Although we currently do not have any products on the market, if our product candidates are approved and we begin commercialization, we may be subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and physician sunshine laws and regulations. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations,

 

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exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

Manufacturing

We do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on a limited number of third-party contract manufacturers for all of our required raw materials, drug substance, and finished drug product for our preclinical research and clinical trials. We currently employ internal resources to manage our manufacturing. We intend to have two suppliers for SPR994’s active pharmaceutical ingredient, with each is capable of producing kilogram quantities for commercial scale and has produced over 10kg of active pharmaceutical ingredient under cGMP conditions.

Legal Proceedings

We are not party to any material legal proceedings.

Facilities

Our headquarters are located in Cambridge, Massachusetts, where we lease approximately 7,800 square feet of office space. Our lease extends through December 2020, and we have the option to extend the term of the lease for such space through January 2026. We also sublease approximately 7,000 square feet of laboratory space in Watertown, Massachusetts. Our sublease extends through November 2019.

Employees

As of August 31, 2017, we had 28 full-time employees, including a total of 12 employees with M.D. or Ph.D. degrees. Twenty employees were primarily engaged in research and development activities, with the rest providing administrative, business and operations support. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our employee relations to be good.

 

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MANAGEMENT

Executive Officers, Key Employees and Directors

The following table provides information regarding our executive officers, key employees and directors as of the date of this prospectus:

 

Name

  

Age

    

Position

Executive Officers:

     

Ankit Mahadevia, M.D.

     37      Chief Executive Officer, President and Director

Joel Sendek

     50      Chief Financial Officer

Cristina Larkin

     47      Chief Operating Officer

Thomas Parr Jr., Ph.D.

     64      Chief Scientific Officer

Key Employees:

     

Stephen Garbacz

     58      Vice President of Finance and Operations

Timothy Keutzer

     49      Senior Vice President of Development

Non-Employee Directors:

     

Casper Breum

     50      Director

Milind Deshpande, Ph.D.

     61      Chairman of the Board of Directors

Jean-François Formela, M.D.

     61      Director

Vikas Goyal

     38      Director

Reza Halse, Ph.D.(1)

     43      Director

Frank Thomas

     47      Director

Patrick Vink, M.D.

     54      Director

 

(1) Dr. Halse has notified us that he will resign from our board of directors immediately prior to the effectiveness of the registration statement of which this prospectus forms a part.

Executive Officers

Ankit Mahadevia, M.D. has served as our Chief Executive Officer and President since March 2015 and has been a member of our board of directors since September 2013. He co-founded the company in 2013. Prior to joining us, Dr. Mahadevia was a Venture Partner in the life sciences group at Atlas Venture in Cambridge, Massachusetts, where he supported the formation of eight companies focused on novel drug discovery platforms and therapeutic products, including Synlogic Therapeutics and Translate Bio. He has led three of these companies as acting or full-time CEO. Prior to joining Atlas Venture in 2008, Dr. Mahadevia worked on product and business development with the founding team at Arcion Therapeutics, Inc. He has also held positions in business development both at Genentech, Inc. and at Vanda Pharmaceuticals Inc. Previously, he worked in the health care groups of McKinsey & Company and Monitor Group. Dr. Mahadevia began his career in health care policy, with roles in the U.S. Senate Health, Education, Labor, and Pensions committees, the U.S. Government Accountability Office and the Mexican Institute of Social Security. Dr. Mahadevia holds an M.D. from the Johns Hopkins School of Medicine, an M.B.A. from the Wharton School at the University of Pennsylvania and a B.A. in Economics and Biology from Northwestern University. We believe that Dr. Mahadevia is qualified to serve on our board of directors due to his experience serving as our Chief Executive Officer and President and his extensive experience in the life sciences industry.

Joel Sendek has served as our Chief Financial Officer since May 2017. Mr. Sendek has more than 25 years of experience in the life sciences sector, including 18 years as a senior sell-side research analyst covering biotechnology. Prior to joining us, Mr. Sendek was the Chief Financial Officer at Forward Pharma A/S since August 2014. As an analyst, he served as a Managing Director at Stifel Financial Corp. from January 2012 to July 2014, where he led the firm’s healthcare equity research group, and previously he was a Managing Director at Lazard Ltd. since January 2000, where he established the firm’s healthcare equity research effort. Prior to his career in equity research, Mr. Sendek worked as a Senior Director of Corporate Development at Progenics Pharmaceuticals, Inc. and as an investment banking analyst at Goldman, Sachs & Co. Mr. Sendek holds a B.A. in Biochemistry from Rice University.

 

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Cristina Larkin was promoted to Chief Operating Officer as of September 2017 and had served as our Chief Commercial Officer since March 2016. Ms. Larkin has over 22 years of experience developing strategic commercial insights for biopharmaceutical companies and their infectious disease products such as Avycaz, Dalvance, Teflaro, Levaquin and Floxin. Prior to joining us, Ms. Larkin founded CLC Insights, LLC. Prior to that, since 2004, she worked at Actavis, plc, formerly Forest Laboratories, Inc., where she served in various positions, including Assistant Vice President from 2014 to 2015. During that time, Ms. Larkin led the commercial hospital antibiotic franchise team and was responsible for the U.S. launch and execution strategy for several antibiotics. Additionally, she was a member of the business assessments and business development team and played an integral role in several strategic ventures, including the out-licensing of ceftaroline to AstraZeneca plc and the acquisition of Durata. From 1996 to 2002, Ms. Larkin served in various roles at Ortho-McNeil Pharmaceutical, LLC. Ms. Larkin received a bachelor’s degree from Florida State University.

Thomas Parr Jr., Ph.D . , has served as our Chief Scientific Officer since April 2014. He has more than 26 years of drug discovery experience across both large pharmaceutical and small biotechnology companies. Prior to joining us, from 2012 to 2014, Dr. Parr was the Chief Scientific Officer at Fedora Pharmaceuticals, Inc. where the company moved novel diazabicyclooctane beta-lactramase inhibitors toward development partnerships. Prior to Fedora, he was the Chief Scientific Officer at Targanta Therapeutics, now part of The Medicines Company. Dr. Parr earned his Ph.D. from the University of Calgary and conducted a postdoctoral fellowship at the University of British Columbia. He was an Assistant Professor in the Department of Microbiology and Biochemistry at the University of Ottawa before beginning his drug discovery and development career.

Key Employees

Stephen Garbacz, CPA , has served as our Vice President of Finance and Operations since July 2015. He has over 20 years of senior finance experience in biotechnology and consumer products. Prior to joining us, he was the Executive Director at Epizyme, Inc. where he played a leading role in that company’s IPO. Before joining Epizyme in 2012, Mr. Garbacz held senior financial positions at Biogen, Inc., including Controller of International (based in Switzerland), Director of Operations and Technology and Director of Accounting. Mr. Garbacz has also held senior financial positions at Kraft Foods Group, Inc., including mergers and acquisitions, treasury, financial planning and analysis, and international. He has an M.B.A. in Finance from the Stern Graduate School of Business at New York University and a B.S. in Economics from George Mason University.

Timothy Keutzer was promoted to Senior Vice President of Development as of September 2017 and had served as our Vice President of Development since September 2015. He has over 20 years of experience in the pharmaceutical industry, spanning multiple functional and therapeutic areas. Prior to joining us, Mr. Keutzer was employed by Cubist Pharmaceuticals, Inc. from 2008 to 2015. He was Vice President of Program and Portfolio Management from 2014-2015. While at Cubist, he was the program leader for ceftolozane/tazobactam, which progressed rapidly from Phase 1 to Phase 3 clinical trials, and was approved in the United States in December 2014. Prior to that role, he also led several of Cubist’s in-licensed development programs, and also led the commercial supply chain for Cubicin. His experience before Cubist spans the drug development continuum across multiple drug classes, and includes preclinical PK/PD and clinical operations at Genetics Institute, Inc., as well as global strategic marketing and program management at Wyeth. Mr. Keutzer began his career in contract toxicology laboratories. He studied English and microbiology at the University of Kentucky.

Non-Employee Directors

Casper Breum has served on our board of directors since June 2015. Mr. Breum is a Senior Partner at Lundbeckfond Ventures, where he has been since 2009. Previously, Mr. Breum was Chief Executive Officer of Ilochip A/S, a venture-backed company focused on the development of diagnostic biochips. Prior to Ilochip, Mr. Breum held different positions at H. Lundbeck A/S, most recently in corporate business development

 

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and strategy. While working at H. Lundbeck A/S, he was a member of the board of directors of Lundbeckfond and Lundbeckfond Invest A/S, the main shareholder of H. Lundbeck A/S and ALK-Abello A/S, as an employee representative. Mr. Breum is currently a member of the board of directors of Atox Bio Inc., Biom’Up SA, Dysis Medical Ltd., and Laboratoris Sanifit, S.L. Mr. Breum obtained an MSc in Organic Chemistry and an M.B.A. in Management of Technology, both from the Technical University of Denmark. We believe Mr. Breum is qualified to serve on our board of directors because of his extensive operational experience within the pharmaceutical industry, his experience as a chief executive officer and his experience as a venture capitalist serving on other boards of directors in the life sciences industry.

Milind Deshpande, Ph.D. , has served on our board of directors since January 2014 and currently serves as chairman of our board of directors. Dr. Deshpande joined Achillion Pharmaceuticals, Inc. in September 2001 as Vice President of Chemistry, was named Head of Drug Discovery in April 2002, Senior Vice President of Drug Discovery in December 2002, Senior Vice President and Chief Scientific Officer in December 2004 and Executive Vice President of Research and Chief Scientific Officer in June 2007. He was promoted to President of Research and Development in October 2010. In May 2013, Dr. Deshpande was appointed President and Chief Executive Officer of Achillion and joined its board of directors on which he continues to serve. Prior to joining Achillion, Dr. Deshpande was Associate Director of Lead Discovery and Early Discovery Chemistry at the Pharmaceutical Research Institute at Bristol-Myers Squibb Co. from 1991 to 2001, where he managed the identification of new clinical candidates to treat infectious and neurological diseases. From 1988 to 1991, he held a faculty position at Boston University Medical School. Dr. Deshpande received his Ph.D. in Organic Chemistry from Ohio University, following his undergraduate education in India. We believe that Dr. Deshpande is qualified to serve on our board of directors due to his extensive experience in the life sciences industry.

Jean-François Formela, M.D. , has served on our board of directors since March 2013. Dr. Formela is currently a partner at Atlas Venture and focuses on new advances in biology and drug discovery technologies as well as novel therapeutics. Dr. Formela joined Atlas Venture in 1993 to build its U.S. life sciences franchise. Prior to joining Atlas, he worked at Schering-Plough Corporation, where he directed U.S. Phase 4 clinical trials in all therapeutic areas. Before that, he was responsible for the marketing of Intron A, Schering-Plough’s alpha-interferon. Dr. Formela began his career as a medical doctor and practiced emergency medicine at Necker University Hospital in Paris. Dr. Formela serves as chair of the board of directors of IFM Therapeutics, and serves on the boards of directors of Intellia Therapeutics, F-Star Biotechnology Ltd., Kyn Therapeutics, Inc. and Translate Bio, which he co-founded. Dr. Formela received his M.D. from Paris University School of Medicine and his M.B.A. from Columbia University. We believe Dr. Formela’s experience in the life sciences industry, as well as his practice of medicine, provides him with the qualifications and skills to serve as a director of our company.

Vikas Goyal has served on our board of directors since September 2013. Mr. Goyal is currently a Principal at S.R. One, Limited, the corporate venture capital arm of GlaxoSmithKline plc, in Cambridge, Massachusetts, where he manages investments in innovative drug discovery and development companies. He joined S.R. One, Limited in January 2011. Prior to joining S.R. One, Limited, Mr. Goyal was a consultant in the pharmaceutical and medical products practice at McKinsey and Company, a co-founder of Extera Partners, where he advised public and private life sciences companies, and a business development manager at Infinity Pharmaceuticals, Inc. Over his career, Mr. Goyal has supported business and corporate development activities for nearly 50 large and small public, venture-backed, and angel funded life science companies. He received his B.A. in Neurobiology from Harvard University and his M.B.A. in Health Care Management from the Wharton School of the University of Pennsylvania. We believe that Mr. Goyal is qualified to serve on our board of directors due to his extensive investment and operations experience in the life sciences industry.

Reza Halse, Ph.D. , has served on our board of directors since March 2013. Dr. Halse currently serves as President of MRL Ventures Fund, the global corporate venture arm of Merck & Co. Previously, he was Head of the Merck European Innovation Hub, based in London, leading business development and licensing activities in Europe. Prior to Merck, he was a Partner with the corporate venture capital arm of Partners HealthCare System,

 

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Inc., a large academic medical center and Harvard Medical School affiliate, based in Boston, Massachusetts. He has also had management roles in large pharmaceutical and private life-science companies in both the United Kingdom and the United States. He has served on the boards of numerous private life science companies. Mr. Halse holds a B.Sc. and Ph.D. from Newcastle University in the United Kingdom. Dr. Halse has notified us that he intends to resign from our board of directors immediately prior to the effectiveness of the registration statement of which this prospectus forms a part. Dr. Halse’s resignation is not due to any disagreement with the company or any matters relating to the company’s operations, policies or practices.

Frank Thomas has served on our board of directors since July 2017. Mr. Thomas served as the President and Chief Operating Officer of AMAG Pharmaceuticals, Inc., a publicly traded commercial-stage pharmaceutical company, from April 2015 to April 2017, and previously served as AMAG’s Executive Vice President and Chief Operating Officer from May 2012 through April 2015 and Executive Vice President, Chief Financial Officer and Treasurer from August 2011 through May 2012. Prior to joining AMAG, he served as Senior Vice President, Chief Operating Officer and Chief Financial Officer for Molecular Biometrics, Inc., a commercial-stage medical diagnostics company, from October 2008 to July 2011. Prior to Molecular Biometrics, Mr. Thomas spent four years at Critical Therapeutics, Inc., a public biopharmaceutical company, from April 2004 to March 2008, where he was promoted to President in June 2006 and Chief Executive Officer in December 2006 from the position of Senior Vice President and Chief Financial Officer. He also served on the board of directors of Critical Therapeutics from 2006 to 2008. Prior to 2004, Mr. Thomas served as the Chief Financial Officer and Vice President of Finance and Investor Relations at Esperion Therapeutics, Inc., a public biopharmaceutical company. Mr. Thomas was a member of the board of directors of the Massachusetts Biotechnology Council from 2007 to 2015 and currently serves as a member of the board of directors of Zafgen, Inc., a public biopharmaceutical company, which he joined in June 2014. Mr. Thomas holds a B.B.A. from the University of Michigan, Ann Arbor. We believe that Mr. Thomas’ extensive commercial and operational management experience at biopharmaceutical companies and with financial matters qualifies him to serve on our board of directors.

Patrick Vink, M.D. , has served on our board of directors since September 2015. Dr. Vink has been an advisor to the pharmaceutical industry since 2015 and non-executive board member of several companies. Previously, Dr. Vink was employed at Cubist Pharmaceuticals, Inc. Most recently he served as Executive Vice-President and Chief Operating Officer, overseeing all worldwide commercial and technical operations as well as global alliance management and managing the company’s profit and loss. He joined Cubist in 2012 as Senior Vice-president and Head of all International Business Operations. In this role he was responsible for the all business activities in International markets outside USA. Prior to joining Cubist, Dr. Vink served as Senior Vice President, Global Head of Hospital Business and Global Head of Biologics for Mylan Inc. In this role, Dr. Vink managed the global hospital business of the company. He joined Mylan in 2008 and established a number of global functions for the company in Switzerland. Before joining Mylan, Dr. Vink held several leadership positions across the industry, including Head of Global Business Franchise Biopharmaceuticals for Novartis Sandoz; Vice-President International Business for Biogen, Inc.; and Head of Worldwide Marketing, Cardiovascular and Thrombosis for Sanofi-Synthélabo SA. Dr. Vink served as a member of the Executive Committee of the European Federation of Pharmaceutical Industries and Associations (EFPIA) between 2013 and 2015. Dr. Vink graduated as a medical doctor from the University of Leiden, Netherlands in 1988 and obtained his M.B.A. in 1992 from the University of Rochester. Dr. Vink has served on the board of directors of Concordia International Corp., Santhera Pharmaceuticals Ag. and Arch Biopartners. We believe that Dr. Vink is qualified to serve on our board of directors because of his extensive operational business experience, significant knowledge of the activities of our company, and diverse background serving on the board of directors of various public and private life science companies.

Board Composition

Our board of directors consists of eight members, all of whom are members pursuant to the board composition provisions of our voting agreement, which agreement is described under “Certain Relationships and Related Party Transactions” in this prospectus. These board composition provisions will terminate upon the

 

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completion of this offering. Upon the termination of these provisions, there will be no further contractual obligations regarding the election of our directors. Our nominating and corporate governance committee and our board of directors may therefore consider a broad range of factors relating to the qualifications and background of nominees, which may include diversity, which is not only limited to race, gender or national origin. We have no formal policy regarding board diversity. Our nominating and corporate governance committee’s and our board of directors’ priority in selecting board members is identification of persons who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business, understanding of the competitive landscape and professional and personal experiences and expertise relevant to our growth strategy. Our directors hold office until their successors have been elected and qualified or until the earlier of their death, resignation or removal. Our amended and restated certificate of incorporation and amended and restated by-laws that will become effective upon the completion of this offering also provide that our directors may be removed only for cause by the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors, and that any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.

Director Independence . Rule 5605 of the NASDAQ Listing Rules requires a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing. In addition, the NASDAQ Listing Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under Rule 5605(a)(2), a director will only qualify as an “independent director” if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.

Our board of directors has determined that all members of our board of directors, except Ankit Mahadevia, M.D., are independent directors, including for purposes of the rules of The NASDAQ Stock Market and relevant federal securities laws and regulations. There are no family relationships among any of our directors or executive officers.

Staggered Board. In accordance with the terms of our amended and restated certificate of incorporation and amended and restated by-laws that will become effective upon the completion of this offering, our board of directors will be divided into three staggered classes of directors of the same or nearly the same number and each director will be assigned to one of the three classes. At each annual meeting of the stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The terms of the directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders to be held during the years 2018 for Class I directors, 2019 for Class II directors and 2020 for Class III directors:

 

    our Class I directors will be Casper Breum and Vikas Goyal;

 

    our Class II directors will be Frank Thomas and Patrick Vink, M.D.; and

 

    our Class III directors will be Ankit Mahadevia, M.D., Jean-François Formela, M.D. and Milind Deshpande, Ph.D.

Our amended and restated certificate of incorporation and amended and restated by-laws provide that the number of our directors shall be fixed from time to time by a resolution of the majority of our board of

 

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directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class shall consist of one third of our board of directors.

The division of our board of directors into three classes with staggered three-year terms may delay or prevent stockholder efforts to effect a change of our management or a change in control.

Committees of the Board of Directors

Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below upon completion of this offering. Each of the below committees will have a written charter approved by our board of directors, effective upon completion of this offering. Each of the committees will report to our board of directors as such committee deems appropriate and as our board of directors may request. Upon completion of this offering, copies of each charter will be posted on the investor relations section of our website. Members serve on these committees until their resignation or until otherwise determined by our board of directors.

Audit Committee

Effective upon completion of this offering, our audit committee will be comprised of Frank Thomas, Vikas Goyal and Patrick Vink, M.D., with Mr. Thomas serving as chairman of the committee. Our board of directors has determined that each member of the audit committee meets the independence requirements of Rule 10A-3 under the Exchange Act and the applicable NASDAQ Stock Market rules, and has sufficient knowledge in financial and auditing matters to serve on the audit committee. Our board of directors has determined that Frank Thomas is an “audit committee financial expert” within the meaning of Securities and Exchange Commission’s regulations and the applicable rules of The NASDAQ Stock Market. The audit committee’s responsibilities upon completion of this offering will include:

 

    selecting a firm to serve as the independent registered public accounting firm to audit our financial statements;

 

    ensuring the independence of the independent registered public accounting firm;

 

    discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and that firm, our interim and year-end operating results;

 

    establishing procedures for employees to anonymously submit concerns about questionable accounting or audit matters;

 

    considering the effectiveness of our internal controls and internal audit function;

 

    reviewing material related-party transactions or those that require disclosure; and

 

    approving or, as permitted, pre-approving all audit and non-audit services to be performed by the independent registered public accounting firm.

Compensation Committee

Effective upon completion of this offering, our compensation committee is comprised of Patrick Vink, M.D., Casper Breum and Jean-François Formela, M.D., with Dr. Vink serving as chairman of the committee. Each member of this committee is a non-employee director, as defined by Rule 16b-3 promulgated under the Exchange Act, and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of

 

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1986, as amended. Our board of directors has determined that each member of the compensation committee is “independent” as defined in the rules of The NASDAQ Stock Market. The composition of our compensation committee meets the requirements for independence under the listing standards of The NASDAQ Stock Market, including the applicable transition rules. Our board of directors intends to cause our compensation committee to be comprised of only directors that are independent under the rules of The NASDAQ Stock Market within one year of the date of this prospectus. The compensation committee’s responsibilities upon completion of this offering will include:

 

    reviewing and approving, or recommending that our board of directors approve, the compensation of our executive officers;

 

    reviewing and recommending to our board of directors the compensation of our directors;

 

    reviewing and recommending to our board of directors the terms of any compensatory agreements with our executive officers;

 

    administering our stock and equity incentive plans;

 

    reviewing and approving, or making recommendations to our board of directors with respect to, incentive compensation and equity plans; and

 

    reviewing all overall compensation policies and practices.

Nominating and Governance Committee

Effective upon completion of this offering, our nominating and governance committee will be comprised of Milind Deshpande Ph.D., Jean-François Formela, M.D. and Frank Thomas, with Dr. Deshpande as the chairman of the committee. Our board of directors has determined that each member of the nominating and corporate governance committee is “independent” as defined in the applicable rules of The NASDAQ Stock Market. The nominating and corporate governance committee’s responsibilities upon completion of this offering will include:

 

    identifying and recommending candidates for membership on our board of directors;

 

    recommending directors to serve on board committees;

 

    reviewing and recommending our corporate governance guidelines and policies;

 

    reviewing proposed waivers of the code of conduct for directors and executive officers;

 

    evaluating, and overseeing the process of evaluating, the performance of our board of directors and individual directors; and

 

    assisting our board of directors on corporate governance matters.

Leadership Structure and Risk Oversight

Our board of directors is currently chaired by Dr. Deshpande. As a general policy, our board of directors believes that separation of the positions of chairman and chief executive officer reinforces the independence of our board of directors from management, creates an environment that encourages objective oversight of management’s performance and enhances the effectiveness of our board of directors as a whole. As such, Dr. Mahadevia serves as our Chief Executive Officer while Dr. Deshpande serves as the chairman of our board of directors but is not an officer.

 

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Our board of directors oversees the management of risks inherent in the operation of our business and the implementation of our business strategies. Our board of directors performs this oversight role by using several different levels of review. In connection with its reviews of the operations and corporate functions of our company, our board of directors addresses the primary risks associated with those operations and corporate functions. In addition, our board of directors reviews the risks associated with our company’s business strategies periodically throughout the year as part of its consideration of undertaking any such business strategies.

Each of our board committees also oversees the management of our company’s risk that falls within the committee’s areas of responsibility. In performing this function, each committee has full access to management, as well as the ability to engage advisors. Our Chief Executive Officer reports to the audit committee and is responsible for identifying, evaluating and implementing risk management controls and methodologies to address any identified risks. In connection with its risk management role, our audit committee meets privately with representatives from our independent registered public accounting firm and our Chief Executive Officer. The audit committee oversees the operation of our risk management program, including the identification of the primary risks associated with our business and periodic updates to such risks, and reports to our board of directors regarding these activities.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee has at any time during the prior three years been one of our officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of our board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee. For a description of transactions between us and members of our compensation committee and affiliates of such members, see “Certain Relationships and Related Party Transactions.”

Code of Business Conduct and Ethics

We plan to adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting, which will be effective upon completion of this offering. Upon the completion of this offering, our code of business conduct and ethics will be available on our website at www.sperotherapeutics.com . We intend to disclose any amendments to the code, or any waivers of its requirements, on our website or in a Current Report on Form 8-K.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

Summary Compensation Table

The following table shows the total compensation paid or accrued during the fiscal year ended December 31, 2016, to our Chief Executive Officer and our two next most highly compensated executive officers who earned more than $100,000 during the fiscal year ended December 31, 2016 and were serving as executive officers as of such date.

 

Name and Principal Position

  

Year

    

Salary
($)

    

Bonus
($)(1)

    

Stock
Awards
($)(2)

    

All Other
Compensation
($)

   

Total ($)

 

Ankit Mahadevia, M.D.

     2016        360,500        108,150        345,125        1,210 (3)      814,985  

Chief Executive Officer

                

John Tomayko, M.D.

     2016        328,964        98,689        13,892        2,264 (5)      443,809  

Former Chief Medical Officer (4)

                

Thomas Parr, Jr., Ph.D.

     2016        283,250        84,975        52,004        30,664 (6)      450,893  

Chief Scientific Officer

                

 

(1) Amounts represent cash bonuses earned for the 12-month period from January 1, 2016 to December 31, 2016, and exclude payments made in 2016 for 2015 bonuses.

 

(2) These amounts represent the aggregate grant date fair value for stock awards for the fiscal year ended December 31, 2016, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC 718. A discussion of the assumptions used in determining grant date fair value may be found in Note 8 to our consolidated financial statements appearing elsewhere in this prospectus.

 

(3) Includes the dollar value of life insurance premiums the company paid with respect to term life insurance for the benefit of Dr. Mahadevia.

 

(4) Dr. Tomayko terminated his service as Chief Medical Officer of the company, effective as of May 14, 2017.

 

(5) Includes the dollar value of life insurance premiums the company paid with respect to term life insurance for the benefit of Dr. Tomayko.

 

(6) Includes reimbursement during the fiscal year ended December 31, 2016 of $29,506 for housing costs and $1,158 for life insurance premiums the company paid with respect to term life insurance for the benefit of Dr. Parr.

Narrative Disclosure to Summary Compensation Table

We have entered into offer letters with each of our named executive officers in connection with their employment with us, the material terms of which are described below. Except as noted below, these offer letters provide for “at will” employment and were each subject to execution of our standard proprietary information and invention assignment agreement.

Ankit Mahadevia, M.D.

On March 2, 2015, Dr. Mahadevia executed an offer letter with respect to his employment as our Chief Executive Officer beginning on the same date. Employment under the offer letter continues until terminated by us or Dr. Mahadevia. Under the terms of the offer letter, Dr. Mahadevia’s annual base salary was $350,000 in 2015 and was increased to $360,500 in 2016. Under the offer letter, he is eligible to receive an annual incentive bonus determined at the discretion of our board of directors or compensation committee, with a target bonus opportunity of 30% of his then-current base salary. Dr. Mahadevia’s bonus was $108,150 in 2016.

 

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On September 28, 2015, Dr. Mahadevia was awarded 135,000 incentive units of Spero Therapeutics, LLC, 25% of which vested on August 24, 2016, with the remainder vesting in 36 equal monthly installments thereafter. On July 29, 2016, he received a grant of 616,792 incentive units of Spero Therapeutics, LLC, 25% of which vested on April 28, 2017, with the remainder vesting in 36 equal monthly installments thereafter. As set forth in Dr. Mahadevia’s incentive unit agreements, these awards were subject to accelerated vesting in the event Dr. Mahadevia is terminated without cause following a sale event as described under “Outstanding Equity Awards at 2016 Fiscal Year-End” below. The incentive units were intended to qualify as a “profits interest” for U.S. federal income tax purposes and would only have value to the extent the equity value of Spero Therapeutics, LLC increased beyond the value at issuance. Dr. Mahadevia’s incentive units were terminated in connection with the Reorganization. Thereafter, he was granted options to purchase our common stock in connection with the Reorganization in June 2017, as described below.

Dr. Mahadevia’s offer letter also provided that, in the event that his employment is terminated by us without cause, subject to the execution and effectiveness of a separation agreement and release, he is entitled to receive severance consisting of (a) continued base salary, as then in effect, for a period of six months from the date of such termination, plus (b) payment of the employer portion of medical insurance premiums at the rate in effect on the date of such termination until the earlier of six months from the date of termination or eligibility with a subsequent employer.

Dr. Mahadevia’s offer letter was subsequently amended and restated in connection with our June 2017 Reorganization pursuant to an employment agreement dated                 , 2017. Under the terms of the new agreement, Dr. Mahadevia’s annual base salary increased to $400,000 effective on May 19, 2017. Further, the new employment agreement provides for an increase in the severance period from six months from the date of termination to nine months from the date of termination. Dr. Mahadevia’s employment agreement also provides that all unvested options shall accelerate and become fully vested in the event his employment is terminated without cause within the 30-day period prior to a change of control or within the 12-month period following a change of control.

John Tomayko, M.D.

On June 25, 2015, Dr. Tomayko executed an offer letter with respect to his employment as our Chief Medical Officer beginning on August 5, 2015. Employment under the offer letter continues until terminated by us or Dr. Tomayko. Under the terms of the offer letter, Dr. Tomayko’s annual base salary was $325,000 in 2015 and was increased to $328,964 in 2016 and to $340,478 effective January 1, 2017. Under the offer letter, he was eligible to receive an annual incentive bonus to be determined at the discretion of our board of directors, with a target bonus opportunity of up to 20% of his then-current base salary. Dr. Tomayko’s bonus was $98,689 in 2016.

Dr. Tomayko was awarded 165,000 incentive units of Spero Therapeutics, LLC on October 1, 2015, 25% of which vested on August 5, 2016, one year from his commencement of employment, with the remainder vesting in 36 equal monthly installments thereafter. In July 2016, he received a grant of 24,827 incentive units of Spero Therapeutics, LLC, 25% of which vested on April 28, 2017, with the remainder vesting in 36 equal monthly installments thereafter. As set forth in Dr. Tomayko’s incentive unit agreements, these awards were subject to accelerated vesting in the event Dr. Tomayko was terminated without cause following a sale event as described under “Outstanding Equity Awards at 2016 Fiscal Year-End” below. However, as described in the section of this prospectus titled “Reorganization,” we completed the Reorganization in June 2017, and all of Dr. Tomayko’s incentive units were cancelled upon consummation of the Reorganization. Dr. Tomayko was not granted any stock options of Spero Therapeutics, Inc.

Dr. Tomayko’s offer letter also provides that, in the event that his employment is terminated by us without cause, subject to the execution and effectiveness of a separation agreement and release, he is entitled to receive severance consisting of (a) continued base salary, as then in effect, for a period of six months from the

 

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date of such termination, plus (b) payment of the employer portion of medical insurance premiums at the rate in effect on the date of such termination until the earlier of six months from the date of termination or eligibility with a subsequent employer.

Dr. Tomayko terminated his service as our Chief Medical Officer effective as of May 14, 2017. In connection with his termination, we entered into a separation agreement and general release of claims with Dr. Tomayko, whereby he became entitled to the severance payments provided for in his offer letter, as described above.

Thomas R. Parr Jr., Ph.D.

On March 31, 2014, Dr. Parr executed an offer letter with respect to his employment as our Chief Scientific Officer beginning on April 9, 2014. Employment under the offer letter continues until terminated by us or Dr. Parr. Under the terms of the offer letter, Dr. Parr’s annual base salary was $275,000 in 2015 and was increased to $283,250 in 2016. Under the offer letter, he is eligible to receive an annual incentive bonus in the amount of up to 25% of his then-current base salary to be determined at the discretion of our board of directors. Dr. Parr’s bonus was $84,975 in 2016.

On July 1, 2014 Dr. Parr was awarded 83,187 incentive units of Spero Therapeutics, LLC, 25% of which vested on April 14, 2015, with the remainder vesting in 36 equal monthly installments thereafter. Dr. Parr received additional grants of (i) 82,000 incentive units of Spero Therapeutics, LLC in September 2015, 25% of which vested on August 24, 2016, with the remainder vesting in 36 equal monthly installments thereafter, (ii) 5,000 incentive units of Spero Therapeutics, LLC in December 2015, 25% of which vested on December 1, 2016, with the remainder vesting in 36 equal monthly installments thereafter, and (iii) 92,940 incentive units of Spero Therapeutics, LLC in July 2016, 25% of which vested on April 28, 2017, with the remainder vesting in 36 equal monthly installments thereafter. As set forth in Dr. Parr’s applicable incentive unit agreements, the incentive units granted in September 2015 and July 2016 were subject to accelerated vesting in the event Dr. Parr was terminated without cause following a sale event as described under “Outstanding Equity Awards at 2016 Fiscal Year-End” below. The incentive units were intended to qualify as a “profits interest” for U.S. federal income tax purposes and would only have value to the extent the equity value of Spero Therapeutics, LLC increased beyond the value at issuance. Dr. Parr’s incentive units were terminated in connection with the Reorganization. Thereafter, he was granted options to purchase our common stock in connection with the Reorganization in June 2017, as described below.

Dr. Parr’s offer letter also provides that, in the event that his employment is terminated by us without cause or by Dr. Parr for good reason, subject to the execution and effectiveness of a separation agreement and release, he is entitled to receive severance consisting of (a) continued base salary, as then in effect, for a period of six months from the date of such termination, plus (b) payment of the employer portion of medical insurance premiums at the rate in effect on the date of such termination until the earlier of six months from the date of termination or eligibility with a subsequent employer.

Dr. Parr’s offer letter was subsequently amended and restated in connection with the Reorganization pursuant to an employment agreement dated                     , 2017. Under the terms of the new agreement, Dr. Parr’s annual base salary increased to $293,164 beginning on January 1, 2017, and his annual incentive bonus target increased to 30% of his then-current base salary. The new employment also reflects our arrangement with Dr. Parr whereby we have agreed to reimburse the amount of his rental payments for housing in Cambridge, Massachusetts. Further, the new employment agreement provides for an increase in the severance period from six months from the date of termination to nine months from the date of termination.

Dr. Parr’s employment agreement also provides that all unvested options shall accelerate and become fully vested in the event his employment is terminated without cause within the 30-day period prior to a change of control or within the 12-month period following a change of control.

 

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Outstanding Equity Awards at 2016 Fiscal Year-End

The following table sets forth all grants of equity awards outstanding on the last day of the fiscal year ended December 31, 2016 to each of the named executive officers. All equity awards set forth in the table below were granted pursuant to the operating agreement of Spero Therapeutics, LLC, as amended.

 

     Stock Awards  

Name

  

Number of
Incentive Units That
Have Not  Vested

   

Market Value of
Incentive Units That Have

Not Vested ($)(9)

 

Ankit Mahadevia, M.D.

     90,000 (1)       
     616,792 (2)      283,724  

John Tomayko, M.D.

     110,000 (3)       
     24,827 (4)      11,420  

Thomas Parr, Jr., Ph.D.

    

27,729

54,667

3,750

92,940

(5) 

(6) 

(7) 

(8) 

   

10,814

42,752

 

 

 

 

 

(1) Represents incentive units of Spero Therapeutics, LLC granted on September 28, 2015, one-fourth (1/4 th ) of which vested on August 24, 2016, and on the same day of each succeeding calendar month thereafter, an additional one thirty-sixth (1/36 th ) of the remaining unvested incentive units will vest until all of the incentive units are vested. In addition, if Dr. Mahadevia’s employment is terminated by us without cause within one year following a sale event, the vesting of these incentive units will accelerate in accordance with the terms of the incentive unit agreement. Such incentive units have a threshold price of $0.96 per unit. As part of the Reorganization, these incentive units were cancelled and Dr. Mahadevia was granted options to purchase common stock of Spero Therapeutics, Inc. with continued vesting on the same terms as the incentive units.

 

(2) Represents incentive units of Spero Therapeutics, LLC granted on July 29, 2016, one-fourth (1/4 th ) of which vested on April 28, 2017, and on the same day of each succeeding calendar month thereafter, an additional one thirty-sixth (1/36 th ) of the remaining unvested incentive units will vest until all of the incentive units are vested. In addition, if Dr. Mahadevia’s employment is terminated by us without cause within one year following a sale event, the vesting of these incentive units will accelerate in accordance with the terms of the incentive unit agreement. Such incentive units have a threshold price of $0.21 per unit. As part of the Reorganization, these incentive units were cancelled and Dr. Mahadevia was granted options to purchase common stock of Spero Therapeutics, Inc. with continued vesting on the same terms as the incentive units.

 

(3) Represents incentive units of Spero Therapeutics, LLC granted on October 1, 2015, one-fourth (1/4 th ) of which vested on August 5, 2016, and on the same day of each succeeding calendar month thereafter, an additional one thirty-sixth (1/36 th ) of the remaining unvested incentive units will vest until all of the incentive units are vested. In addition, in the event Dr. Tomayko’s employment is terminated by us without cause within one year following a sale event, the vesting of these incentive units will accelerate in accordance with the terms of the incentive unit agreement. Such incentive units have a threshold price of $0.96 per unit. All of Dr. Tomayko’s incentive units were cancelled upon consummation of the Reorganization in June 2017 and, in light of his termination, he was not granted stock options in Spero Therapeutics, Inc.

 

(4)

Represents incentive units of Spero Therapeutics, LLC granted on July 29, 2016, one-fourth (1/4 th ) of which vested on April 28, 2017, and on the same day of each succeeding calendar month thereafter, an additional one thirty-sixth (1/36 th ) of the remaining unvested incentive units will vest until all of the incentive units are vested. In addition, in the event Dr. Tomayko’s employment is terminated by us without cause within one year following a sale event, the vesting of these incentive units will accelerate in accordance with the terms

 

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  of the incentive unit agreement. Such incentive units have a threshold price of $0.21 per unit. All of Dr. Tomayko’s incentive units were cancelled upon consummation of the Reorganization in June 2017 and, in light of his termination, he was not granted stock options in Spero Therapeutics, Inc.

 

(5) Represents incentive units of Spero Therapeutics, LLC granted on July 1, 2014, one-fourth (1/4 th ) of which vested on April 14, 2015, and on the same day of each succeeding calendar month thereafter, an additional one thirty-sixth (1/36 th ) of the remaining unvested incentive units will vest until all of the incentive units are vested. Such incentive units have a threshold price of $0.28 per unit. As part of the Reorganization, these incentive units were cancelled and Dr. Parr was granted options to purchase common stock of Spero Therapeutics, Inc., with continued vesting on the same terms as the incentive units.

 

(6) Represents incentive units of Spero Therapeutics, LLC granted on September 28, 2015, one-fourth (1/4 th ) of which vested on August 24, 2016, and on the same day of each succeeding calendar month thereafter, an additional one thirty-sixth (1/36 th ) of the remaining unvested incentive units will vest until all of the incentive units are vested. In addition, if Dr. Parr’s employment is terminated by us without cause within one year following a sale event, the vesting of these incentive units will accelerate in accordance with the terms of the incentive unit agreement. Such incentive units have a threshold price of $0.96 per unit. As part of the Reorganization, these incentive units were cancelled and Dr. Parr was granted options to purchase common stock of Spero Therapeutics, Inc., with continued vesting on the same terms as the incentive units.

 

(7) Represents incentive units of Spero Therapeutics, LLC granted in December 2015, one-fourth (1/4 th ) of which vested on December 1, 2016, and on the same day of each succeeding calendar month thereafter, an additional one thirty-sixth (1/36 th ) of the remaining unvested incentive units will vest until all of the incentive units are vested. Such incentive units have a threshold price of $0.96 per unit. As part of the Reorganization, these incentive units were cancelled and Dr. Parr was granted options to purchase common stock of Spero Therapeutics, Inc., with continued vesting on the same terms as the incentive units.

 

(8) Represents incentive units of Spero Therapeutics, LLC granted on July 29, 2016, one-fourth (1/4 th ) of which vested on April 28, 2017, and on the same day of each succeeding calendar month thereafter, an additional one thirty-sixth (1/36 th ) of the remaining unvested incentive units will vest until all of the incentive units are vested. In addition, if Dr. Parr’s employment is terminated by us without cause within one year following a sale event, the vesting of these incentive units will accelerate in accordance with the terms of the incentive unit agreement. Such incentive units have a threshold price of $0.21 per unit. As part of the Reorganization, these incentive units were cancelled and Dr. Parr was granted options to purchase common stock of Spero Therapeutics, Inc., with continued vesting on the same terms as the incentive units.

 

(9) The fair value of the common units as of December 31, 2016 was $0.67 per unit. The incentive units only have value when the fair market value of Spero Therapeutics, LLC’s common units exceeds the threshold price for such incentive unit.

As discussed above in the section of this prospectus titled “Reorganization,” on June 30, 2017, we completed a series of transactions pursuant to which Spero Therapeutics, LLC merged with and into Spero Therapeutics, Inc., with Spero Therapeutics, Inc. continuing as the surviving corporation. As part of the Reorganization, each of the capital units of Spero Therapeutics, LLC issued and outstanding prior to the Reorganization was cancelled and converted into and exchanged for one share of Spero Therapeutics, Inc. capital stock of the same class and/or series, and each of the incentive units of Spero Therapeutics, LLC was terminated and cancelled. Promptly after the Reorganization, previous holders of incentive units who were still employed by us at the time of the Reorganization received stock options under the 2017 Plan. Such stock options were granted for the same number of shares of our common stock as the number of incentive units cancelled, and the stock options were granted with continued vesting on the same terms and with similar rights and restrictions as the incentive units. All such stock options have an exercise price of $0.97.

 

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Further, in addition to the stock options granted in exchange for the incentive units in connection with the Reorganization, on July 6, 2017, we granted additional stock options to certain of our employees and consultants under the 2017 Plan. The named executive officers were granted the following additional stock options on July 6, 2017:

 

     2017 Option Awards  

Name

  

Number

of Options

    

Exercise

Price

    

Vesting
Commencement
Date

    

Vesting
Schedule

 

Ankit Mahadevia, M.D.

     750,951      $ 0.97        July 6, 2017        (1
     1,806,336      $ 0.97        July 6, 2017        (2

John Tomayko, M.D.

     —          —          —       

Thomas Parr Jr., Ph.D.

     127,214      $ 0.97        July 6, 2017        (1
     475,111      $ 0.97        July 6, 2017        (2

 

(1) 100% of the options will vest on the vesting commencement date.

 

(2) 25% of the options will vest on the first anniversary of the vesting commencement date, with the balance to vest in equal monthly installments for 36 months beginning on such first anniversary.

Director Compensation

The following table shows the total compensation paid or accrued during the fiscal year ended December 31, 2016, to each of our non-employee directors. Directors who are employed by us are not compensated for their service on our board of directors.

 

Name

  

Fees Earned or
Paid in Cash ($)

    

Stock Awards
($)(1)(2)

    

Total ($)

 

Jean-François Formela

     —          —          —    

Vikas Goyal

     —          —          —    

Milind Deshpande

     —          —          —    

Casper Breum

     —          —          —    

Patrick Vink

     25,000        17,758        42,758  

Reza Halse

     —          —          —    

 

(1) These amounts represent the grant date fair value of stock awards granted to each director in the fiscal year ended December 31, 2016, computed in accordance with ASC 718. A discussion of the assumptions used in determining grant date fair value may be found in Note 8 to our consolidated financial statements appearing elsewhere in this prospectus.

 

(2) As of December 31, 2016, the aggregate number of incentive units of Spero Therapeutics, LLC held by each non-employee director was as follows: Mr. Vink, 56,391, and Mr. Deshpande, 20,000.

We do not currently have a director compensation policy and none of our non-employee directors received any compensation for service during 2016 other than Mr. Vink, who received 29,191 incentive units of Spero Therapeutics, LLC on July 29, 2016, having a threshold price of $0.21 per unit, 25% of which vested on May 13, 2017, with the remainder vesting in 36 equal monthly installments thereafter. Additionally, on October 21, 2015, Mr. Vink was granted 27,200 incentive units of Spero Therapeutics, LLC, having a threshold price of $0.96 per unit, 25% of which vested on August 24, 2016, with the remainder vesting in 36 equal monthly installments thereafter. As part of the Reorganization in June 2017, Mr. Vink’s incentive units were cancelled and he was granted options to purchase common stock of Spero Therapeutics, Inc. with continued vesting on the same terms as the incentive units. Further, on July 6, 2017, Mr. Vink was granted a stock option under the 2017 Plan to purchase 129,063 shares of our common stock at an exercise price of $0.97 per share, which vests over four years with 25% of the options vesting on the first anniversary of the grant date, and the remainder vesting in

 

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equal monthly installments for 36 months thereafter. No incentive units were granted to Mr. Deshpande in 2016, but he received 20,000 incentive units of Spero Therapeutics, LLC on October 2, 2015, having a threshold price of $0.96 per unit, 25% of which vested on August 24, 2016, with the remainder vesting in 36 equal monthly installments thereafter. As part of the Reorganization in June 2017, Mr. Deshpande’s incentive units were cancelled and he was granted options to purchase common stock of Spero Therapeutics, Inc., with continued vesting on the same terms as the incentive units. On July 6, 2017, Mr. Deshpande was granted a stock option under the 2017 Plan to purchase 274,647 shares of common stock of the company at an exercise price of $0.97 per share, which vest over four years with 25% of the options vesting on the first anniversary of the grant date, and the remainder vesting in equal monthly installments for 36 months thereafter. We provide reimbursement to all non-employee directors for reasonable out-of-pocket expenses incurred for attending meetings of our board of directors or any committees thereof.

Non-Employee Director Compensation Policy

We plan to adopt a policy with respect to the compensation payable to our non-employee directors, which will become effective upon the completion of this offering. Under this policy, each non-employee director will be eligible to receive compensation for his or her service consisting of annual cash retainers and equity awards. Our non-employee directors will receive the following annual retainers for their service:

 

Position

  

Retainer

 

Board Member

   $               

Board Chairperson

  

Audit Committee Chair

  

Compensation Committee Chair

  

Nominating and Governance Committee Chair

  

Audit Committee Member

  

Compensation Committee Member

  

Nominating and Governance Committee Member

  

Equity awards for non-employee directors will consist of (i) an initial equity award consisting of                  upon first appointment to our board of directors and vesting                 , subject to the non-employee director’s continued service on our board of directors, and (ii) annual equity awards consisting of                  vesting                 , subject to the non-employee director’s continued service on our board of directors.

Directors may be reimbursed for travel, food, lodging and other expenses directly related to their service as directors. Directors are also entitled to the protection provided by their indemnification agreements and the indemnification provisions in our current certificate of incorporation and by-laws, as well as our amended and restated certificate of incorporation and amended and restated by-laws that will become effective upon the completion of this offering.

Equity Compensation Plans and Other Benefit Plans

Benefits Programs

Each named executive employee is eligible to participate in our benefits programs, which include health, life, disability and dental insurance and a 401(k) retirement savings plan.

Spero Therapeutics, LLC’s Incentive Units

Spero Therapeutics, LLC’s operating agreement provided for the issuance of incentive units to employees, executive officers, directors, and consultants. Pursuant to the terms of the operating agreement, all incentive units were subject to time-based vesting, with the first 25% vesting after 12 months of continued

 

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employment or service, and the remainder vesting in equal monthly installments over the following 36 months. Each incentive unit was intended to be a “profits interest” within the meaning of IRS Revenue Procedures 93-27 and 2001-43 for federal income tax purposes.

Pursuant to the terms of the operating agreement, incentive units may be issued subject to vesting, forfeiture and repurchase pursuant to separate agreements, the provisions of which may be determined, altered, or waived in the sole discretion of Spero Therapeutics, LLC’s board of directors.

As described in the section of this prospectus titled “Reorganization,” all incentive units issued under Spero Therapeutics, LLC’s operating agreement were cancelled as they were deemed to be valueless based on a liquidation valuation basis for federal income tax purposes and pursuant to contractual rights under the operating agreement. Any incentive unit holders who were employees, directors or consultants of the Company at the time of the Reorganization were issued options under the 2017 Plan with continued vesting on the same schedule and the same terms as such person’s incentive units.

Spero Therapeutics, Inc.’s 2017 Stock Incentive Plan

We adopted the Spero Therapeutics, Inc. 2017 Stock Incentive Plan on June 30, 2017. The 2017 Plan will expire on June 30, 2027. Under the 2017 Plan, we may grant incentive stock options, non-qualified stock options, restricted and unrestricted stock awards and other stock-based awards. There are 10,850,693 shares of our common stock authorized for issuance under the 2017 Plan.

We intend to amend the 2017 Plan in connection with the completion of this offering, and upon such amendment, there will be                  shares of our common stock authorized for issuance under such amended plan. In addition, we intend to add an “evergreen” provision, which will allow for an annual increase in the number of shares of our common stock available for issuance under the 2017 Plan on the first day of each fiscal year during the period beginning in fiscal year 2018 and ending in fiscal year 2027. The annual increase in the number of shares shall be equal to the lowest of:

 

         shares of our common stock;

 

        % of the number of shares of our common stock outstanding as of such date; and

 

    an amount determined by our board of directors or compensation committee.

Our board of directors is authorized to administer the 2017 Plan. In accordance with the provisions of the 2017 Plan, our board of directors determines the terms of the options and other awards issued pursuant thereto, including the following:

 

    which employees, directors and consultants shall be granted awards;

 

    the number of shares of common stock subject to options and other awards;

 

    the exercise price of each option, which generally shall not be less than fair market value of the common stock on the date of grant;

 

    the termination or cancellation provisions applicable to the options;

 

    the terms and conditions of other awards, including conditions for repurchase, termination or cancellation, issue price and repurchase price; and

 

    all other terms and conditions upon which each award may be granted in accordance with the 2017 Plan.

 

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No participant may receive awards for more than              shares of our common stock in any fiscal year.

In addition, our board of directors or any committee to which our board of directors delegates authority may, with the consent of the affected plan participants, re-price or otherwise amend outstanding awards consistent with the terms of the 2017 Plan.

Upon a merger, consolidation, or sale of all or substantially all of our assets, our board of directors or any committee to which our board of directors delegates authority, or the board of directors of any corporation assuming the our obligations, may, in its sole discretion, take any one or more of the following actions pursuant to the 2017 Plan, as to some or all outstanding awards, to the extent not otherwise agreed under any individual agreement:

 

    provide that outstanding options will be assumed or substituted for options of the successor corporation;

 

    provide that the outstanding options must be exercised within a certain number of days, either to the extent the options are then exercisable, or at our board of directors’ discretion, any such options being made partially or fully exercisable;

 

    terminate outstanding options in exchange for a cash payment of an amount equal to the difference between (a) the consideration payable upon consummation of the corporate transaction to a holder of the number of shares into which such option would have been exercisable to the extent then exercisable, or in our board of directors’ discretion, any such options being made partially or fully exercisable, and (b) the aggregate exercise price of those options;

 

    provide that outstanding stock grants will be substituted for shares of the successor corporation or consideration payable with respect to our outstanding stock in connection with the corporate transaction; and

 

    terminate outstanding stock grants in exchange for payment of an amount equal to the consideration payable upon consummation of the corporate transaction to a holder of the same number of shares comprising the stock grant, to the extent the stock grant is no longer subject to any forfeiture or repurchase rights, or at our board of directors’ discretion, all forfeiture and repurchase rights being waived upon the corporate transaction. For purposes of determining such payments, in the case of a corporate transaction the consideration for which, in whole or in part, is other than cash, the consideration other than cash shall be valued at the fair market value thereof as determined in good faith by our board of directors.

Rule 10b5-1 Sales Plans

Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from the director or officer. The director or officer may amend or terminate the plan in limited circumstances. Our directors and executive officers may also buy or sell additional shares of our common stock outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following is a description of transactions since January 1, 2014, to which we have been a party, in which the amount involved exceeds $120,000, and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest. We refer to such transactions as “related party transactions” and such persons as “related parties.” With the approval of our board of directors, we have engaged in the related party transactions described below. 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 unaffiliated third parties.

Other than as described below, there have not been, nor are there any currently proposed, transactions or series of similar transactions to which we have been or will be a party other than compensation arrangements, which are described where required under “Executive and Director Compensation.”

Equity Financings

2014 Bridge Unit Financing

In January 2014, we issued and sold 1,531,148 bridge units to investors upon the conversion of convertible notes in a total amount of $1,531,148. The following table sets forth the number of bridge units purchased by our directors, executive officers and 5% stockholders and their affiliates at the time of or as a result of such issuance and the aggregate purchase price paid for such units.

 

Name

  

Bridge

Units Purchased

    

Aggregate

Purchase Price

 

Atlas Venture Fund IX, L.P.(1)

     665,636      $ 665,636  

S.R. One, Limited(2)

     658,636      $ 658,636  

Partners Innovation Fund, LLC(3)

     206,876      $ 206,876  

 

(1) Atlas Venture Fund IX, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing. Jean-François Formela, M.D., a member of our board of directors, is a Partner at Atlas Venture.

 

(2) S.R. One, Limited beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing. Vikas Goyal, a member of our board of directors, is a Principal at S.R. One, Limited.

 

(3) Partners Innovation Fund, LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing.

Junior Preferred Stock Financing

In April 2014, we issued an aggregate of 3,438,318 junior preferred units, consisting of (i) 1,500,000 junior preferred units issued and sold at a price per unit of $1.00 for an aggregate purchase price of $1.5 million, and (ii) 1,938,318 junior preferred units issued upon the conversion of the 2014 bridge units. The following table sets forth the number of junior preferred units issued to our directors, executive officers and 5% stockholders and their affiliates at the time of or as a result of such issuance and the aggregate purchase price paid for such units.

 

Name

  

Bridge

Units

Exchanged

    

Junior Preferred

Units Received in
Exchange for
Bridge Units

    

Junior Preferred

Units Purchased

    

Aggregate

Purchase Price

 

Atlas Venture Fund IX, L.P.(1)

     665,636        842,645        650,000      $ 650,000  

S.R. One, Limited(2)

     658,636        833,784        650,000      $ 650,000  

Partners Innovation Fund, LLC(3)

     206,876        261,889        200,000      $ 200,000  

 

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(1) Atlas Venture Fund IX, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the junior preferred financing. Jean-François Formela, M.D., a member of our board of directors, is a Partner at Atlas Venture.

 

(2) S.R. One, Limited beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the junior preferred financing. Vikas Goyal, a member of our board of directors, is a Principal at S.R. One, Limited.

 

(3) Partners Innovation Fund, LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the junior preferred financing.

2015 Bridge Unit Financing

In January 2015, we issued and sold 8,000 bridge units to existing investors at a price per unit of $1,000 for an aggregate purchase price of $8.0 million. The following table sets forth the number of bridge units purchased by our directors, executive officers and 5% stockholders and their affiliates at the time of or as a result of such issuance and the aggregate purchase price paid for such units.

 

Name

  

Bridge

Units Purchased

    

Aggregate

Purchase Price

 

Atlas Venture Fund IX, L.P.(1)

     3,450      $ 3,450,000  

S.R. One, Limited(2)

     3,450      $ 3,450,000  

Partners Innovation Fund, LLC(3)

     1,100      $ 1,100,000  

 

(1) Atlas Venture Fund IX, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing. Jean-François Formela, M.D., a member of our board of directors, is a Partner at Atlas Venture.

 

(2) S.R. One, Limited beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing. Vikas Goyal, a member of our board of directors, is a Principal at S.R. One, Limited.

 

(3) Partners Innovation Fund, LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing.

Class A Preferred Unit Financing

In June 2015, we issued an aggregate of 4,202,278 Class A-1 preferred units, consisting of (i) 2,279,202 Class A-1 preferred units issued to existing investors in exchange for 8,000 bridge units, and (ii) 1,923,076 Class A-1 preferred units issued and sold at a price per unit of $3.90 for an aggregate purchase price of approximately $7.5 million. The Class A-1 preferred units were subsequently reclassified as Class A preferred units. The following table sets forth the number of Class A preferred units purchased by our directors, executive officers and 5% stockholders and their affiliates at the time of or as a result of such issuance and the aggregate purchase price paid for such units.

 

Name

  

Bridge
Units
Exchanged

    

Class A Preferred

Units Received in Exchange
for Bridge Units

    

Class A Preferred

Units Purchased

    

Aggregate

Purchase Price

 

Atlas Venture Fund IX, L.P.(1)

     3,450        982,906        —          —    

S.R. One, Limited(2)

     3,450        982,906        —          —    

Partners Innovation Fund, LLC(3)

     1,100        313,390        —          —    

Lundbeckfond Invest A/S(4)

     —          —          1,153,846      $ 4,500,000  

MRL Ventures Fund, LLC(5)

     —          —          384,615      $ 1,500,000  

KPC Venture Capital LLC(6)

     —          —          384,615      $ 1,500,000  

 

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(1) Atlas Venture Fund IX, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class A preferred unit financing. Jean-François Formela, M.D., a member of our board of directors, is a Partner at Atlas Venture.

 

(2) S.R. One, Limited beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class A preferred unit financing. Vikas Goyal, a member of our board of directors, is a Principal at S.R. One, Limited.

 

(3) Partners Innovation Fund, LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class A preferred unit financing.

 

(4) Lundbeckfond Invest A/S beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class A preferred unit financing. Casper Breum, a member of our board of directors, is a Senior Partner at Lundbeckfond Ventures, an affiliate of Lundbeckfond Invest A/S.

 

(5) MRL Ventures Fund, LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class A preferred unit financing. Reza Halse, a member of our board of directors, serves as President of MRL Ventures Fund, LLC.

 

(6) KPC Venture Capital LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class A preferred unit financing.

Class B Preferred Unit Financing

In February 2016, we issued and sold 5,909,089 Class B-1 preferred units at a price per unit of $4.40, for an aggregate purchase price of approximately $26.0 million. The Class B-1 preferred units were subsequently reclassified as Class B preferred units. The following table sets forth the number of Class B preferred units purchased by our directors, executive officers and 5% stockholders and their affiliates at the time of or as a result of such issuance and the aggregate purchase price paid for such units.

 

Name

  

Class B Preferred

Units Purchased

    

Aggregate

Purchase Price

 

Atlas Venture Fund IX, L.P.(1)

     1,250,000      $ 5,500,000  

S.R. One, Limited(2)

     1,250,000      $ 5,500,000  

Partners Innovation Fund, LLC(3)

     113,636      $ 500,000  

Lundbeckfond Invest A/S(4)

     681,818      $ 3,000,000  

MRL Ventures Fund, LLC(5)

     1,250,000      $ 5,500,000  

KPC Venture Capital LLC(6)

     511,363      $ 2,250,000  

Osage University Partners II, L.P.(7)

     852,272      $ 3,750,000  

 

(1) Atlas Venture Fund IX, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class B preferred unit financing. Jean-François Formela, M.D., a member of our board of directors, is a Partner at Atlas Venture.

 

(2) S.R. One, Limited beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class B preferred unit financing. Vikas Goyal, a member of our board of directors, is a Principal at S.R. One, Limited.

 

(3) Partners Innovation Fund, LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class B preferred unit financing.

 

(4)

Lundbeckfond Invest A/S beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class B preferred unit financing. Casper Breum, a member of our

 

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  board of directors, is a Senior Partner at Lundbeckfonden Ventures, an affiliate of Lundbeckfond Invest A/S.

 

(5) MRL Ventures Fund, LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class B preferred unit financing. Reza Halse, a member of our board of directors, serves as President of MRL Ventures Fund, LLC.

 

(6) KPC Venture Capital LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class B preferred unit financing.

 

(7) Osage University Partners II, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class B preferred unit financing.

2016 Bridge Unit Financing

In December 2016, we issued and sold 8,500 bridge units at a price per unit of $1,000 for an aggregate purchase price of approximately $8.5 million. The following table sets forth the number of bridge units purchased by our directors, executive officers and 5% stockholders and their affiliates at the time of or as a result of such issuance and the aggregate purchase price paid for such units.

 

Name

  

Bridge

Units Purchased

    

Aggregate

Purchase Price

 

Atlas Venture Fund IX, L.P.(1)

     1,833      $ 1,833,333  

S.R. One, Limited(2)

     1,833      $ 1,833,333  

Lundbeckfond Invest A/S(3)

     1,000      $ 1,000,000  

MRL Ventures Fund, LLC(4)

     1,833      $ 1,833,333  

KPC Venture Capital LLC(5)

     750      $ 750,000  

Osage University Partners II, L.P.(6)

     1,250      $ 1,250,000  

 

(1) Atlas Venture Fund IX, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing. Jean-François Formela, M.D., a member of our board of directors, is a Partner at Atlas Venture.

 

(2) S.R. One, Limited beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing. Vikas Goyal, a member of our board of directors, is a Principal at S.R. One, Limited.

 

(3) Lundbeckfond Invest A/S beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing. Casper Breum, a member of our board of directors, is a Senior Partner at Lundbeckfond Ventures, an affiliate of Lundbeckfond Invest A/S.

 

(4) MRL Ventures Fund, LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing. Reza Halse, a member of our board of directors, serves as President of MRL Ventures Fund, LLC.

 

(5) KPC Venture Capital LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing.

 

(6) Osage University Partners II, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the bridge unit financing.

Class C Preferred Unit Financing

In March 2017, we issued an aggregate of 29,647,582 Class C preferred units, consisting of (i) 5,321,112 Class C preferred units in exchange for 8,500 bridge units and (ii) 24,326,470 Class C preferred units

 

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at a price per unit of $1.7749 for an aggregate purchase price of approximately $43,177,052. The following table sets forth the number of Class C preferred units purchased by our directors, executive officers and 5% stockholders and their affiliates at the time of or as a result of such issuance and the aggregate purchase price paid for such units

 

Name

  

Bridge

Units

Exchanged

    

Class C Preferred

Units Received in
Exchange for Bridge
Units

    

Class C Preferred

Units Purchased

    

Aggregate

Purchase Price

 

GV 2015, L.P.(1)

     —          —          6,760,944      $ 11,999,999  

RA Capital Healthcare Fund, L.P.(2)

     —          —          3,673,446      $ 6,519,999  

Atlas Venture Fund IX, L.P.(3)

     1,833        1,147,691        1,971,942      $ 3,500,000  

S.R. One, Limited(4)

     1,833        1,147,691        2,535,354      $ 4,500,000  

Lundbeckfond Invest A/S(5)

     1,000        626,013        1,859,259      $ 3,299,999  

MRL Ventures Fund, LLC(6)

     1,833        1,147,691        783,259      $ 1,390,206  

KPC Venture Capital LLC

     750        469,510        429,326      $ 762,011  

Osage University Partners II, L.P.(7)

     1,250        782,516        408,383      $ 724,839  

Atlas Venture Fund X, L.P.(8)

     —          —          3,662,178      $ 6,500,000  

 

(1) GV 2015, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class C preferred unit financing.

 

(2) RA Capital Healthcare Fund, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class C preferred unit financing.

 

(3) Atlas Venture Fund IX, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class C preferred unit financing. Jean-François Formela, M.D., a member of our board of directors, is a Partner at Atlas Venture.

 

(4) S.R. One, Limited beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class C preferred unit financing. Vikas Goyal, a member of our board of directors, is a Principal at S.R. One, Limited.

 

(5) Lundbeckfond Invest A/S beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class C preferred unit financing. Casper Breum, a member of our board of directors, is a Senior Partner at Lundbeckfond Ventures, an affiliate of Lundbeckfond Invest A/S.

 

(6) MRL Ventures Fund, LLC beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class C preferred unit financing. Reza Halse, a member of our board of directors, serves as President of MRL Ventures Fund, LLC.

 

(7) Osage University Partners II, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class C preferred unit financing.

 

(8) Atlas Venture Fund X, L.P. beneficially owned, in the aggregate, more than 5% of our outstanding capital stock at the time of or as a result of the Class C preferred unit financing. Jean-François Formela, M.D., a member of our board of directors, is a Partner at Atlas Venture.

Reorganization

On June 30, 2017, as part of the Reorganization, each of the capital units of Spero Therapeutics, LLC issued and outstanding prior to the Reorganization was cancelled and converted into and exchanged for one share of Spero Therapeutics, Inc. capital stock of the same class and/or series.

 

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Series C Preferred Stock

In July 2017, after the consummation of the Reorganization, we sold to Joel Sendek, our Chief Financial Officer, 61,880 shares of Series C preferred stock of Spero Therapeutics, Inc., at a purchase price of $1.7749 per share, for an aggregate purchase price of $109,831. Such purchase and sale was made in accordance with the terms of Mr. Sendek’s offer letter. In October 2017, Mr. Sendek transferred his 61,880 shares to a retained annuity trust that he established and of which he is a beneficiary.

Agreements with Stockholders

Investors’ Rights Agreement

We entered into an investors’ rights agreement with the purchasers of our outstanding preferred stock, including entities with which certain of our directors are affiliated. The investors’ rights agreement provides these holders the right, following the date that is 180 days after the date of this prospectus, to demand that we file a registration statement or request that their shares be covered by a registration statement that we are otherwise filing. See “Description of Capital Stock—Registration Rights” for additional information regarding these registration rights.

Right of First Refusal and Co-Sale Agreement

We entered into a right of first refusal and co-sale agreement with certain holders of our common stock and preferred stock, including entities with which certain of our directors are affiliated. This agreement provides for rights of first refusal and co-sale relating to the shares of our common stock held by the parties to the agreement. Upon the consummation of this offering, the right of first refusal and co-sale agreement will terminate.

Voting Agreement

We entered into a voting agreement with certain holders of our common stock and preferred stock, including entities with which certain of our directors are affiliated. Under this agreement, our stockholders that are party to the agreement have agreed to vote their shares to elect to our board of directors: (i) one director designated by Atlas Venture Fund IX, L.P. and Atlas Venture Fund X, L.P., (ii) one director designated by S.R. One, Limited, (iii) one director designated by Lundbeckfond Invest A/S, (iv) one director designated by MRL Ventures Fund, LLC, (v) after delivery of written notice from GV 2015, L.P. to the company informing the company that GV 2015, L.P. will designate a member of our board of directors, one director designated by GV 2015, L.P., (vi) the person who is the company’s then-serving Chief Executive Officer, (vii) one director with relevant industry experience who is reasonably acceptable to a majority of the other directors then serving on our board of directors and (viii) two directors designated by the stockholders holding a majority of shares voting together as a single class on an as-converted to common stock basis. Upon the consummation of this offering, the voting agreement will terminate.

Director and Executive Officer Compensation

See “Executive and Director Compensation” for a discussion of payments and options granted to our named executive officers and non-employee directors.

Employment Agreements

We have entered into employment agreements with our executive officers. For more information regarding these agreements, see “Executive and Director Compensation—Narrative Disclosure to Summary Compensation Table.”

 

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Indemnification Agreements with Officers and Directors and Directors’ and Officers’ Liability Insurance

In connection with this offering, we have entered into indemnification agreements with each of our executive officers and directors. The indemnification agreements, our amended and restated certificate of incorporation and our amended and restated by-laws that will become effective upon the completion of this offering will require us to indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain limitations, our amended and restated by-laws also require us to advance expenses incurred by our directors and officers. We also maintain a general liability insurance policy which covers certain liabilities of directors and officers of our company arising out of claims based on acts or omissions in their capacities as directors or officers.

Policies and Procedures for Related Party Transactions

In connection with this offering, we plan to adopt a written policy, effective upon completion of this offering, that requires all future transactions between us and any director, executive officer, holder of 5% or more of any class of our capital stock or any member of the immediate family of, or entities affiliated with, any of them, or any other related persons, as defined in Item 404 of Regulation S-K, or their affiliates, in which the amount involved is equal to or greater than $120,000, be approved in advance by our audit committee. Any request for such a transaction must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our audit committee is to consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, the extent of the related party’s interest in the transaction, and whether the transaction is on terms no less favorable to us than terms we could have generally obtained from an unaffiliated third party under the same or similar circumstances.

 

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock at August 31, 2017 by:

 

    each of our directors;

 

    each of our named executive officers;

 

    all of our current directors and executive officers as a group; and

 

    each person, or group of affiliated persons, who beneficially owned more than 5% of our common stock.

The column titled “Percentage of Shares Beneficially Owned—Before Offering” is based on a total of 51,036,137 shares of our common stock outstanding as of August 31, 2017, assuming the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 48,998,475 shares of our common stock immediately prior to the completion of this offering. The column titled “Percentage of Shares Beneficially Owned—After Offering” is based on                  shares of our common stock to be outstanding after this offering, including the                  shares of our common stock that we are selling in this offering, but not including any additional shares issuable upon exercise of outstanding options or any exercise by the underwriters of their option to purchase additional shares.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of our common stock subject to options that are currently exercisable or exercisable within 60 days after August 31, 2017 are considered outstanding and beneficially owned by the person holding the options for the purpose of calculating the percentage ownership of that person but not for the purpose of calculating the percentage ownership of any other person. Except as otherwise noted, the persons and entities in this table have sole voting and investment power with respect to all of the shares of our common stock beneficially owned by them, subject to community property laws, where applicable. Except as otherwise set forth below, the address of the beneficial owner is c/o Spero Therapeutics, Inc., 675 Massachusetts Avenue, Cambridge, Massachusetts 02139.

 

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Percentage of Shares
Beneficially Owned

 

Name of Beneficial Owner

  

Shares

Beneficially Owned

    

Before
Offering

   

After
Offering

 

Principal Stockholders

       

S.R. One, Limited(1)

     8,662,941        17.0         

Atlas Venture Fund IX, L.P.(2)

     8,368,390        16.4    

GV 2015, L.P.(3)

     6,760,944        13.2    

Lundbeckfond Invest A/S(4)

     5,332,851        10.4    

MRL Ventures Fund, LLC(5)

     4,516,030        8.8    

RA Capital Healthcare Fund, L.P.(6)

     3,673,446        7.2    

Atlas Venture Fund X, LLC(7)

     3,662,178        7.2    

Osage University Partners II, L.P.(8)

     2,554,137        5.0    

Named Executive Officers and Directors

       

Ankit Mahadevia, M.D.(9)

     1,455,373        2.8    

Casper Breum(10)

     5,332,851        10.4    

Milind Deshpande, Ph.D.(11)

     110,833        *    

Jean-François Formela, M.D.(2)(7)

     12,030,568        23.6    

Vikas Goyal(1)

     8,662,941        17.0    

Reza Halse(5)

     4,516,030        8.8    

Frank Thomas(12)

     —          —      

Patrick Vink, M.D.(13)

     25,071        *    

Thomas Parr Jr., Ph.D.(14)

     281,565        *    

John Tomayko, M.D.(15)

     —          —      

All current executive officers and directors as a group (12 persons)(16)

     32,550,686        63.8  

 

* Indicates beneficial ownership of less than 1%.

 

(1) Consists of 8,662,941 shares of common stock issuable upon the conversion of 1,483,784 shares of Junior preferred stock, 1,496,694 shares of Series A preferred stock, 1,999,418 shares of Series B preferred stock, 3,683,045 shares of Series C preferred stock held by S.R. One, Limited, or S.R. One, an indirect wholly owned subsidiary of GlaxoSmithKline plc. Vikas Goyal, a member of our board of directors, is a principal at S.R. One and disclaims beneficial ownership of the shares held by S.R. One, except to the extent of his pecuniary interest therein. The address for S.R. One is 161 Washington Street, Suite 500, Eight Tower Bridge, Conshohocken, Pennsylvania 19428.

 

(2) Consists of (i) 260,000 shares of common stock and (ii) 8,108,390 shares of common stock issuable upon the conversion of 1,492,645 shares of Junior preferred stock, 1,496,694 shares of Series A preferred stock, 1,999,418 shares of Series B preferred stock, and 3,119,633 shares of Series C preferred stock held by Atlas Venture Fund IX, L.P. , or Atlas Fund IX. All shares are held directly by Atlas Venture Fund IX. Atlas Venture Associates IX, L.P., or AVA IX LP, is the general partner of Atlas Venture Fund IX, and Atlas Venture Associates IX, LLC, or AVA IX LLC, is the general partner of AVA IX LP. Peter Barrett, Bruce Booth, Jean-François Formela, Jeff Fagnan, and Ryan Moore are the members of AVA IX LLC and collectively make investment decisions on behalf of Atlas Venture Fund IX. Dr. Formela is also a member of our board of directors, Dr. Formela disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein, if any. The address for Atlas Venture Fund IX, is 25 First Street, Suite 303, Cambridge, Massachusetts 02141.

 

(3)

Consists of 6,760,944 shares of common stock issuable upon the conversion of 6,760,944 shares of Series C preferred stock held by GV 2015, L.P. GV 2015 GP, L.L.C., the general partner of GV 2015, L.P., Alphabet Holdings LLC, the sole member of GV 2015 GP, L.L.C., Google LLC, the sole member of Alphabet Holdings LLC, XXVI Holdings Inc., the managing member of Google LLC, and Alphabet Inc., the sole stockholder of XXVI Holdings Inc., may be deemed to have sole power to vote or dispose of the shares held

 

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  by GV 2015, L.P. The address for GV 2015, L.P., GV 2015 GP, L.L.C., Alphabet Holdings LLC, Google LLC, XXVI Holdings Inc. and Alphabet Inc. is 1600 Amphitheatre Parkway, Mountain View, California 94043.

 

(4) Consists of 5,332,851 shares of common stock issuable upon the conversion of 1,756,988 shares of Series A preferred stock, 1,090,591 shares of Series B preferred stock, and 2,485,272 shares of Series C preferred stock held by Lundbeckfond Invest A/S. The board of directors of Lundbeckfond Invest A/S consists of Jørgen Huno Rasmussen, Steffen Kragh, Lars Holmqvist, Susanne Krüger Kjær, Michael Kjær, Peter Schütze, Gunhild Waldemar, Vagn Flink Møller Pedersen, Henrik Sindal Jensen, and Peter Adler Würtzen, who have shared investment and voting control with respect to the shares held by Lundbeckfond Invest A/S and may exercise such control only with the support of a majority of the members of the Lundbeckfond Invest Ventures A/S board of directors. No individual member of the Lundbeckfond Invest A/S board of directors is deemed to hold any beneficial ownership or reportable pecuniary interest in the shares held by Lundbeckfond Invest A/S. Casper Breum, one of our directors, is a partner of Lundbeckfond Ventures, a division within Lundbeckfond Invest A/S, and is not deemed to beneficially own the shares held by Lundbeckfond Invest A/S. The address for Lundbeckfond Invest A/S is Scherfigsvej 7, 2100 Copenhagen Ø, Denmark.

 

(5) Consists of 4,516,030 shares of common stock issuable upon the conversion of 585,662 shares of Series A preferred stock, 1,999,418 shares of Series B preferred stock, and 1,930,950 shares of Series C preferred stock held by MRL Ventures Fund, LLC, or MRL Ventures Fund. All shares are held directly by MRL Ventures Fund, which is a subsidiary of Merck Sharp & Dohme Corp. Reza Halse is the President of MRL Ventures. Dr. Halse is also a member of our board of directors. Dr. Halse disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein, if any. The address for MRL Ventures Fund, LLC is 320 Bent Street, Cambridge, Massachusetts 02141.

 

(6) Consists of 3,673,446 shares of common stock issuable upon the conversion of 3,673,446 shares of Series C preferred stock held by RA Capital Healthcare Fund, L.P. RA Capital Management, LLC is the investment advisor and sole general partner of RA Capital Healthcare Fund, L.P. The address of RA Capital Management, LLC is 20 Park Plaza, Suite 1200, Boston, Massachusetts 02116.

 

(7) Consists of 3,662,178 shares of common stock issuable upon the conversion of 3,662,178 shares of Series C preferred stock held by Atlas Venture Fund X, LLC, or Atlas Fund X. All shares are held directly by Atlas Venture Fund X. Atlas Venture Associates X, L.P., or AVA X LP, is the general partner of Atlas Venture Fund X, and Atlas Venture Associates X, LLC, or AVA X LLC, is the general partner of AVA X LP. Peter Barrett, Bruce Booth, Jean-François Formela, David Gragzel and Jason Rhodes are the members of AVA X LLC and collectively make investment decisions on behalf of Atlas Venture Fund X. Dr. Formela is also a member of our board of directors. Dr. Formela disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein, if any. The address for Atlas Venture Fund X, is 400 Technology Square, 10 th  Floor, Cambridge, Massachusetts 02139.

 

(8) Consists of 2,554,137 shares of common stock issuable upon the conversion of 1,363,238 shares of Series B preferred stock and 1,190,899 shares of Series C preferred stock held by Osage University Partners II, L.P. Osage University GP, LP is the general partner of Osage University Partners II, L.P. Osage Partners, LLC is the general partner of Osage University GP, LP. The address for Osage Partners, LLC is 50 Monument Road, Suite 201, Bala Cynwyd, Pennsylvania 19004.

 

(9) Consists of (i) 400,000 shares of common stock held by Mahadevia-Mehta Family Trust, of which Dr. Mahadevia is the trustee, and (ii) 1,055,373 shares of common stock underlying options that are exercisable as of August 31, 2017 or will become exercisable within 60 days after such date held by Dr. Mahadevia.

 

(10) Mr. Breum is a partner at Lundbeckfond Ventures, a division within Lundbeckfond Invest A/S, but has no voting or investment power with respect to the shares described in footnote 4.

 

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(11) Consists of 100,000 shares of common stock and 10,833 shares of common stock underlying options that are exercisable as of August 31, 2017 or will become exercisable within 60 days after such date held by Mr. Deshpande.

 

(12) Mr. Thomas is a member of our board of directors and holds no voting or investment power with respect to our securities.

 

(13) Consists of 25,071 shares of common stock underlying options that are exercisable as of August 31, 2017 or will become exercisable within 60 days after such date held by Mr. Vink.

 

(14) Consists of 281,565 shares of common stock underlying options that are exercisable as of August 31, 2017 or will become exercisable within 60 days after such date held by Dr. Parr.

 

(15) Mr. Tomayko formerly served as our Chief Medical Officer and holds no voting or investment power with respect to our securities.

 

(16) See footnotes 1, 2, 5, 7 and 9 through 15. Includes 73,574 shares of common stock underlying options that are exercisable as of August 31, 2017 or will become exercisable within 60 days after such date held by Cristina Larkin, our Chief Operating Officer, and 61,880 shares of Series C preferred stock held for the benefit of Joel Sendek, our Chief Financial Officer, in the Joel D. Sendek Retained Annuity Trust No. 1, of which Mr. Sendek’s spouse is the successor trustee, for which Mr. Sendek disclaims beneficial ownership.

 

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DESCRIPTION OF CAPITAL STOCK

General

Upon the completion of this offering, our authorized capital stock will consist of                  shares of common stock, par value $0.001 per share, and                  shares of preferred stock, par value $0.001 per share, all of which will be undesignated, and there will be                  shares of common stock outstanding and no shares of preferred stock outstanding. As of August 31, 2017, we had approximately 21 record holders of our capital stock. All of our outstanding shares of preferred stock will automatically convert into shares of our common stock immediately prior to the completion of this offering.

The following description of our capital stock and provisions of our amended and restated certificate of incorporation and amended and restated by-laws that will become effective upon the completion of this offering are summaries of material terms and provisions and are qualified by reference to our amended and restated certificate of incorporation and amended and restated by-laws, copies of which have been filed with the SEC as exhibits to the registration statement of which this prospectus is a part. The descriptions of our common stock and preferred stock reflect the content of the amended and restated certificate of incorporation and amended and restated by-laws that will become effective upon the completion of this offering.

Common Stock

Upon the completion of this offering, we will be authorized to issue one class of common stock. Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to receive dividends ratably, if any, as may be declared by our board of directors out of legally available funds, subject to any preferential dividend rights of any preferred stock then outstanding. Upon our dissolution, liquidation or winding up, holders of our common stock are entitled to share ratably in our net assets legally available after the payment of all our debts and other liabilities, subject to the preferential rights of any preferred stock then outstanding. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. Except as described under “—Antitakeover Effects of Delaware Law and Provisions of our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws” below, a majority vote of the holders of common stock is generally required to take action under our amended and restated certificate of incorporation and amended and restated by-laws.

Preferred Stock

Upon the completion of this offering, our board of directors will be authorized, without action by the stockholders, to designate and issue up to an aggregate of                  shares of preferred stock in one or more series. Our board of directors can designate the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations or restrictions. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate purposes could, under certain circumstances, have the effect of restricting dividends on our common stock, diluting the voting power of our common stock, impairing the liquidation rights of our common stock, or delaying, deferring or preventing a change in control of our company, which might harm the market price of our common stock. See also “Antitakeover Effects of Delaware Law and Provisions of our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws—Provisions of Our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws—Undesignated Preferred Stock”.

 

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Our board of directors will make any determination to issue such shares based on its judgment as to our company’s best interests and the best interests of our stockholders. Upon the completion of this offering, we will have no shares of preferred stock outstanding and we have no current plans to issue any shares of preferred stock following completion of this offering.

Stock Options

As of August 31, 2017, options to purchase 9,368,492 shares of our common stock at an exercise price of $0.97 were outstanding, of which options to purchase 1,980,341 shares of our common stock were exercisable at an exercise price of $0.97 per share.

Registration Rights

We entered into an Investors’ Rights Agreement dated as of June 30, 2017, or the Investors’ Rights Agreement, with certain holders of our capital stock. These shares will represent approximately     % of our outstanding common stock after this offering, or     % if the underwriters exercise their option to purchase additional shares in full. These shares also may be sold under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, depending on their holding period and subject to restrictions in the case of shares held by persons deemed to be our affiliates.

Under the Investors’ Rights Agreement holders of registrable shares can demand that we file a registration statement or request that their shares be included on a registration statement that we are otherwise filing, in either case, registering the resale of their shares of common stock. These registration rights are subject to conditions and limitations, including the right, in certain circumstances, of the underwriters of an offering to limit the number of shares included in such registration and our right, in certain circumstances, not to effect a requested S-1 registration within 60 days before or 180 days following any offering of our securities, including this offering, or a requested S-3 registration within 30 days before or 90 days following any offering of our securities, including this offering.

Demand Registration Rights

Following the date that is 180 days after the date of this prospectus, the holders of at least 60% of the registrable securities then outstanding under the Investors’ Rights Agreement may require us to file a registration statement under the Securities Act on a Form S-1 at our expense, subject to certain exceptions, with respect to the resale of their registrable shares, and we are required to use commercially reasonable efforts to effect the registration. At any time after we are eligible to use a registration statement under the Securities Act on Form S-3, the holders of at least 25% of the registrable securities then outstanding under the Investors’ Rights Agreement may require us to file a registration statement on Form S-3 at our expense, subject to certain exceptions, with respect to the resale of their registrable shares, and we are required to use commercially reasonable efforts to effect the registration.

Piggyback Registration Rights

If we propose to register any of our securities under the Securities Act for our own account or the account of any other holder, the holders of registrable shares are entitled to notice of such registration and to request that we include registrable shares for resale on such registration statement, subject to the right of any underwriter to limit the number of shares included in such registration.

Expenses of Registration

We will pay all registration expenses, other than underwriting discounts and commissions, related to any demand or piggyback registration. The Investors’ Rights Agreement contains customary cross-indemnification

 

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provisions, pursuant to which we are obligated to indemnify the selling stockholders, in the event of misstatements or omissions in the registration statement attributable to us except in the event of fraud, and they are obligated to indemnify us for misstatements or omissions attributable to them.

Expiration of Registration Rights

The registration rights will terminate upon the later of the date on which all registrable shares have been sold, the closing of certain liquidation events, and the fifth anniversary of the closing date of this offering.

Anti-takeover Effects of Delaware Law and Provisions of our Amended and Restated Certificate of Incorporation and Our Amended and Restated By-Laws

Our amended and restated certificate of incorporation and amended and restated by-laws that will become effective upon the completion of this offering include a number of provisions that may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.

Board Composition and Filling Vacancies

In accordance with our amended and restated certificate of incorporation, our board is divided into three classes serving three-year terms, with one class being elected each year. Our amended and restated certificate of incorporation also provides that directors may be removed only for cause and then only by the affirmative vote of the holders of 75% or more of the shares then entitled to vote at an election of directors. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office, even if less than a quorum.

No Written Consent of Stockholders

Our amended and restated certificate of incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting.

Meetings of Stockholders

Our amended and restated by-laws provide that only a majority of the members of our board of directors then in office may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our amended and restated by-laws limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.

Advance Notice Requirements

Our amended and restated by-laws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days or more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in the amended and restated by-laws. These provisions may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

 

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Amendment to By-laws and Certificate of Incorporation

As required by the Delaware General Corporation Law, any amendment of our amended and restated certificate of incorporation must first be approved by a majority of our board of directors and, if required by law or our amended and restated certificate of incorporation, thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment, and a majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, directors, limitation of liability, exclusive jurisdiction of Delaware Courts and the amendment of our amended and restated by-laws and amended and restated certificate of incorporation must be approved by not less than 75% of the outstanding shares entitled to vote on the amendment, and not less than 75% of the outstanding shares of each class entitled to vote thereon as a class. Our amended and restated by-laws may be amended by the affirmative vote of a majority of the directors then in office, subject to any limitations set forth in the amended and restated by-laws; and may also be amended by the affirmative vote of at least 75% of the outstanding shares entitled to vote on the amendment, or, if our board of directors recommends that the stockholders approve the amendment, by the affirmative vote of the majority of the outstanding shares entitled to vote on the amendment, in each case voting together as a single class.

Blank Check Preferred Stock

Our amended and restated certificate of incorporation provides for              authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of us or our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our amended and restated certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us.

Section 203 of the Delaware General Corporation Law

Upon completion of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes, among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the corporation’s voting stock.

Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:

 

    before the stockholder became interested, the board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

 

   

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation

 

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outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or

 

    at or after the time the stockholder became interested, the business combination was approved by the board of directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

A Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation or an express provision in its amended and restated certificate of incorporation or by-laws resulting from a stockholders’ amendment approved by at least a majority of the outstanding voting shares. We have not opted out of these provisions. As a result, mergers or other takeover or change in control attempts of us may be discouraged or prevented.

Exclusive Jurisdiction of Certain Actions

Our amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against our directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware, unless we otherwise consent. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

NASDAQ Global Market Listing

We have applied to list our common stock on The NASDAQ Global Market under the symbol “SPRO.”

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be Computershare Trust Company, N.A.

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock. Future sales of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering, or the perception that those sales may occur, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future. As described below, only a limited number of shares of our common stock will be available for sale in the public market for a period of several months after completion of this offering due to contractual and legal restrictions on resale. Future sales of our common stock in the public market either before (to the extent permitted) or after restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock at such time and our ability to raise equity capital at a time and price we deem appropriate.

Sale of Restricted Shares

Upon the completion of this offering, based on the number of shares of our common stock outstanding as of August 31, 2017, and assuming (i) the conversion of our outstanding preferred stock into common stock, (ii) no exercise of the underwriters’ option to purchase additional shares of common stock and (iii) no exercise of outstanding options, we will have outstanding an aggregate of approximately                  shares of common stock. Of these shares, all of the                  shares of common stock to be sold in this offering, and any shares sold upon exercise of the underwriters’ option to purchase additional shares will be freely tradable in the public market without restriction or further registration under the Securities Act unless the shares are held by any of our “affiliates” as such term is defined in Rule 144 of the Securities Act. All remaining shares of common stock held by existing stockholders immediately prior to the completion of this offering will be “restricted securities” as such term is defined in Rule 144. These restricted securities were issued and sold by us, or will be issued and sold by us, in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act, including the exemptions provided by Rule 144 or Rule 701, which rules are summarized below.

As a result of the lock-up agreements referred to below and the provisions of Rule 144 and Rule 701 under the Securities Act, the shares of our common stock (excluding the shares sold in this offering) that will be available for sale in the public market are as follows:

 

Number of Shares and % of Total Outstanding

  

Date Available for Sale into Public  Market

             shares, or     %

   On the date of this prospectus

             shares, or     %

   90 days after the date of this prospectus

             shares, or     %

   180 days after the date of this prospectus, due to lock-up agreements between the holders of these shares and the underwriters. However, the representative of the underwriters can waive the provisions of these lock-up agreements and allow these stockholders to sell their shares at any time.

Lock-Up Agreements

We, our executive officers and directors and our other existing security holders have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Cowen and Company, LLC. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly

 

    offer, pledge, sell or contract to sell any common stock,

 

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    sell any option or contract to purchase any common stock,

 

    purchase any option or contract to sell any common stock,

 

    grant any option, right or warrant for the sale of any common stock,

 

    lend or otherwise dispose of or transfer any common stock,

 

    request or demand that we file a registration statement related to the common stock, or

 

    enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.

This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.

Registration Rights

Subject to the lock-up agreements described above, upon the completion of this offering, the holders of an aggregate of                  shares of our common stock will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. See “Description of Capital Stock— Registration Rights” for additional information. Shares covered by a registration statement will be eligible for sale in the public market upon the expiration or release from the terms of lock-up agreements applicable to such shares.

Rule 144

In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Exchange Act, for at least 90 days, a person (or persons whose shares are required to be aggregated) who is not deemed to have been one of our “affiliates” for purposes of Rule 144 at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months, including the holding period of any prior owner other than one of our “affiliates,” is entitled to sell those shares in the public market (subject to the lock-up agreement referred to above, if applicable) without complying with the manner of sale, volume limitations or notice provisions of Rule 144, but subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than “affiliates,” then such person is entitled to sell such shares in the public market without complying with any of the requirements of Rule 144 (subject to the lock-up agreement referred to above, if applicable). In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Exchange Act for at least 90 days, our “affiliates,” as defined in Rule 144, who have beneficially owned the shares proposed to be sold for at least six months are entitled to sell in the public market, upon expiration of any applicable lock-up agreements and within any three-month period, a number of those shares of our common stock that does not exceed the greater of:

 

    1% of the number of shares of common stock then outstanding, which will equal approximately                  shares of common stock immediately after this offering (calculated on the basis of the number of shares of our common stock outstanding as of June 30, 2017, the assumptions described above and assuming no exercise of the underwriters’ option to purchase additional shares and no exercise of outstanding options); or

 

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    the average weekly trading volume of 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.

Such sales under Rule 144 by our “affiliates” or persons selling shares on behalf of our “affiliates” are also subject to certain manner of sale provisions, notice requirements and to the availability of current public information about us. Notwithstanding the availability of Rule 144, the holders of              of our restricted securities have entered into lock-up agreements as referenced above and their restricted securities will become eligible for sale (subject to the above limitations under Rule 144) upon the expiration of the restrictions set forth in those agreements.

Rule 701

In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who acquired common stock from us in connection with a written compensatory stock or option plan or other written agreement in compliance with Rule 701 under the Securities Act before the effective date of the registration statement of which this prospectus is a part (to the extent such common stock is not subject to a lock-up agreement) is entitled to rely on Rule 701 to resell such shares beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act in reliance on Rule 144, but without compliance with the holding period requirements contained in Rule 144. Accordingly, subject to any applicable lock-up agreements, beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act, under Rule 701 persons who are not our “affiliates,” as defined in Rule 144, may resell those shares without complying with the minimum holding period or public information requirements of Rule 144, and persons who are our “affiliates” may resell those shares without compliance with Rule 144’s minimum holding period requirements (subject to the terms of the lock-up agreement referred to above, if applicable).

2017 Stock Incentive Plan

We intend to file with the SEC a registration statement under the Securities Act covering the shares of common stock that we may issue upon exercise of outstanding options reserved for issuance under the 2017 Plan. Such registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. Accordingly, shares registered under such registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the lock-up agreements described above, if applicable.

 

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MATERIAL U.S. FEDERAL INCOME AND

ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a summary of the material U.S. federal income tax consequences of the ownership and disposition of our common stock to Non-U.S. Holders (defined below), but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed or subject to differing interpretations, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from those set forth below. We have not sought and will not seek any ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.

This summary also does not address the tax considerations arising under the laws of any U.S. state or local or any non-U.S. jurisdiction, the 3.8% Medicare tax on net investment income or any alternative minimum tax consequences. In addition, this discussion does not address tax considerations applicable to a Non-U.S. Holder’s particular circumstances or to a Non-U.S. Holder that may be subject to special tax rules, including, without limitation:

 

    banks, insurance companies or other financial institutions;

 

    tax-exempt or government organizations;

 

    brokers of or dealers in securities or currencies;

 

    traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

    persons that own, or are deemed to own, more than five percent of our capital stock;

 

    certain U.S. expatriates, citizens or former long-term residents of the United States;

 

    persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction,” synthetic security, other integrated investment, or other risk reduction transaction;

 

    persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes);

 

    persons deemed to sell our common stock under the constructive sale provisions of the Code;

 

    real estate investment trusts or regulated investment companies;

 

    pension plans;

 

    partnerships, or other entities or arrangements treated as partnerships for U.S. federal income tax purposes, or investors in any such entities);

 

    persons for whom our stock constitutes “qualified small business stock” within the meaning of Section 1202 of the Code;

 

    integral parts or controlled entities of foreign sovereigns;

 

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    tax-qualified retirement plans;

 

    controlled foreign corporations;

 

    passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax; or

 

    persons that acquire our common stock as compensation for services.

In addition, if a partnership, including any entity or arrangement classified as a partnership for U.S. federal income tax purposes, holds our common stock, the tax treatment of a partner generally will depend on the status of the partner, the activities of the partnership, and certain determinations made at the partner level. Accordingly, partnerships that hold our common stock, and partners in such partnerships, should consult their tax advisors regarding the U.S. federal income tax consequences to them of the purchase, ownership, and disposition of our common stock.

You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our common stock arising under the U.S. federal estate or gift tax rules or under the laws of any U.S. state or local or any non-U.S. or other taxing jurisdiction or under any applicable tax treaty.

Definition of a Non-U.S. Holder

For purposes of this summary, a “Non-U.S. Holder” is any beneficial owner of our common stock that is not a “U.S. person,” and is not a partnership, or an entity disregarded from its owner, each for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, 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 that (1) is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.

Distributions

As discussed under “Dividend Policy,” above, we do not anticipate paying any dividends on our common stock in the foreseeable future. If we make distributions on our common stock, those payments will constitute dividends for U.S. income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce a Non-U.S. Holder’s basis in our common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “Gain on Sale or Other Disposition of Common Stock.” Any such distributions would be subject to the discussions below regarding backup withholding and FATCA.

Subject to the discussion below on effectively connected income, any dividend paid to a Non-U.S. Holder generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the

 

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dividend or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, a Non-U.S. Holder must provide us or our agent with an IRS Form W-8BEN, IRS Form W-8BEN-E or another appropriate version of IRS Form W-8 (or a successor form), which must be updated periodically, and which, in each case, must certify qualification for the reduced rate. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.

Dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder’s conduct of a U.S. trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States) generally are exempt from the withholding tax described above. In order to obtain this exemption, the Non-U.S. Holder must provide the applicable withholding agent with an IRS Form W-8ECI or successor form or other applicable IRS Form W-8 certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits, subject to an applicable income tax treaty providing otherwise. In addition, if you are Non-U.S. Holder that is a corporation, dividends you receive that are effectively connected with your conduct of a U.S. trade or business (and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the you in the United States) may also be subject to a branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items.

If you are eligible for a reduced rate of withholding tax pursuant to a tax treaty, you may be able to obtain a refund of any excess amounts currently withheld if you timely file an appropriate claim for refund with the IRS.

Gain on Sale or Other Disposition of Common Stock

Subject to the discussion below regarding backup withholding and FATCA, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

 

    the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if an income tax treaty applies, the gain is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States), in which case the Non-U.S. Holder will be subject to U.S. federal income tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates, and for a Non-U.S. Holder that is a corporation, such Non-U.S. Holder may also be subject to the branch profits tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items;

 

    the Non-U.S. Holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met, in which case the Non-U.S. Holder will be subject to U.S. federal income tax at a flat 30% rate on the gain derived from the sale, which tax may be offset by U.S. source capital losses (even though the Non-U.S. Holder is not considered a resident of the United States) (subject to applicable income tax or other treaties); or

 

   

our common stock constitutes a U.S. real property interest by reason of our status as a “U.S. real property holding corporation” for U.S. federal income tax purposes, a USRPHC, at any time within the shorter of the five-year period preceding the disposition or the Non-U.S. Holder’s holding period for our common stock. We believe we are not currently and do not anticipate becoming a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our other

 

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business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, gain arising from the sale or other taxable disposition by a Non-U.S. Holder of our common stock will not be subject to U.S. federal income tax as long as our common stock is regularly traded on an established securities market and such Non-U.S. Holder does not, actually or constructively, hold more than five percent of our common stock at any time during the applicable period that is specified in the Code. If the foregoing exception does not apply, then if we are or were to become a USRPHC a purchaser may be required to withhold 15% of the proceeds payable to a Non-U.S. Holder from a sale of our common stock and such Non-U.S. Holder generally will be subject to U.S. federal income tax on its net gain derived from the disposition at the graduated U.S. federal income tax rates applicable to United States persons (as defined in the Code).

Backup Withholding and Information Reporting

Generally, we must file information returns annually to the IRS in connection with any dividends on our common stock paid to a Non-U.S. Holder, regardless of whether any tax was actually withheld. A similar report will be sent to the Non-U.S. Holder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the Non-U.S. Holder’s country of residence.

Payments of dividends or of proceeds on the disposition of stock made to a Non-U.S. Holder may be subject to additional information reporting and backup withholding at a current rate of 28% unless such Non-U.S. Holder establishes an exemption, for example by properly certifying its non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E, IRS Form W-8ECI, or another appropriate version of IRS Form W-8 (or a successor form). Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that a holder is a U.S. person.

Backup withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act, or FATCA, imposes withholding tax on certain types of payments made to foreign financial institutions and certain other non-U.S. entities. The legislation imposes a 30% withholding tax on dividends on, or, on or after January 1, 2019, gross proceeds from the sale or other disposition of, our common stock paid to a “foreign financial institution” or to certain “non-financial foreign entities” (each as defined in the Code), unless (i) the foreign financial institution undertakes certain diligence and reporting obligations, (ii) the non-financial foreign entity either certifies 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 (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (i) above, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by “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 account holders whose actions prevent it from complying with these reporting and other requirements. If the country in which a payee is resident has entered into an “intergovernmental agreement” with the United States regarding FATCA, that agreement may permit the payee to report to that country rather than to the U.S. Department of the Treasury. Prospective investors should consult their own tax advisors regarding the possible impact of these rules on their investment in our common stock, and the possible impact of these rules on the entities through which they hold our common stock, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of this 30% withholding tax under FATCA.

 

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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 unless an applicable estate or other tax treaty provides otherwise, and therefore may be subject to U.S. federal estate tax.

The preceding discussion of U.S. federal tax considerations is for general information only. It is not tax advice. Each prospective investor should consult its tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.

 

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UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated and Cowen and Company, LLC are acting as representatives 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.

 

                          Underwriter   

Number

of Shares

 

Merrill Lynch, Pierce, Fenner & Smith
Incorporated

  

Cowen and Company, LLC

  

Stifel, Nicolaus & Company, Incorporated

  

Oppenheimer & Co.

  
  

 

 

 

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.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

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 representatives have advised us that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $        per share. After the initial offering, the public offering price, concession or any other term of this offering may be changed.

The following table shows the public offering price, underwriting discount and proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares.

 

     Per Share      Without Option      With Option  

Public offering price

   $                   $                       $                   

Underwriting discount

   $                   $                       $                   

Proceeds, before expenses, to

   $                   $                       $                   

The expenses of this offering, not including the underwriting discount, are estimated at $        and are payable by us. We have also agreed to reimburse the underwriters for certain of their expenses, in an amount of up to $        , incurred in connection with the review and clearance by the Financial Industry Regulatory Authority, Inc. of the terms of this offering, as set forth in the underwriting agreement.

 

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Reserved Shares

At our request, the underwriters have reserved for sale, at the initial public offering price, up to              shares offered by this prospectus for sale to certain of our directors, officers, employees, business associates and related persons through a reserved share program. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.

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 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.

No Sales of Similar Securities

We, our executive officers and directors and our other existing security holders have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Cowen and Company, LLC. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly

 

    offer, pledge, sell or contract to sell any common stock,

 

    sell any option or contract to purchase any common stock,

 

    purchase any option or contract to sell any common stock,

 

    grant any option, right or warrant for the sale of any common stock,

 

    lend or otherwise dispose of or transfer any common stock,

 

    request or demand that we file a registration statement related to the common stock, or

 

    enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.

This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.

NASDAQ Global Market Listing

We have applied to list our common stock on The NASDAQ Global Market under the symbol “SPRO.”

Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and the representative. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are

 

    the valuation multiples of publicly traded companies that the representative believes to be comparable to us,

 

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    our financial information,

 

    the history of, and the prospects for, our company and the industry in which we compete,

 

    an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues,

 

    the present state of our development,

 

    the likelihood of approval for our product candidates, and

 

    the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also possible that after this offering the shares of our common stock 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.

Price Stabilization, Short Positions and Penalty Bids

Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representative may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.

In connection with this offering, the underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares described above. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered 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 the option granted to them. “Naked” short sales are sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of this offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on The NASDAQ Global Market, in the over-the-counter market or otherwise.

 

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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 representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Electronic Distribution

In connection with this 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 engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.

In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

European Economic Area

In relation to each member state of the European Economic Area, no offer of shares which are the subject of this offering has been, or will be made to the public in that Member State, other than under the following exemptions under the Prospectus Directive:

 

  (a) to any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

  (b) to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the representative for any such offer; or

 

  (c) in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of shares referred to in (a) to (c) above shall result in a requirement for the Company or the representative to publish a prospectus pursuant to Article 3 of the Prospectus Directive, or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

Each person located in a Member State to whom any offer of shares is made or who receives any communication in respect of an offer of shares, or who initially acquires any shares will be deemed to have represented, warranted, acknowledged and agreed to and with the representative and the company that (1) it is a “qualified investor” within the meaning of the law in that Member State implementing Article 2(1)(e) of the Prospectus Directive; and (2) in the case of any shares acquired by it as a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, the shares acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the representatives has been given to the offer or resale; or where shares have been acquired by it on behalf of persons in any Member State other than qualified investors, the offer of those shares to it is not treated under the Prospectus Directive as having been made to such persons.

 

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The company, the representatives and their respective affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgments and agreements.

This prospectus has been prepared on the basis that any offer of shares in any Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Member State of shares which are the subject of this offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the company or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the company nor either of the representatives has authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the company or the representatives to publish a prospectus for such offer.

For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (as amended) and includes any relevant implementing measure in each Member State.

The above selling restriction is in addition to any other selling restrictions set out below.

Notice to Prospective Investors in the United Kingdom

In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.

Notice to Prospective Investors in Switzerland

The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to our common stock or this offering may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering or marketing material relating to this offering, the company or our shares of common stock have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, or FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.

 

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Notice to Prospective Investors in the Dubai International Financial Centre

This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or the DFSA. This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for this prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.

Notice to Prospective Investors in Australia

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission in relation to this offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the shares may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.

The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under this offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.

This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Notice to Prospective Investors in Hong Kong

The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

 

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Notice to Prospective Investors in Japan

The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

Notice to Prospective Investors in Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

  (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

  (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:

 

  (a) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

  (b) where no consideration is or will be given for the transfer;

 

  (c) where the transfer is by operation of law;

 

  (d) as specified in Section 276(7) of the SFA; or

 

  (e) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

Notice to Prospective Investors in Canada

The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations . Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

 

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Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

 

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LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, Massachusetts. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP.

EXPERTS

The financial statements as of December 31, 2016 and 2015 and for each of the two years in the period ended December 31, 2016 included in this prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to the Company’s ability to continue as a going concern as described in Note 1 to the consolidated financial statements) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

CHANGES IN CERTIFYING ACCOUNTANTS

On March 6, 2015, KPMG LLP, or KPMG, was engaged as our principal accountant to issue an auditor’s report on our consolidated financial statements as of December 31, 2014 and for the year then ended. We dismissed KPMG as our principal accountant on June 30, 2016, effective as of that date. Our board of directors participated in and approved our change in certifying accountants. KPMG did not issue a report on our financial statements for either of the two fiscal years ended December 31, 2016. During the period from March 6, 2015, when we engaged KPMG as our principal accountant, to June 30, 2016, (i) there were no disagreements (as that term is used in Item 304(a)(1)(iv) of Regulation S-K and the related instructions, or Regulation S-K) with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of KPMG would have caused KPMG to make reference thereto in their report on our audited consolidated financial statements as of December 31, 2014 and for the year then ended, and (ii) there were no reportable events as such term is defined in Item 304(a)(1)(v) of Regulation S-K.

We provided KPMG with a copy of the disclosures set forth above and requested that KPMG furnish a letter addressed to the SEC stating whether or not KPMG agrees with statements related to them made by us in the disclosures above. KPMG has furnished such letter dated August 25, 2017, a copy of which is filed as Exhibit 16.1 to the registration statement of which this prospectus forms a part.

We engaged PricewaterhouseCoopers LLP, or PwC, as our independent registered public accounting firm on June 30, 2016. The decision to change our independent registered public accounting firm was approved by our board of directors. During the period from January 1, 2014 to December 31, 2015 and the subsequent period preceding our engagement of PwC as our independent registered public accounting firm on June 30, 2016, neither we nor anyone acting on our behalf consulted with PwC regarding: (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on our consolidated financial statements, and PwC did not provide any written report or oral advice that PwC concluded was an important factor considered by us in reaching a decision as to any such accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

 

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WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1, including exhibits and schedules, under the Securities Act that registers the shares of our common stock to be sold in this offering. This prospectus, which constitutes a part of the registration statement, does not contain all the information contained in the registration statement and the exhibits and schedules filed as part of the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits and schedules filed as part of the registration statement. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to the copies of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.

Upon the consummation of this offering, we will file annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act. You can read our SEC filings, including the registration statement, at the SEC’s website at www.sec.gov .

You may read and copy this information at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549, at prescribed rates. You may obtain information regarding the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website ( http://www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Our website address is www.sperotherapeutics.com . The information contained in, and that can be accessed through, our website is not incorporated into and is not part of this prospectus.

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     F-2  

Consolidated Balance Sheets

     F-3  

Consolidated Statements of Operations and Comprehensive Loss

     F-4  

Consolidated Statements of Bridge Units, Redeemable Convertible Preferred Shares and Stockholders’ Deficit

     F-5  

Consolidated Statements of Cash Flows

     F-8  

Notes to Consolidated Financial Statements

     F-10  

 

F-1


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Spero Therapeutics, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, of bridge units, redeemable convertible preferred shares and stockholders’ deficit and of cash flows present fairly, in all material respects, the financial position of Spero Therapeutics, Inc. and its subsidiaries as of December 31, 2016 and 2015, and the 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. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations since inception, has an accumulated deficit, and will require additional financing to fund future operations that 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 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

August 25, 2017

 

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Table of Contents

SPERO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit, share and per share amounts)

 

    December 31,     June 30, 2017     Pro Forma
June 30, 2017
 
    2015     2016      
                (unaudited)     (unaudited)  

Assets

       

Current assets:

       

Cash and cash equivalents

  $ 5,691     $ 10,315     $ 36,299     $ 36,299  

Other receivables

    10       304       228       228  

Prepaid expenses and other current assets

    287       1,253       948       948  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    5,988       11,872       37,475       37,475  

Tax incentive receivables

    —         144       766       766  

Property and equipment, net

    949       1,500       1,330       1,330  

Deferred offering costs

    36       —         272       272  

Deposits

    153       206       206       206  

Restricted cash

    50       50       50       50  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 7,176     $ 13,772     $ 40,099     $ 40,099  
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities, Bridge Units, Redeemable Convertible Preferred Shares and Stockholders’ Equity (Deficit)

       

Current liabilities:

       

Accounts payable

  $ 1,794     $ 1,139     $ 1,368     $ 1,368  

Accrued expenses and other current liabilities

    606       2,928       4,687       4,687  

Derivative liabilities

    3,384       2,708       215       215  

Advance payments from collaborator

    512       —         —         —    

Deferred rent

    125       143       141       141  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    6,421       6,918       6,411       6,411  

Deferred rent, net of current portion

    595       493       433       433  

Advance payments from collaborator, net of current portion

    417       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    7,433       7,411       6,844       6,844  
 

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies (Note 11)

       

Bridge units

    —         7,924       —         —    

Redeemable convertible preferred units (Class A, B, C and Junior); 7,640,596 and 13,549,685 units issued and outstanding as of December 31, 2015 and 2016, respectively; aggregate liquidation preference of $50,326 as of December 31, 2016; no units authorized, issued or outstanding as of June 30, 2017 (unaudited) or pro forma as of June 30, 2017 (unaudited)

    18,296       47,685       —         —    

Redeemable convertible preferred stock (Series A, B, C and Junior), $0.001 par value; no shares authorized, issued or outstanding as of December 31, 2015 or 2016; 43,297,267 shares authorized and 43,197,267 shares issued and outstanding as of June 30, 2017 (unaudited); aggregate liquidation preference of $106,208 as of June 30, 2017 (unaudited); no shares issued or outstanding, pro forma as of June 30, 2017 (unaudited)

    —         —         103,760       —    

Stockholders’ equity (deficit):

       

Common units; 2,165,995 and 2,037,662 units issued and outstanding as of December 31, 2015 and 2016, respectively

    —         —         —         —    

Common stock, $0.001 par value; no shares authorized, issued or outstanding as of December 31, 2015 and 2016; 61,917,986 shares authorized and 2,037,662 shares issued and outstanding as of June 30, 2017 (unaudited); 50,967,293 shares issued and outstanding, pro forma as of June 30, 2017 (unaudited)

    —         —         2       51  

Additional paid-in capital

    —         —         —         103,711  

Accumulated deficit

    (18,100     (45,440     (71,979     (71,979
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Spero Therapeutics, Inc. stockholders’ equity (deficit)

    (18,100     (45,440     (71,977     31,783  

Non-controlling interests

    (453     (3,808     1,472       1,472  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

    (18,553     (49,248     (70,505     33,255  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, bridge units, redeemable convertible preferred shares and stockholders’ equity (deficit)

  $ 7,176     $ 13,772     $ 40,099     $ 40,099  
 

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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SPERO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

 

     Year Ended December 31,     Six Months Ended June 30,  
     2015     2016     2016     2017  
                 (unaudited)  

Revenue

   $ —       $ 335     $ —       $ 389  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     11,125       26,333       13,401       13,456  

General and administrative

     2,202       7,223       3,096       4,697  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,327       33,556       16,497       18,153  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (13,327     (33,221     (16,497     (17,764
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Change in fair value of derivative liabilities

     174       580       (33     1,549  

Interest income and other income (expense), net

     —         —         4       41  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     174       580       (29     1,590  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

     (13,153     (32,641     (16,526     (16,174

Less: Net loss attributable to non-controlling interests

     (2,999     (7,150     (4,562     (1,129
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Spero Therapeutics, Inc.

     (10,154     (25,491     (11,964     (15,045

Cumulative dividends on redeemable convertible preferred shares

     (932     (3,441     (1,607     (3,261

Accretion of bridge units and redeemable convertible preferred shares to redemption value

     (2,341     (996     (614     (945
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders of Spero Therapeutics, Inc.

   $ (13,427   $ (29,928   $ (14,185   $ (19,251
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted

   $ (8.74   $ (15.78   $ (7.72   $ (9.52
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted

     1,536,412       1,897,173       1,837,227       2,021,230  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted (unaudited)

     $ (1.71     $ (0.37
    

 

 

     

 

 

 

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)

       14,886,615         40,140,141  
    

 

 

     

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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SPERO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF BRIDGE UNITS, REDEEMABLE CONVERTIBLE PREFERRED SHARES AND

STOCKHOLDERS’ DEFICIT

(In thousands, except unit and share amounts)

 

                                                    Additional
Paid-in
Capital
    Accumu-
lated
Deficit
    Total Spero
Therapeutics,
Inc.

Stockholders’
Deficit
    Non-
Controlling
Interests
    Total
Stockholders’
Deficit
 
    Bridge Units     Preferred Units     Preferred
Stock
    Common Units     Common Stock            
    Units     Amount     Units     Amount     Shares     Amount     Units     Amount     Shares     Amount            

Balances at December 31, 2014

    —       $ —         3,438,318     $ 3,513           —           $ —         2,165,995         $ —             —           $ —       $ 65     $ (6,178   $ (6,113   $ —       $ (6,113

Issuance of bridge units, net of derivative liability of $2,307

    8,000       5,693       —         —         —         —         —         —         —         —         —         —         —         —         —    

Deemed contribution of capital for reduction in conversion discount

    —         —         —         —         —         —         —         —         —         —         1,419       —         1,419       —         1,419  

Conversion of bridge units into Class A preferred units, net of tranche rights derivative liability of $1,301

    (8,000     (8,000     2,279,202       7,587       —         —         —         —         —         —         —         —         —         —         —    

Issuance of Class A preferred units, net of tranche rights derivative liability of $1,100 and offering costs of $170

    —         —         1,923,076       6,230       —         —         —         —         —         —         —         —         —         —         —    

Cumulative dividends on redeemable convertible preferred units

    —         —         —         932       —         —         —         —         —         —         (932     —         (932     —         (932

Accretion of bridge units to redemption value

    —         2,307       —         —         —         —         —         —         —         —         (539     (1,768     (2,307     —         (2,307

Accretion of redeemable convertible preferred units to redemption value

    —         —         —         34       —         —         —         —         —         —         (34     —         (34     —         (34

Share-based compensation expense

    —         —         —         —         —         —         —         —         —         —         21       —         21       —         21  

Issuance of 49.9% non-controlling interest in Spero Potentiator in exchange for licensed technology

    —         —         —         —         —         —         —         —         —         —         —         —         —         1,087       1,087  

Issuance of additional shares of Spero Potentiator to minority investor under anti-dilution rights

    —         —         —         —         —         —         —         —         —         —         —         —         —         1,459       1,459  

Net loss

    —         —         —         —         —         —         —         —         —         —         —         (10,154     (10,154     (2,999     (13,153
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2015

    —         —         7,640,596       18,296       —         —         2,165,995       —         —         —         —         (18,100     (18,100     (453     (18,553

 

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Table of Contents

SPERO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF BRIDGE UNITS, REDEEMABLE CONVERTIBLE PREFERRED SHARES AND

STOCKHOLDERS’ DEFICIT

(In thousands, except unit and share amounts)

 

                                                    Additional
Paid-in
Capital
    Accumu-
lated
Deficit
    Total Spero
Therapeutics,
Inc.

Stockholders’
Deficit
    Non-
Controlling
Interests
    Total
Stockholders’
Deficit
 
    Bridge Units     Preferred Units     Preferred
Stock
    Common Units     Common Stock            
    Units     Amount     Units     Amount     Shares     Amount     Units     Amount     Shares     Amount            

Deemed contribution of capital for settlement of Class A preferred unit tranche rights

    —       $ —         —       $ —             —           $ —         —       $     —             —           $ —       $ 2,408     $ —       $ 2,408     $ —       $ 2,408  

Issuance of Class B preferred units, net of tranche rights derivative liability of $909 and offering costs of $112

    —         —         5,909,089       24,979       —         —         —         —         —         —         —         —         —         —         —    

Issuance of bridge units, net of contingent prepayment option derivative liability of $908

    8,500       7,897       —         —         —         —         —         —         —         —         —         —         —         —         —    

Repurchase of unvested restricted common units

    —         —         —         —         —         —         (128,333     —         —         —         —         —         —         —         —    

Cumulative dividends on redeemable convertible preferred units

    —         —         —         3,441       —         —         —         —         —         —         (2,503     (938     (3,441     —         (3,441

Accretion of redeemable convertible preferred units to redemption value

    —         —         —         969       —         —         —         —         —         —         (58     (911 )       (969     —         (969

Accretion of bridge units to redemption value

    —         27       —         —         —         —         —         —         —         —         (27     —         (27     —         (27

Issuance of 20% non-controlling interest in Spero Gyrase in exchange for acquired technology

    —         —         —         —         —         —         —         —         —         —         —         —         —         1,080       1,080  

Issuance of 5% non-controlling interest in Spero Europe in exchange for licensed technology

    —         —         —         —         —         —         —         —         —         —         —         —         —         100       100  

Issuance of 12.5% non-controlling interest in Spero Cantab in exchange for licensed technology

    —         —         —         —         —         —         —         —         —         —         —         —         —         1,635       1,635  

Issuance of additional shares of Spero Potentiator to minority investor under anti-dilution rights

    —         —         —         —         —         —         —         —         —         —         —         —         —         980       980  

Share-based compensation expense

    —         —         —         —         —         —         —         —         —         —         180       —         180       —         180  

Net loss

    —         —         —         —         —         —         —         —         —         —         —         (25,491     (25,491     (7,150     (32,641
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2016

    8,500       7,924       13,549,685       47,685       —         —         2,037,662       —         —         —         —         (45,440     (45,440     (3,808     (49,248

 

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Table of Contents

SPERO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF BRIDGE UNITS, REDEEMABLE CONVERTIBLE PREFERRED SHARES AND

STOCKHOLDERS’ DEFICIT

(In thousands, except unit and share amounts)

 

                                                    Additional
Paid-in
Capital
    Accumu-
lated
Deficit
    Total Spero
Therapeutics,
Inc.

Stockholders’
Deficit
    Non-
Controlling
Interests
    Total
Stockholders’
Deficit
 
    Bridge Units     Preferred Units     Preferred Stock     Common Units     Common Stock            
    Units     Amount     Units     Amount     Shares     Amount     Units     Amount     Shares     Amount            

Accretion of bridge units to redemption value

    —       $ 576       —       $ —         —       $ —         —           $ —         —           $ —           $ (123   $ (453   $ (576   $ —       $ (576

Conversion of bridge units into Class C preferred units

    (8,500     (8,500     5,321,112       9,444       —         —         —         —         —         —         —         —         —         —         —    

Issuance of Class C preferred units, net of issuance costs of $176

    —         —         24,326,470       43,001       —         —         —         —         —         —         —         —         —         —         —    

Repurchase of non-controlling interest in Spero Europe

    —         —         —         —         —         —         —         —         —         —         —         (14     (14     14       —    

Repurchase of non-controlling interest in Spero Potentiator

    —         —         —         —         —         —         —         —         —         —         —         (7,395     (7,395     6,395       (1,000

Cumulative dividends on redeemable convertible preferred units

    —         —         —         3,261       —         —         —         —         —         —         —         (3,261     (3,261     —         (3,261

Accretion of redeemable convertible preferred units to redemption value

    —         —         —         369       —         —         —         —         —         —         —         (369     (369     —         (369

Exchange of units of Spero Therapeutics, LLC for shares of Spero Therapeutics, Inc. on a one-for-one basis

    —         —         (43,197,267     (103,760     43,197,267       103,760       (2,037,662     —         2,037,662       2       —         (2     —         —         —    

Share-based compensation expense

    —         —         —         —         —         —         —         —         —         —         123       —         123       —         123  

Net loss

    —         —         —         —         —         —         —         —         —         —         —         (15,045     (15,045     (1,129     (16,174
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2017 (unaudited)

    —       $ —         —       $ —         43,197,267     $ 103,760       —       $ —         2,037,662     $ 2     $ —       $ (71,979   $ (71,977   $ 1,472     $ (70,505
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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SPERO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Year Ended December 31,     Six Months Ended June 30,  
     2015     2016     2016     2017  
                 (unaudited)  

Cash flows from operating activities:

        

Net loss

   $ (13,153   $ (32,641   $ (16,526   $ (16,174

Adjustments to reconcile net loss to net cash used in operating activities:

        

Non-cash research and development expense

     3,517       4,595       4,595       —    

Depreciation and amortization

     11       279       120       170  

Change in fair value of derivative liabilities

     (174     (580     33       (1,549

Share-based compensation

     21       180       57       123  

Unrealized foreign currency transaction gain

     —         —         —         (2

Changes in operating assets and liabilities:

        

Other receivables

     (10     (294     10       76  

Prepaid expenses and other current assets

     (280     (966     (476     305  

Tax incentive receivables

     —         (144     —         (620

Deposits

     (150     (53     —         —    

Accounts payable

     671       (644     (845     118  

Accrued expenses and other current liabilities

     409       2,322       584       1,759  

Deferred rent

     —         (84     (28     (62

Advance payments from collaborator

     (470     (929     (744     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

     (9,608     (28,959     (13,220     (15,856
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchases of property and equipment

     (232     (830     (364     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (232     (830     (364     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from issuance of Class A preferred units, net of issuance costs

     7,330       —         —         —    

Proceeds from issuance of bridge units

     8,000       8,500       —         —    

Changes in restricted cash

     (30     —         —         —    

Payment of offering costs related to 2016 issuance of Class B preferred units

     (25     —         —         —    

Proceeds from issuance of Class B preferred units, net of issuance costs

       25,913       25,913       —    

Proceeds from issuance of Class C preferred units, net of issuance costs

     —         —         —         43,001  

Payment of offering costs related to probable 2017 equity financing

     —         —         —         (161

Cash payment for repurchase of Spero Potentiator non-controlling interests

     —         —         —         (1,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     15,275       34,413       25,913       41,840  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

     5,435       4,624       12,329       25,984  

Cash and cash equivalents at beginning of period

     256       5,691       5,691       10,315  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 5,691     $ 10,315     $ 18,020     $ 36,299  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

SPERO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Year Ended December 31,      Six Months Ended June 30,  
     2015      2016      2016      2017  
                   (unaudited)  

Supplemental disclosure of non-cash investing and financing activities:

           

Conversion of bridge units into preferred units

   $ 8,000      $ —        $ —        $ 8,500  

Settlement of derivative liabilities upon issuance of preferred units

   $ 888      $ —        $ —        $ 944  

Issuance of tranche rights with preferred units

   $ 2,401      $ 909      $ 909      $ —    

Deemed contribution of capital

   $ 1,419      $ 2,408      $ 2,408      $ —    

Settlement of derivative liability upon issuance of bridge units

   $ —        $ 305      $ —        $ —    

Issuance of contingent prepayment option with bridge units

   $ —        $ 908      $ —        $ —    

Cumulative dividends on redeemable convertible preferred units

   $ 932      $ 3,441      $ 1,607      $ 3,261  

Accretion of redeemable convertible preferred units to redemption value

   $ 34      $ 969      $ 614      $ 369  

Accretion of bridge units to redemption value

   $ 2,307      $ 27      $ —        $ 576  

Issuance of additional shares of common stock to minority investors under anti-dilution rights

   $ 1,459      $ 980      $ 680      $ —    

Elimination of non-controlling interest balance upon repurchase of non-controlling interests

   $ —        $ —        $ —        $ 6,409  

Purchases of property and equipment included in accounts payable, accrued expenses and deferred rent

   $ 728      $ —        $ 26      $ —    

Deferred offering costs included in accounts payable and accrued expenses

   $ 11      $ —        $ —        $ 111  

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of the Business and Basis of Presentation

Spero Therapeutics, Inc., together with its consolidated subsidiaries (the “Company”), is a multi-asset, clinical-stage biopharmaceutical company focused on identifying, developing and commercializing novel treatments for multi-drug resistant (“MDR”) bacterial infections. The Company’s most advanced product candidate, SPR994, is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use in adults to treat MDR Gram-negative infections. Treatment with effective orally administrable antibiotics may prevent hospitalizations for serious infections and enable earlier, more convenient and cost-effective treatment of patients after hospitalization. The Company also has a platform technology known as its Potentiator Platform that it believes will enable it to develop drugs that will expand the spectrum and potency of existing antibiotics, including formerly inactive antibiotics, against Gram-negative bacteria. The Company’s lead product candidates generated from its Potentiator Platform are two IV-administered agents, SPR741 and SPR206, designed to treat MDR Gram-negative infections in the hospital setting. In addition, the Company is developing SPR720, an oral antibiotic designed for the treatment of pulmonary non-tuberculous mycobacterial infections. The Company believes that its novel product candidates, if successfully developed and approved, would have a meaningful patient impact and significant commercial applications for the treatment of MDR infections in both the community and hospital settings.

The Company was formed as Spero Therapeutics, LLC in December 2013 under the laws of the State of Delaware. On June 30, 2017, through a series of transactions, Spero Therapeutics, LLC merged with and into Spero Therapeutics, Inc. (formerly known as Spero OpCo, Inc.), a Delaware corporation. As part of the transactions, holders of preferred units and common units of Spero Therapeutics, LLC exchanged their units for shares of Spero Therapeutics, Inc. on a one-for-one basis. These transactions are collectively referred to as the Reorganization. Upon completion of the Reorganization, the historical consolidated financial statements of Spero Therapeutics, LLC became the historical consolidated financial statements of Spero Therapeutics, Inc. because the Reorganization was accounted for as a reorganization of entities under common control.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The accompanying consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Going Concern

In accordance with Accounting Standards Update (“ASU”) 2014-15,  Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Since inception, the Company has funded its operations with proceeds from sales of preferred units (including bridge units, which converted into preferred units), payments received in connection with a concluded collaboration agreement and funding from government contracts. The Company has incurred recurring losses since inception, including net losses attributable to Spero Therapeutics, Inc. of $10.2 million and $25.5 million for the years ended December 31, 2015 and 2016, respectively, and $15.0 million for the six months ended June 30, 2017 (unaudited). In addition, as of December 31, 2016 and June 30, 2017 (unaudited), the Company had an accumulated deficit of $45.4 million and $72.0 million, respectively. The Company expects to continue to generate operating losses for the foreseeable future. As of August 25, 2017, the issuance date of the annual consolidated financial statements for the year ended December 31, 2016 and the interim consolidated financial statements for the six months ended June 30, 2017, the Company expects that its cash and cash equivalents of $36.3 million as of June 30, 2017 (unaudited), will be sufficient to fund its operating expenses and capital expenditure requirements through February 2018. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.

The Company is seeking to complete an initial public offering (“IPO”) of its common stock. Upon the closing of a qualified public offering on specified terms, the Company’s outstanding redeemable convertible preferred stock will automatically convert into shares of common stock (see Note 6). In the event the Company does not complete an IPO, the Company expects to seek additional funding through private equity financings, debt financings, or other capital sources, including collaborations with other companies, government funding arrangements or other strategic transactions. The Company may not be able to obtain funding on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders.

If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Based on its recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and need to raise additional capital to finance its future operations, the Company has concluded that there is substantial doubt about its ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, the valuation of common

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

shares, the valuation of share-based awards and the valuation of derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ from those estimates or assumptions.

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of June 30, 2017, the consolidated statements of operations and comprehensive loss and of cash flows for the six months ended June 30, 2016 and 2017, and the consolidated statement of bridge units, redeemable convertible preferred shares and stockholders’ deficit for the six months ended June 30, 2017 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2017 and the results of its operations and its cash flows for the six months ended June 30, 2016 and 2017. The financial data and other information disclosed in these notes related to the six months ended June 30, 2016 and 2017 are also unaudited. The results for the six months ended June 30, 2017 are not necessarily indicative of results to be expected for the year ending December 31, 2017, any other interim periods, or any future year or period.

Unaudited Pro Forma Information

The accompanying unaudited pro forma consolidated balance sheet as of June 30, 2017 has been prepared to give effect, upon the closing of a qualified initial public offering (see Note 6), to the automatic conversion of all shares of redeemable convertible preferred stock outstanding as of June 30, 2017 into 48,929,631 shares of common stock as if the proposed initial public offering had occurred on June 30, 2017.

In the accompanying consolidated statements of operations and comprehensive loss, the unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2016 and the six months ended June 30, 2017 have been prepared to give effect, upon the closing of a qualified initial public offering, to the automatic conversion of all shares of redeemable convertible preferred stock into common stock as if the proposed initial public offering had occurred on the later of January 1, 2016 or the issuance date of the redeemable convertible preferred stock.

Consolidation

The Company consolidates entities in which it has a controlling financial interest. The Company evaluates each of its subsidiaries to determine whether the entity represents a variable interest entity (“VIE”), for which consolidation should be evaluated under the VIE model, or, alternatively, if the entity is a voting interest entity, for which consolidation should be evaluated using the voting interest model. The Company has concluded that none of its subsidiaries is a VIE and has consolidated each subsidiary under the voting interest model because it has majority voting control of each subsidiary.

Ownership interests in the Company’s subsidiaries that are held by entities other than the Company are reported as non-controlling interests in the consolidated balance sheets. Losses attributed to non-controlling interests and to the Company are reported separately in the consolidated statements of operations and comprehensive loss.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

As of December 31, 2015 and 2016, the Company consolidated the following subsidiaries that were not wholly owned:

 

Subsidiary

   Relationship      Country
Domiciled
     Year of
Inclusion
 

Spero Potentiator, Inc.

     Controlling interest        United States        2014  

Spero Europe, Ltd.

     Controlling interest        United Kingdom        2015  

Spero Gyrase, Inc.

     Controlling interest        United States        2016  

Spero Cantab, Inc.

     Controlling interest        United States        2016  

All of the non-controlling interests in Spero Europe, Ltd. and Spero Potentiator, Inc. were repurchased by the Company during the six months ended June 30, 2017. All of the non-controlling interests in Spero Cantab, Inc. were repurchased by the Company in July 2017 (see Notes 9 and 17).

Concentrations of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains most of its cash and cash equivalents at one accredited financial institution. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering. Should the planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statement of operations and comprehensive loss.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents consisted of money market funds at June 30, 2017 (unaudited). The Company did not have any cash equivalents as of December 31, 2015 and 2016.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows:

 

    

               Estimated Useful Life              

Laboratory equipment

   5 years

Computer software and equipment

   3 years

Office furniture and equipment

   7 years

Leasehold improvements

   Shorter of life of lease or 5 years

Costs for capital assets not yet placed into service are capitalized as construction in progress and are depreciated in accordance with the above guidelines once placed into service. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. The Company did not record any impairment losses on long-lived assets during the years ended December 31, 2015 or 2016 or during the six months ended June 30, 2016 and 2017 (unaudited).

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

    Level 1—Quoted prices in active markets for identical assets or liabilities.

 

    Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

    Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and derivative liabilities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.

Derivative Liabilities

In connection with certain equity financings, licensing transactions and research collaborations, the Company has identified certain embedded and freestanding derivatives, which are recorded as liabilities on the Company’s consolidated balance sheet and are remeasured to fair value at each reporting date until the derivative is settled. Changes in the fair value of the derivative liabilities are recognized as other income (expense) in the consolidated statement of operations and comprehensive loss.

Classification and Accretion of Bridge Units and Redeemable Convertible Preferred Shares

The Company has classified bridge units and redeemable convertible preferred shares outside of stockholders’ equity (deficit) because the shares contain certain redemption features that are not solely within the control of the Company. The carrying values of these instruments are accreted to their respective redemption values from the date of issuance through the earliest date of redemption.

Segment Information

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on identifying, developing and commercializing novel treatments for MDR bacterial infections. All of the Company’s tangible assets are held in the United States.

Government Contracts and Revenue Recognition

The Company generates revenue from government contracts that reimburse the Company for certain allowable costs for funded projects. For contracts with government agencies, when the Company has concluded that it is the principal in conducting the research and development expenses and where the funding arrangement is considered central to the Company’s ongoing operations, the Company classifies the recognized funding received as revenue.

The Company has concluded to recognize funding received from the U.S. Department of Defense (“DoD”), the National Institute of Allergy and Infectious Diseases (“NIAID”) of the National Institutes of Health (“NIH”) and Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (“CARB-X”) as revenue, rather than as a reduction of research and development expenses, because the Company is the principal in conducting the research and development activities and these contracts are central to its ongoing operations. Revenue is recognized as the qualifying expenses related to the contracts are incurred. Revenue recognition commences only once persuasive evidence of a contract exists, services have been rendered, the reimbursement amounts under the contract are fixed or determinable, and collectibility is reasonably assured. Revenue recognized upon incurring qualifying expenses in advance of receipt of funding is recorded in the Company’s consolidated balance sheet as other receivables. The related costs incurred by the Company are included in research and development expense in the Company’s consolidated statements of operations and comprehensive loss.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Government Tax Incentives

For available government tax incentives that the Company may earn without regard to the existence of taxable income and that require the Company to forego tax deductions or the use of future tax credits and net operating loss carryforwards, the Company classifies the funding recognized as a reduction of the related qualifying research and development expenses incurred.

Since the fourth quarter of 2016, the Company’s operating subsidiary in Australia has met the eligibility requirements to receive a 43.5% tax incentive for qualifying research and development activities (see Note 14). The Company recognizes these incentives as a reduction of research and development expenses in the consolidated statements of operations and comprehensive loss in the same period that the related qualifying expenses are incurred. Reductions of research and development expense recognized upon incurring qualifying expenses in advance of receipt of tax incentive payments are recorded in the consolidated balance sheet as tax incentive receivables.

Collaboration Agreements

For collaboration agreements with a third party, to determine the appropriate statement of operations classification of the recognized funding, the Company first assesses whether the collaboration arrangement is within the scope of the accounting guidance for collaboration arrangements. If it is, the Company evaluates the collaborative arrangement for proper classification in the statement of operations based on the nature of the underlying activity and the Company assesses the payments to and from the collaborative partner. If the payments to and from the collaborative partner are not within the scope of other authoritative accounting guidance, the Company bases the statement of operations classification for the payments received on a reasonable, rational analogy to authoritative accounting guidance, applied in a consistent manner. Conversely, if the collaboration arrangement is not within the scope of accounting guidance for collaboration arrangements, the Company assesses whether the collaboration arrangement represents a vendor/customer relationship. If the collaborative arrangement does not represent a vendor/customer relationship, the Company then classifies the funding payments received in the statement of operations and comprehensive loss as a reduction of the related expense that is incurred.

In 2014, the Company entered into a research and development services and support agreement with Hoffmann-La Roche Inc. and certain of its affiliates (“Roche”) and concluded that the agreements were not within the scope of the accounting guidance for collaboration arrangements (see Note 13). Due to the co-funded nature of the payments and the Company’s assessment that it did not have a vendor/customer relationship with Roche, the Company recognized the nonrefundable payments received under the agreement as a reduction to the research and development expenses incurred, based on a proportional methodology comparing the total expenses incurred in the period under the project to the total expenses expected to be incurred under the project. The Company terminated the agreement with Roche in August 2016.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries, share-based compensation and benefits, facilities costs, depreciation, manufacturing expenses and external costs of outside vendors engaged to conduct preclinical development activities and trials as well as the cost of licensing technology. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred. Nonrefundable advance payments for goods

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Research Contract Costs and Accruals

The Company has entered into various research and development contracts with research institutions and other companies both inside and outside of the United States. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Patent Costs

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.

Share-Based Compensation

The Company measures all share-based awards granted to employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model. Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues awards with only service-based vesting conditions and records the expense for these awards using the straight-line method.

For share-based awards granted to non-employee consultants, compensation expense is recognized over the period during which services are rendered by such consultants until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of the Company’s common shares and updated assumption inputs in the Black-Scholes option-pricing model.

The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with shareholders. There was no difference between net loss and comprehensive loss for each of the periods presented in the accompanying consolidated financial statements.

Net Income (Loss) per Share Attributable to Spero Therapeutics, Inc.

The Company follows the two-class method when computing net income (loss) per share, as the Company has issued shares that meet the definition of participating securities. The two-class method determines

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Net income (loss) per share attributable to common stockholders is calculated based on net income (loss) attributable to Spero Therapeutics, Inc. and excludes net income (loss) attributable to non-controlling interests.

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents.

The Company’s preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders of Spero Therapeutics, Inc., diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. is the same as basic net loss per share attributable to common stockholders of Spero Therapeutics, Inc., since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders of Spero Therapeutics, Inc. for the years ended December 31, 2015 and 2016 and the six months ended June 30, 2016 and 2017 (unaudited).

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Recently Adopted Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). The amendments in this update explicitly require a company’s management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The new standard is effective for annual periods ending after December 15, 2016 and for interim periods thereafter. The Company adopted ASU 2014-15 as of the required effective date of December 31, 2016. This guidance relates to footnote disclosure only, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.

In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (“ASU 2014-16”). The guidance requires an entity to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of the relevant facts and circumstances (commonly referred to as the whole-instrument approach). The Company adopted the standard retrospectively to all periods presented on the required effective date of January 1, 2016, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.

In November 2015, the FASB issued ASU No. 2015-17,  Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes  (“ASU 2015-17”), which requires deferred tax liabilities and assets to be classified as non-current in the consolidated balance sheet. ASU 2015-17 is required to be adopted for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. The amendment may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company elected to early adopt the standard on January 1, 2016 and has reflected the adoption retrospectively to all periods presented. The adoption of ASU 2016-09 had no material impact on the Company’s financial position, results of operations or cash flows.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 involves several aspects of the accounting for share-based transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross share compensation expense with actual forfeitures recognized as they occur and certain classifications on the statement of cash flows. Certain of these changes are required to be applied retrospectively, while other changes are required to be applied prospectively. The Company adopted ASU 2016-09 as of the required effective date of January 1, 2017 and has elected to account for forfeitures as they occur rather than apply an estimated forfeiture rate to share-based compensation expense. The adoption of ASU 2016-09 had no material impact on the Company’s financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard outlines a five-step process to achieve this principle, and will require companies to use more judgment and make more estimates than under the current guidance. The Company expects that these judgments and estimates will include identifying performance obligations in the customer contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 also requires additional disclosure about the nature, amount,

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which delays the effective date of ASU 2014-09 such that the standard is effective for public entities for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”), which further clarifies the implementation guidance on principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensin g, clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments in this update reduce the cost and complexity of identifying promised goods or services and improve the guidance for determining whether promises are separately identifiable. The amendments in this update also provide implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), which clarifies the objective of the collectability criterion, presentation of taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition and how guidance in ASU 2014-09 is retrospectively applied. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective dates and transition requirements as ASU 2014-09. The Company plans to adopt this standard using the modified retrospective approach and is currently evaluating the impact that the adoption will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842 ) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The guidance is effective for public entities for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2016-15 will have on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230) (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and should be applied using a retrospective transition method to each period presented. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-18 on its consolidated financial statements.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2017-01 will have on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2017-09 will have on its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception . Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its consolidated financial statements.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

       Fair Value Measurements at December 31, 2015 Using:    
         Level 1              Level 2              Level 3              Total      

Liabilities:

           

Derivative liabilities:

           

Tranche rights

   $ —        $ —        $ 2,404      $ 2,404  

Anti-dilution rights

     —          —          980        980  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ —        $ 3,384      $ 3,384  
  

 

 

    

 

 

    

 

 

    

 

 

 
       Fair Value Measurements at December 31, 2016 Using:    
         Level 1              Level 2              Level 3              Total      

Liabilities:

           

Derivative liabilities:

           

Anti-dilution rights

   $ —        $ —        $ 1,806      $ 1,806  

Contingent prepayment option

     —          —          902        902  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ —        $ 2,708      $ 2,708  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value Measurements at June 30, 2017 Using:  
         Level 1              Level 2              Level 3              Total      
     (unaudited)  

Assets:

           

Cash equivalents:

           

Money market funds

   $ —        $ 29,578      $ —        $ 29,578  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 29,578      $ —        $ 29,578  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative liabilities:

           

Anti-dilution rights

   $ —        $ —        $ 215      $ 215  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ —        $ 215      $ 215  
  

 

 

    

 

 

    

 

 

    

 

 

 

During the years ended December 31, 2015 and 2016 and the six months ended June 30, 2017 (unaudited), there were no transfers between Level 1, Level 2 and Level 3.

Tranche Rights

The Company’s sales of Class A-1 preferred units (“Class A preferred units”) and Class B-1 preferred units (“Class B preferred units”) (see Note 6) provided investors with the right to participate in subsequent offerings of Class A and Class B preferred units in the event specified development and regulatory milestones were achieved. The Company classified each of the tranche rights as a derivative liability on its consolidated balance sheet because they met the definition of freestanding financial instruments that could have required the Company to transfer assets upon exercise. The Company remeasured the derivative liabilities associated with tranche rights to fair value at each reporting date, and recognized changes in the fair value of the derivative liabilities as a component of other income (expense) in the consolidated statement of operations and comprehensive loss.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The fair value of these derivative liabilities was determined using the probability-weighted expected return method (“PWERM”), which considered as inputs the probability and time that a milestone would be achieved, the potential fair value of preferred stock upon the exercise of the tranche right and the risk-adjusted discount rate.

Class A Tranche Rights

The fair value of the tranche right related to the Company’s Class A preferred unit financing (see Note 6) upon issuance in June 2015 was $2.4 million, which increased slightly as of December 31, 2015. Upon the issuance of the Class B preferred units in February 2016, the tranche right was cancelled and the settlement of the fair value of the derivative liability of $2.4 million was recorded as an increase to additional paid-in capital as a deemed capital contribution from the Class A preferred unit investors.

Class B Tranche Rights

The fair value of the tranche right related to the Company’s Class B preferred unit financing upon issuance in February 2016 was $0.9 million. Upon the issuance of bridge units in December 2016, the tranche rights were cancelled and the fair value of the derivative liability, which had decreased by $0.6 million to $0.3 million as of the date of settlement due to a decrease in the fair value of the Company’s underlying units, was settled (see Note 6).

Anti-Dilution Rights

In connection with the issuance of non-controlling interests in certain of the Company’s subsidiaries (see Note 9), specifically Spero Potentiator, Inc., Spero Europe, Ltd. and Spero Gyrase, Inc., the Company granted anti-dilution rights to the minority investors. The Company classifies the anti-dilution rights as a derivative liability on its consolidated balance sheet because they are freestanding instruments that represent a conditional obligation to issue a variable number of shares. The Company remeasures the derivative liability associated with the anti-dilution rights to fair value at each reporting date, and recognizes changes in the fair value of the derivative liability as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. The fair value of these derivative liabilities was determined using a discounted cash flow model.

Spero Potentiator

In connection with the Company’s issuance of a non-controlling interest in its subsidiary, Spero Potentiator Inc. (“Spero Potentiator”), to Northern Antibiotics Oy Ltd. (“Northern”) in February 2015, the Company granted to Northern certain anti-dilution rights (see Note 9). The fair value of the derivative liability related to the anti-dilution rights upon issuance in February 2015 was $2.4 million.

In November 2015, the Company issued an additional 2,736 shares of Spero Potentiator’s common shares for no additional cost to Northern as a result of the anti-dilution rights. Upon issuance, the fair value of the additional shares of Spero Potentiator issued to Northern of $1.5 million was recorded as a reduction of the derivative liability and as an increase to the non-controlling interest. In January and August 2016, the Company issued an additional 2,160 shares of Spero Potentiator’s common shares for no additional cost to Northern as a result of the anti-dilution rights. Upon issuance, the fair value of the additional shares of Spero Potentiator issued to Northern of $1.0 million was recorded as a reduction of the derivative liability and as an increase to the non-controlling interest. At that time, the derivative liability related to the anti-dilution rights issued to Northern was fully settled as Northern had received the maximum number of shares it was entitled to under the anti-dilution rights.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The most significant assumption impacting the fair value of the anti-dilution rights was the probability that the Company would fund the maximum amount of investment providing anti-dilution protection. Upon issuance of the rights and through August 2016, the date the maximum anti-dilution protection was reached, the Company’s assumption for the probability of such funding was 100%.

Spero Europe, Ltd .

In January 2016, in connection with the issuance of a non-controlling interest in its subsidiary, Spero Europe, Ltd. (“Spero Europe”), to Promiliad Biopharma Inc. (“Promiliad”), the Company granted to Promiliad certain anti-dilution rights (see Note 9). The fair value of the derivative liability related to the anti-dilution rights upon issuance in January 2016 was $0.2 million.

The change in the fair value of the derivative liability associated with the anti-dilution rights was insignificant during the year ended December 31, 2016 and the six months ended June 30, 2016 (unaudited). During the six months ended June 30, 2017 (unaudited), the fair value of the derivative liability decreased by $0.2 million to $0. In May 2017, the non-controlling interest in Spero Europe, Ltd. was repurchased and the anti-dilution rights were settled.

The most significant assumption impacting the fair value of the anti-dilution rights was the probability that the Company would fund the maximum amount of investment providing anti-dilution protection. Upon the issuance of the rights and through December 31, 2016, the probability of such funding was determined to be 100%. During the six months ended June 30, 2017 (unaudited), the probability of funding Spero Europe, Ltd. was reduced to 0% due to Company’s decision to no longer pursue development of the licensed technology.

Spero Gyrase, Inc.

In March 2016, in connection with the issuance of a non-controlling interest in its subsidiary, Spero Gyrase, Inc. (“Spero Gyrase”), to Biota Pharmaceuticals, Inc. (now Aviragen Therapeutics, Inc.) (“Aviragen”), the Company granted to Aviragen certain anti-dilution rights (see Note 9). The fair value of the derivative liability related to the anti-dilution rights upon issuance in March 2016 was $1.6 million.

The change in the fair value of the derivative liability associated with the anti-dilution rights was insignificant during the year ended December 31, 2016 and the six months ended June 30, 2016 (unaudited). During the six months ended June 30, 2017 (unaudited), the fair value of the derivative liability decreased by $1.4 million to $0.2 million as of June 30, 2017 (unaudited) due to Company’s decision to no longer pursue development of the acquired technology.

The most significant assumption impacting the fair value of the anti-dilution rights was the probability that the Company would fund the maximum amount of investment providing anti-dilution protection. Upon issuance of the rights and through December 31, 2016, the probability of such funding was determined to be 100%. As of June 30, 2017 (unaudited), the probability of funding the entity was reduced to 0% due to the Company’s decision to no longer pursue development of the acquired technology.

Contingent Prepayment Options

Bridge units issued to investors in January 2015 and December 2016 contained contingent prepayment options whereby such units were automatically convertible into equity units sold in a subsequent round of qualified financing at a discounted rate. The Company classified the contingent prepayment options as derivative

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

liabilities on its consolidated balance sheet because the bridge units were deemed to be more akin to debt than equity and the embedded prepayment options were at a substantial discount, thus meeting the definition of derivative liabilities. The Company remeasured the derivative associated with the contingent prepayment options to fair value at each reporting date, and recognized changes in the fair value of the derivative liabilities as a component of other income (expense) in its consolidated statement of operations and comprehensive loss.

The fair value of these derivative liabilities was determined using the PWERM, which considered as inputs the probability and time that a subsequent round of preferred stock financing would occur and the risk-adjusted discount rate.

January 2015 Bridge Units

The fair value of the derivative liability related to the contingent prepayment option associated with bridge units issued in January 2015 was $2.3 million. The option was settled in June 2015 upon the issuance of Class A preferred units. As a condition to the June 2015 financing, the Company and the holders of the bridge units agreed to reduce the previously agreed-upon discount to the per unit conversion price from 20% to 10% of the per unit price of $3.90 to be paid for the sale of the Class A preferred units. The reduction of the discount resulted in a decrease to the fair value of the derivative liability of $1.4 million, which was recorded as an increase to additional paid-in capital as a deemed capital contribution by the holders of the bridge units. The remaining fair value of the derivative liability of $0.9 million was settled upon conversion of the bridge notes into Class A preferred units.

December 2016 Bridge Units

The fair value of the derivative liability related to the contingent prepayment option associated with bridge units issued in December 2016 was $0.9 million. The change in the fair value of the derivative liability associated contingent prepayment option was not material during the year ended December 31, 2016. The fair value of the derivative liability increased by less than $0.1 million as of March 2017, at which time the contingent prepayment option was settled upon the issuance of Class C preferred units.

Investment Option

The Company’s concluded collaboration agreement provided its collaboration partner with an option to participate in the next round of financing subsequent to April 2014 in an amount up to $2.0 million at 90.0% of the per unit price of the related financing. The Company classified the investment option as a derivative liability on its consolidated balance sheet because it met the definition of a freestanding financial instrument that may require the Company to transfer assets upon exercise. The Company remeasured the derivative liability to fair value at each reporting date, and recognized changes in the fair value of the derivative liability as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. The fair value of the derivative liability related to the investment option was $0.2 million as of December 31, 2014.

The fair value of the derivative liability associated with investment option decreased by $0.1 million as of June 2015, at which time the subsequent financing occurred and the collaboration partner elected not to exercise the investment option, which then expired. Upon expiration, the Company recorded other income equal to the fair value of the derivative liability upon expiration of $0.1 million.

The fair value of this derivative liability was determined using the PWERM, which considered as inputs the probability and time that a qualified round of preferred stock financing would occur and the risk-adjusted discount rate.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table provides a roll forward of the aggregate fair values of the Company’s derivative liabilities, for which fair value was determined by Level 3 inputs (in thousands):

 

    

Tranche
Rights

   

Anti-
Dilution
Rights

   

Contingent
Prepayment
Options

   

Investment
Option

   

Total
Derivative
Liabilities

 

Balance as of December 31, 2014

   $ —       $ —       $ —       $ 186     $ 186  

Fair value at issuance

     2,401       2,430       2,307       —         7,138  

Change in fair value

     3       9       —         (186     (174

Deemed capital contribution by bridge unit holders for reduction in contingent prepayment discount

     —         —         (1,419     —         (1,419

Settlement

     —         (1,459     (888     —         (2,347
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2015

     2,404       980       —         —         3,384  

Fair value at issuance

     909       1,780       908       —         3,597  

Change in fair value

     (600     26       (6     —         (580

Settlement

     (2,713     (980     —         —         (3,693
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2016

     —         1,806       902       —         2,708  

Change in fair value

     —         (1,591     42       —         (1,549

Settlement

     —         —         (944     —         (944
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of June 30, 2017 (unaudited)

   $ —       $ 215     $ —       $ —       $ 215  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

4. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

         December 31,        

 

 
         2015         2016    

June 30, 2017

 
                 (unaudited)  

Laboratory equipment

   $ 85     $ 484     $ 484  

Computer software and equipment

     109       185       180  

Office furniture and equipment

     —         201       201  

Leasehold improvements

     727       920       920  

Construction in progress

     39       —         —    
  

 

 

   

 

 

   

 

 

 
     960       1,790       1,785  

Less: Accumulated depreciation and amortization

     (11     (290     (455
  

 

 

   

 

 

   

 

 

 
   $ 949     $ 1,500     $ 1,330  
  

 

 

   

 

 

   

 

 

 

Depreciation and amortization expense was less than $0.1 million and $0.3 million for the years ended December 31, 2015 and 2016, respectively, and $0.1 million and $0.2 million for the six months ended June 30, 2016 and 2017 (unaudited), respectively.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

         December 31,     

 

 
         2015          2016     

June 30, 2017

 
                   (unaudited)  

Accrued external research and development expenses

   $ 111      $ 627      $ 2,138  

Accrued payroll and related expenses

     423        1,018        816  

Accrued professional fees

     55        1,062        1,499  

Accrued other

     17        221        234  
  

 

 

    

 

 

    

 

 

 
   $ 606      $ 2,928      $ 4,687  
  

 

 

    

 

 

    

 

 

 

6. Redeemable Convertible Preferred Shares

As of December 31, 2016, the operating agreement of Spero Therapeutics, LLC, as amended and restated, provided for the issuance of Junior preferred units, Class A preferred units, Class B preferred units and bridge units, but did not specify an authorized number of each for issuance. As of June 30, 2017 (unaudited), subsequent to the Reorganization (see Note 1), the Company’s amended and restated certificate of incorporation authorized the issuance of 43,297,267 shares of preferred stock, par value $0.001 per share.

2015 Bridge Units

In January 2015, the Company issued and sold 8,000 bridge units to existing investors at a price of $1,000 per unit for gross proceeds of $8.0 million (the “2015 bridge units”). The bridge units did not have any stated rate of return and were automatically convertible into the same type of units issuable upon a qualified financing at a discount of either 20.0% or 25.0% to the per unit price paid by investors in a qualified financing, depending on the timing of such financing. The Company classified this contingent prepayment option as a derivative liability on its consolidated balance sheet on the date of issuance (see Note 3), and the fair value of contingent prepayment option on the date of issuance of $2.3 million was recorded as both a derivative liability and as a reduction to the carrying value of the bridge units.

Class A Preferred Unit Financing

In June 2015, the Company issued and sold 1,923,076 Class A preferred units at a price of $3.90 per unit for proceeds of $7.3 million, net of issuance costs of $0.2 million. The sale of Class A preferred units met the definition of a qualified financing under the 2015 bridge unit agreements.

As a condition to the June 2015 Class A preferred unit financing, the Company and the holders of the 2015 bridge units agreed to reduce the previously agreed-upon discount to the per unit conversion price from 20% to 10% of the price to be paid for the sale of Class A preferred units of $3.90 per unit. Accordingly, the Company issued 2,279,202 Class A preferred units upon the conversion of the 2015 bridge units in the amount of $8.0 million, at a conversion price of $3.51 per unit. The conversion was accounted for as an extinguishment for accounting purposes. Accordingly, the Company recorded the Class A preferred units issued upon conversion of the 2015 bridge units at their aggregate fair value of $8.9 million and recorded a corresponding adjustment to extinguish the then-current carrying value of the 2015 bridge units of $8.0 million and the then-current fair value of the derivative liability related to the contingent prepayment option associated with the 2015 bridge units of $0.9 million (see Note 3). There was no gain or loss recognized upon the extinguishment.

 

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The Class A preferred unit financing included a provision for the issuance of an additional 3,295,455 Class A preferred units at a price of $4.40 per unit in exchange for gross proceeds of $14.5 million in the event the Company achieved a regulatory milestone. The Company classified this tranche right as a derivative liability on its consolidated balance sheet on the date of issuance, and the fair value of tranche right on the date of issuance of $2.4 million was recorded as both a derivative liability and as a reduction to the carrying value of the Class A preferred units. Upon issuance of the Class B preferred units in February 2016, the tranche right was cancelled (see Note 3).

Class B Preferred Unit Financing

In February 2016, the Company issued and sold 5,909,089 Class B preferred units at a price of $4.40 per unit for proceeds of $25.9 million, net of issuance costs of $0.1 million.

The Class B preferred unit financing included a provision for the issuance of an additional 1,609,846 Class B preferred units at a price of $5.28 per unit in exchange for gross proceeds of $8.5 million in the event the Company achieved a regulatory milestone. The Company classified this tranche right as a derivative liability on its consolidated balance sheet on the date of issuance, and the fair value of the tranche right on the date of issuance of $0.9 million was recorded as both a derivative liability and as a reduction to the carrying value of the Class B preferred units.

2016 Bridge Units

The regulatory milestone related to the Class B tranche right was achieved in the fourth quarter of 2016; however, the Company and the holders of the Class B preferred units agreed to replace the second closing of Class B preferred units with the issuance of bridge units that would be convertible in the next qualified financing at a 10% discount. Accordingly, in December 2016, the Company issued and sold 8,500 bridge units to existing investors at a price of $1,000 per unit for gross proceeds of $8.5 million (the “2016 bridge units”). Upon issuance of the 2016 bridge units, the fair value of the derivative liability associated with the Class B tranche right of $0.3 million was settled, resulting in a decrease to the carrying value of the derivative liability and an increase to the carrying value of the 2016 bridge units (see Note 3). The bridge units did not provide for any stated rate of return and were automatically convertible into the same type of units issuable upon a qualified financing at a 10% discount to the per unit price paid by investors in a qualified financing. The Company classified this contingent prepayment option as a derivative liability on its consolidated balance sheet on the date of issuance, and the fair value of the contingent prepayment option on the date of issuance of $0.9 million was recorded as both a derivative liability and as a reduction to the carrying value of the bridge units.

Class C Preferred Unit Financing

In March 2017, the Company issued and sold 24,326,470 Class C preferred units at a price of $1.7749 per unit for proceeds of $43.0 million, net of issuance costs of $0.2 million. The sale of Class C preferred units met the definition of a qualified financing under the 2016 bridge unit agreements.

The Company issued 5,321,112 Class C preferred units upon the conversion of the 2016 bridge units in the amount of $8.5 million, at a conversion price of $1.60 per unit, which represented a discount of 10% to the price per unit paid by other investors in the Class C preferred unit financing. The conversion was accounted for as an extinguishment for accounting purposes. Accordingly, the Company recorded the Class C preferred units issued upon conversion of the 2016 bridge units at their aggregate fair value of $9.4 million and recorded a corresponding adjustment to extinguish the then-current carrying value of the 2016 bridge units of $8.5 million

 

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and the then-current fair value of the derivative liability related to the contingent prepayment option associated with the 2016 bridge units of $0.9 million (see Note 3) (unaudited). There was no gain or loss recognized upon the extinguishment.

Shares of Preferred Stock of Spero Therapeutics, Inc. Issued upon the Reorganization

On June 30, 2017, pursuant to the terms of the Reorganization (see Note 1), holders of outstanding preferred units of Spero Therapeutics, LLC exchanged their units for preferred stock of Spero Therapeutics, Inc. on a one-for-one basis. The rights and preferences of each class of stock (as described below) were the same both before and after the Reorganization.

As of each balance sheet date, outstanding equity of the Company consisted of the following (in thousands, except share amounts):

 

       December 31, 2015  
      

Preferred
Units

Issued and
Outstanding

    

Carrying

Value

    

Liquidation
Preference

    

Common
Units Issuable
Upon
Conversion

 

Junior preferred units

 

     3,438,318      $ 3,705      $ 3,742        3,438,318  

Class A preferred units

 

     4,202,278        14,591        17,143        4,202,278  
  

 

 

    

 

 

    

 

 

    

 

 

 
     7,640,596      $ 18,296      $ 20,885        7,640,596  
  

 

 

    

 

 

    

 

 

    

 

 

 
       December 31, 2016  
      

Preferred
Units

Issued and
Outstanding

    

Carrying
Value

    

Liquidation
Preference

    

Common
Units Issuable
Upon
Conversion

 

Junior preferred units

 

     3,438,318      $ 3,900      $ 3,929        3,438,318  

Class A preferred units

 

     4,202,278        16,739        18,514        4,202,278  

Class B preferred units

 

     5,909,089        27,046        27,883        5,909,089  
  

 

 

    

 

 

    

 

 

    

 

 

 
     13,549,685      $ 47,685      $ 50,326        13,549,685  
  

 

 

    

 

 

    

 

 

    

 

 

 
     June 30, 2017 (unaudited)  
    

Preferred
Shares
Authorized

    

Preferred
Shares

Issued and
Outstanding

    

Carrying
Value

    

Liquidation
Preference

    

Common
Shares
Issuable Upon
Conversion

 

Junior preferred stock

     3,438,318        3,438,318      $ 4,001      $ 4,026        3,438,318  

Series A preferred stock

     4,202,278        4,202,278        17,723        19,248        6,396,408  

Series B preferred stock

     5,909,089        5,909,089        28,252        28,989        9,447,323  

Series C preferred stock

     29,747,582        29,647,582        53,784        53,945        29,647,582  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     43,297,267        43,197,267      $ 103,760      $ 106,208        48,929,631  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Junior preferred stock, the Series A preferred stock, the Series B preferred stock and the Series C preferred stock are collectively referred to as the “Preferred Stock”.

 

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The holders of the Preferred Stock have the following rights and preferences:

Voting

The holders of Preferred Stock are entitled to vote, together with the holders of common stock, on all matters submitted to stockholders for a vote. The holders of Preferred Stock are entitled to the number of votes equal to the number of common shares into which each such share of Preferred Stock could convert.

Conversion

Each share of Preferred Stock is convertible at the option of the holder at any time after the date of issuance. Each share of Preferred Stock will be automatically converted into shares of common stock at the applicable conversion ratio then in effect (i) upon the closing of a firm commitment public offering with at least $50.0 million of proceeds to the Company, and at a price of at least $2.66 per share, subject to appropriate adjustment in the event of any stock split, stock dividend, combination or other similar recapitalization, or (ii) upon the written consent of the holders of at least 60% of the then-outstanding shares of Series B and Series C preferred stock, voting together as a single class.

The conversion ratio of each series of Preferred Stock is determined by dividing the Original Issue Price of each series by the Conversion Price of each series. The Original Issue Price is $1.00 per share for Junior preferred stock, $3.90 per share for Series A preferred stock, $4.40 per share for Series B preferred stock and $1.7749 per share for Series C preferred stock. The Conversion Price at issuance was $1.00 per share for Junior preferred stock, $3.90 per share for Series A preferred stock, $4.40 per share for Series B preferred stock and $1.7749 per share for Series C preferred stock, subject to appropriate adjustment in the event of any stock split, stock dividend, combination or other similar recapitalization and other adjustments as set forth in the Company’s certificate of incorporation, as amended and restated. In March 2017, as a result of the issuance of Series C preferred stock at a price per share less than the Series A and Series B preferred stock Original Issue Price, the Conversion Price for each of Series A and Series B preferred stock was adjusted to $2.5622 per share and $2.7521 per share, respectively.

Dividends

Holders of the Series A, Series B and Series C preferred stock are entitled to receive, out of funds legally available, cumulative dividends at an annual rate of 8%, compounded annually, when and if declared by the board of directors. Holders of the Junior preferred stock are entitled to receive, out of funds legally available, noncumulative dividends at an annual rate of 5%, when and if declared by the board of directors. The Company may not declare, pay or set aside any dividends on shares of any other series of capital stock of the Company, other than dividends on common stock payable in common stock, unless the holders of the Series C preferred stock first receive, or simultaneously receive, a dividend on each outstanding share of Series C preferred stock to which they are entitled. The Company may not declare, pay or set aside any dividends on shares of any other series of capital stock of the Company, other than dividends on shares of Series C preferred stock and dividends on common stock payable in common stock, unless the holders of the Series B preferred stock first receive, or simultaneously receive, a dividend on each outstanding share of Series B preferred stock to which they are entitled. The Company may not declare, pay or set aside any dividends on shares of any other series of capital stock of the Company, other than dividends on shares of Series B preferred stock or Series C preferred stock and dividends on common stock payable in common stock, unless the holders of the Series A preferred stock first receive, or simultaneously receive, a dividend on each outstanding share of Series A preferred stock to which they are entitled. The Company may not declare, pay or set aside any dividends on shares of any other series of

 

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capital stock of the Company, other than dividends on shares of Series A, Series B or Series C preferred stock and dividends on common stock payable in common stock, unless the holders of the Junior preferred stock first receive, or simultaneously receive, a dividend on each outstanding share of Junior preferred stock to which they are entitled. Through December 31, 2016 and June 30, 2017 (unaudited), no cash dividends have been declared or paid by the Company’s board of directors.

Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company or Liquidating Event (as described below), the holders of shares of Preferred Stock will receive, in preference to the common stockholders, an amount equal to the greater of (i) the Original Issue Price per share of the respective share of preferred stock, plus all dividends declared but unpaid on such shares or (ii) the amount the holders would receive if the Preferred Stock were converted into common stock prior to such liquidation event. If, upon any such liquidation event, the assets of the Company available for distribution are insufficient to permit payment in full to the holders of Preferred Stock, the holders of the Series C preferred stock are entitled to receive such amount prior to and in preference of the holders of the Series B, Series A, Junior preferred stock and common stock. After payment in full to holders of Series C preferred stock, the holders of the Series B preferred stock are entitled to receive such amount prior to and in preference of the holders of the Series A, Junior preferred stock and common stock. After payment in full to holders of Series C and Series B preferred stock, the holders of the Series A preferred stock are entitled to receive such amount prior to and in preference of the holders of the Junior preferred stock and common stock. After payment in full to holders of Series C, Series B and Series A preferred stock, the holders of the Junior preferred stock are entitled to receive such amount prior to and in preference of the holders of the common stock. In the event that the assets available for distribution to the Company’s stockholders are not sufficient to permit payment to any class of holders in order of preference and in the full amount to which they are entitled, the assets available for distribution are distributed on a pro rata basis. In addition, solely if (i) proceeds are received in connection with the sale or merger of Spero Potentiator, Inc. and (ii) contracted distribution thresholds in relation to anti-dilution clauses are satisfied, then distributions to the Series A holders shall be made until their Adjusted Potentiator Shortfall Amount, as defined, is met, after payments to Series C and Series B preferred stock have been made in full but prior to and in preference of the holders of the Junior preferred stock and common stock. After the payment of all preferential amounts to the holders of the Preferred Stock then, to the extent available, the remaining assets available for distribution shall be distributed among the holders of the Preferred Stock and common stock ratably in proportion to the number of shares of stock held as converted to common stock.

Unless the holders of 60% of the then-outstanding shares of Series B and Series C preferred stock, voting together as a single class, and holders of 60% of the then-outstanding shares of Series C preferred stock elect otherwise, a Liquidating Event shall include a merger or consolidation (other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) or a sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Company.

Redemption

At any time on or after February 1, 2021, shares of each of the Junior preferred stock, Series A, Series B and Series C preferred stock are subject to mandatory redemption by the Company in three equal annual installments beginning 60 days after receipt of a notice of redemption from the holders of at least 60% of the combined voting power of the holders of the outstanding Series B and Series C preferred stock, voting as a single class at the Original Issue Price, subject to appropriate adjustment for any stock splits, stock dividends,

 

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combinations or any other similar recapitalization affecting such shares, plus any dividends declared but unpaid thereon plus cumulative dividends. If, upon any such redemption, the assets of the Company available for distribution are insufficient to permit payment in full to the holders of Preferred Stock, the holders of the Series C preferred stock are entitled to receive such amount prior to and in preference of the holders of the Series B, Series A and Junior preferred stock. After payment in full to holders of Series C preferred stock, the holders of the Series B preferred stock are entitled to receive such amount prior to and in preference of the holders of the Series A and Junior preferred stock. After payment in full to holders of Series C and Series B preferred stock, the holders of the Series A preferred stock are entitled to receive such amount prior to and in preference of the holders of the Junior preferred stock. In the event that the assets are not sufficient to permit payment of the redemption amount to any class of holders in order of preference and in the full amount to which they are entitled, the assets available for distribution are distributed on a pro rata basis.

7. Common Stock

As of December 31, 2016, the operating agreement of Spero Therapeutics, LLC, as amended and restated, provided for the issuance of common units, but did not specify an authorized number for issuance. As of June 30, 2017 (unaudited), subsequent to the Reorganization (see Note 1), the Company’s amended and restated certificate of incorporation authorized the issuance of 61,917,986 shares of common stock, par value $0.001 per share.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are not entitled to receive dividends, unless declared by the board of directors.

In 2014, the Company issued and sold restricted common units, which were subject to vesting requirements. In 2016, the Company repurchased 128,333 unvested common units upon forfeiture at the original issuance price of $0.001 per unit. As of December 31, 2015 and 2016, there were 457,083 units and 42,917 units, respectively, of unvested restricted common units outstanding. There was no unvested common units outstanding as of June 30, 2017 (unaudited).

On June 30, 2017, pursuant to the terms of the Reorganization (see Note 1), holders of common units of Spero Therapeutics, LLC exchanged their units for common stock of Spero Therapeutics, Inc. on a one-for-one basis.

8. Share-Based Compensation

Prior to the Reorganization, the Company’s operating agreement, as amended and restated, provided for the granting of incentive units to officers, directors, employees, consultants and advisors. Under the terms of the incentive unit grant agreements, such incentive units were subject to a vesting schedule, with 25% of the incentive units vesting following one year of continued employment or service and the balance vesting in equal monthly installments for 36 months beginning on the one-year anniversary of the holder’s employment or service with the Company. Holders of incentive units were entitled to receive distributions in proportion to their ownership percent interest, when and if distributed, that were in excess of the strike price of the award set by the board of directors on the date of grant. The Company determined that the underlying terms of the incentive units and the intended purpose of the awards were more akin to an equity-based compensation award than a performance bonus or profit-sharing arrangement and, therefore, the incentive units were equity-classified awards.

The total number of incentive units that could have been issued under the Company’s operating agreement was 3,483,296 as of December 31, 2016, of which 971,713 units remained available for future

 

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issuance as of December 31, 2016. Upon the Reorganization on June 30, 2017 (see Note 1), the Company could no longer issue incentive units.

Incentive Unit Valuation

The fair value of each incentive unit award was estimated using the Black-Scholes option-pricing model. The Company has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected share volatility based on the historical volatility of a set of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. The Company has estimated the expected term of the Company’s incentive units utilizing the “simplified” method for awards that qualify as “plain-vanilla.” The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The assumptions that the Company used in the Black-Scholes option-pricing model to determine the fair value of incentive unit awards granted to employees and directors were as follows, presented on a weighted average basis:

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
    

    2015    

   

    2016    

   

    2016    

   

    2017    

 
                 (unaudited)  

Risk-free interest rate

     1.5     1.3     1.4     2.2

Expected term (in years)

     6.3       6.3       6.3       6.3  

Expected volatility

     62.6     76.5     76.5     81.5

Expected dividend yield

     0.0     0.0     0.0     0.0

The following table summarizes the Company’s incentive unit activity since December 31, 2015:

 

     Number
of Units
   

Weighted
Average
Strike
Price

    

Weighted
Average
Remaining
Contractual
Term

    

Aggregate
Intrinsic
Value

 
                  (in years)      (in thousands)  

Outstanding as of December 31, 2015

     1,043,844     $ 0.79        

Granted

     1,509,531       0.21        

Exercised

     —         —          

Forfeited

     (41,792     0.28        
  

 

 

         

Outstanding as of December 31, 2016

     2,511,583     $ 0.45        9.1      $ 779  

Granted

     55,500       0.21        

Exercised

     —         —          

Forfeited

     (118,763     0.82        

Cancelled

     (2,448,320     0.43        
  

 

 

         

Outstanding as of June 30, 2017 (unaudited)

     —       $ —          
  

 

 

         

Units vested and expected to vest as of December 31, 2016

     2,456,923     $ 0.45        9.1      $ 757  

 

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The aggregate intrinsic value of awards is calculated as the difference between the strike price of the incentive units and the fair value of the Company’s common units for those awards that had strike prices lower than the fair value of the Company’s common units.

The weighted average grant-date fair value of awards granted during the years ended December 31, 2015 and 2016 was $0.17 per unit and $0.56 per unit, respectively.

The weighted average grant-date fair value of awards granted during the six months ended June 30, 2016 and 2017 (unaudited) was $0.56 per unit and $0.25 per unit, respectively.

The Company recorded share-based compensation expense in the following expense categories of its consolidated statements of operations and comprehensive loss (in thousands):

 

    

Year Ended December 31,

    

Six Months Ended June 30,

 
     2015      2016      2016      2017  
                   (unaudited)  

Research and development expenses

   $ 13      $ 66      $ 22      $ 47  

General and administrative expenses

     8        114        35        76  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 21      $ 180      $ 57      $ 123  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2016, total unrecognized compensation cost related to the unvested share-based awards was $0.8 million, which was expected to be recognized over a weighted average period of 3.1 years. As of June 30, 2017 (unaudited), all of the incentive units were cancelled; however, the Company will continue to recognize compensation costs related to these awards (see below). As of June 30, 2017 (unaudited), total unrecognized compensation cost related to the unvested share-based awards was $0.6 million, which is expected to be recognized over a weighted average period of 2.6 years.

In June 2017, in connection with the Reorganization, the Company cancelled the then-outstanding 2,448,320 incentive units. In July 2017, previous holders of the cancelled incentive units who were still employed by the Company at the time of the Reorganization received stock options under the 2017 Stock Incentive Plan (described below). Such stock options were granted for the same number of shares of common stock as the number of incentive units cancelled, and the stock options were granted on the same vesting terms as the incentive units. All such stock options have an exercise price of $0.97 per share. The Company will account for the cancellation of the incentive units and the issuance of new awards as a modification of the awards for accounting purposes in the third quarter of 2017. The resulting compensation charge related to the modification, if any, will be equal to the positive difference between the fair value of the modified award and the fair value of the original award immediately before it was deemed modified for accounting purposes. For the portion of awards that are vested as of the modification date, share-based compensation expense equal to the amount of the incremental fair value of the modified award, if any, will be recognized immediately on the modification date in the third quarter of 2017. For the portion of the awards that are unvested as of the modification date, share-based compensation expense related to the incremental fair value of the modified award, if any, as well as any unrecognized compensation expense related to the original award will be recognized over the remaining service period.

2017 Stock Incentive Plan

On June 28, 2017, the Company’s stockholders approved the 2017 Stock Incentive Plan (the “2017 Plan”). The 2017 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock grants

 

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and stock-based awards. The 2017 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or their committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than ten years. The number of shares initially reserved for issuance under the 2017 Plan was 10,850,693 shares of common stock. The shares of common stock underlying any awards that are forfeited, cancelled, repurchased or are otherwise terminated by the Company under the 2017 Plan will be added back to the shares of common stock available for issuance under the 2017 Plan.

9. Non-Controlling Interests

Spero Potentiator

In February 2015, the Company’s wholly owned subsidiary, Spero Potentiator, issued 996 shares of its common stock with an aggregate fair value of $1.1 million to Northern in exchange for an exclusive license to develop and commercialize certain licensed compounds and licensed products. The Company recognized research and development expense of $1.1 million upon acquisition of the license and recorded a non-controlling interest in Spero Potentiator in a corresponding amount.

In connection with the acquisition of the license, Northern obtained anti-dilution rights to maintain its 49.9% ownership percentage in Spero Potentiator at no additional cost to Northern in the event that Spero Potentiator completed subsequent equity financings, subject to a maximum amount of such financings. The maximum amount of gross proceeds from equity financings subject to the anti-dilution rights was $5.0 million through the date the Company filed an investigational new drug application (“IND”) related to the licensed technology. Subsequent to the filing of an IND, the maximum amount of gross proceeds from equity financings subject to the anti-dilution rights was $6.5 million.

The Company accounted for the anti-dilution rights as a derivative liability on its consolidated balance sheet (see Note 3). The fair value of the derivative liability associated with the anti-dilution rights upon issuance in February 2015 of $2.4 million was recorded as research and development expenses as it was deemed to represent additional consideration for the license.

In November 2015, Northern was issued an additional 2,736 common shares of Spero Potentiator for no additional cost as a result of the anti-dilution rights. The Company valued these shares at $1.5 million and recorded the amount as an increase in the non-controlling interest and a reduction in the carrying value of the derivative liability. In January and August 2016, Northern was issued an additional 2,160 common shares of Spero Potentiator for no additional cost. The Company valued these shares at $1.0 million and recorded the amount as an increase in the non-controlling interest and a reduction of the derivative liability. At that time, the anti-dilution rights issued to Northern were fully settled as Northern had received the maximum number of shares it was entitled to under the anti-dilution rights (See Note 3).

In June 2017, the Company repurchased all of the shares of Spero Potentiator held by Northern in exchange for a cash payment of $1.0 million and contingent consideration of $0.1 million. As a condition of the repurchase of the shares from Northern, the Company amended the license agreement with Northern such that the Company will be obligated to make milestone payments of up to $7.0 million upon the achievement of specified clinical, commercial and other milestones, including a payment of $2.5 million upon the closing of an initial public offering. As a result of this transaction, during the six months ended June 30, 2017 (unaudited), the Company reclassified the balance of the non-controlling interest of $6.4 million as of the date of the transaction

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

to accumulated deficit as an increase to that account. Additionally, the cash payment of $1.0 million was recorded as an increase to accumulated deficit (unaudited). The Company will record the contingent payments as research and development expense when it becomes probable that the payments will be due. For periods subsequent to the acquisition, the Company no longer reports a non-controlling interest related to Spero Potentiator.

Spero Europe

In January 2016, the Company entered into an agreement with Promiliad whereby Promiliad granted to Spero Europe certain know-how and a sublicense to research, develop, manufacture and sell certain compounds. In exchange for the know-how and sublicense, Spero Europe provided Promiliad with a 5% equity ownership interest in Spero Europe, with a fair value of $0.1 million. In addition, Spero Europe agreed to make payments to Promiliad upon the achievement of future regulatory and commercial milestones of $4.1 million and to pay to Promiliad royalties of a mid single-digit percentage on net sales of licensed products under the agreement. Spero had the right to terminate the agreement with thirty days’ notice. The Company recognized research and development expense of $0.1 million upon the acquisition of the license and recorded a non-controlling interest in Spero Europe in a corresponding amount.

In connection with the acquisition of the license, Promiliad obtained anti-dilution rights to maintain their 5% equity ownership in Spero Europe at no additional cost to Promiliad in the event that Spero Europe completed subsequent funding events, subject to a maximum amount of such funding of $5.0 million.

The Company accounted for the anti-dilution rights as a derivative liability on its consolidated balance sheet (see Note 3). The fair value of the derivative liability associated with the anti-dilution rights upon issuance in January 2016 of $0.2 million was recorded as research and development expenses as it was deemed to represent additional consideration for the license.

In May 2017 (unaudited), the Company repurchased all of the shares of Spero Europe from Promiliad in exchange for the return of the license. As a result of the transaction, the Company reclassified the balance of the non-controlling interest in Spero Europe of less than $0.1 million as of the date of the transaction to accumulated deficit as an increase to that account. For periods subsequent to the repurchase, the Company no longer reports a non-controlling interest related to Spero Europe.

Spero Gyrase

In March 2016, the Company entered into an agreement with Aviragen and its affiliates in order to acquire certain intellectual property and know-how related to certain compounds. In connection with the transaction, the Company established Spero Gyrase, a Delaware corporation, and issued to Aviragen 200 common shares of Spero Gyrase with a fair value of $1.1 million, which represented a 20% equity ownership interest in Spero Gyrase. In addition Spero Gyrase agreed to make future milestone and royalty payments in exchange for the intellectual property. The Company accounted for the acquisition of technology as an asset acquisition because it did not meet the definition of a business. The Company recorded the acquired technology as research and development expense in the consolidated statement of operations and comprehensive loss in the amount of $1.1 million, because the acquired technology had not reached commercial feasibility and had no alternative future use, and recorded a non-controlling interest in Spero Gyrase in a corresponding amount.

In connection with the agreement, Aviragen obtained anti-dilution rights to maintain their 20% equity ownership of Spero Gyrase at no additional cost to Aviragen in the event that Spero Gyrase completed subsequent funding events, subject to a maximum amount of such funding of $8.0 million.

 

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The Company accounted for the anti-dilution rights as a derivative liability on its consolidated balance sheet (see Note 3). The fair value of the derivative liability associated with the anti-dilution rights upon issuance in March 2016 of $1.6 million was recorded as research and development expenses as it was deemed to represent additional consideration for the license.

Spero Cantab

In June 2016, the Company entered into a stock purchase agreement and related agreements (the “Cantab Agreements”) with Pro Bono Bio PLC, a corporation organized under the laws of England, and certain of its affiliates, including PBB Distributions Limited (“PBB”), Cantab Anti-Infectives Ltd. (“CAI”) and New Pharma License Holdings Limited (“NPLH”) in order to acquire NPLH and its intellectual property rights and assets relating to the Company’s Potentiator Platform.

Under the Cantab Agreements, CAI agreed to submit a request to NIAID to novate the CAI-held NIAID contract to the Company. The NIAID contract provides for development funding of up to $5.7 million over a base and three option periods. Through June 30, 2017, the funding amount of $1.7 million and the first option of $1.6 million has been committed to CAI.

Consideration under Cantab Agreements consisted of: (i) 125 shares of Spero Cantab, the Company’s subsidiary, which represented a 12.5% ownership interest in Spero Cantab, and anti-dilution rights (as described below) issued to PBB, with a combined fair value of $1.6 million, (ii) upfront consideration of $0.3 million (to be credited against future payments payable to CAI), (iii) contingent milestone payments due upon the achievement of certain clinical, regulatory and commercial milestones (see Note 13), (iv) royalty payments of low single-digit percentages based on net sales of products from the licensed technology, and (v) a specified portion of funding payments made by NIAID.

The Company accounted for the acquisition of NPLH as an asset acquisition because NPLH did not meet the definition of a business. The Company recognized research and development expense of $1.6 million upon the acquisition of NPLH because the acquired technology had not reached commercial feasibility and had no alternative future use. Upon the issuance of the shares and anti-dilution rights, the Company recorded a non-controlling interest in Spero Cantab of $1.6 million. The $0.3 million payment was recognized as research and development expenses as the services were performed by CAI. The Company records the contingent payments outlined in (iii), (iv) and (v) as research and development expense when it becomes probable that the payments will be due. Until the time that CAI has novated the NIAID contract, CAI will continue to perform research and development services at the Company’s direction and will apply for reimbursement from NIAID. The contract had not yet been novated as of December 31, 2016 or June 30, 2017 (unaudited). The Company pays CAI for such research and development services at an agreed-upon rate which takes into consideration costs incurred by CAI, amounts reimbursed to CAI by NIAID and the portion of the NIAID reimbursement the Company pays to CAI.

In connection with the Cantab Agreements, PBB obtained anti-dilution rights to maintain a certain equity ownership, ranging from 5% to 12.5%, of Spero Cantab at no additional cost to PBB in the event that Spero Cantab completed subsequent funding events, subject to maximum amount of such funding of $8.0 million. These anti-dilution rights represent a conditional obligation to issue a variable number of shares but are not freestanding and, therefore, do not require bifurcation for accounting purposes from the 125 shares issued.

 

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In July 2017, the Company repurchased all of the outstanding shares of Spero Cantab owned by PBB in exchange for a cash payment of $0.2 million and an amendment to the licensing agreement to increase the first two contingent milestone payments by a total of $0.1 million (see Note 17).

The following table provides a roll forward of the non-controlling interests balances (in thousands):

 

    

Potentiator

   

Spero
Europe

   

Gyrase

   

Spero
Cantab

   

Total
Non-Controlling

Interests

 

Balance as of December 31, 2014

   $ —       $ —       $ —       $ —       $ —    

Issuance of non-controlling interest

     1,087       —         —         —         1,087  

Issuance of additional shares to non-controlling interest under anti-dilution rights

     1,459       —         —         —         1,459  

Net loss

     (2,999     —         —         —         (2,999
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2015

     (453     —         —         —         (453

Issuance of non-controlling interest

     —         100       1,080       1,635       2,815  

Issuance of additional shares to non-controlling interest under anti-dilution rights

     980       —         —         —         980  

Net loss

     (5,997     (121     (700     (332     (7,150
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2016

     (5,470     (21     380       1,303       (3,808

Net loss

     (925     7       (16     (195     (1,129

Repurchase of non-controlling interests

     6,395       14       —         —         6,409  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of June 30, 2017 (unaudited)

   $ —       $ —       $ 364     $ 1,108     $ 1,472  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

10. Income Taxes

Prior to the Reorganization (see Note 1), the Company’s former parent company, Spero Therapeutics, LLC, was treated as a partnership for federal income tax purposes and, therefore, its owners, and not itself, were subject to U.S. federal or state income taxation on the income of Spero Therapeutics, LLC. Prior to the Reorganization, all of Spero Therapeutics, LLC’s directly held subsidiaries (including Spero Therapeutics, Inc.) were treated as corporations for U.S. federal income tax purposes and were subject to taxation in the United States or in other countries. Upon the Reorganization, Spero Therapeutics, Inc. became the parent company for Spero Therapeutics, LLC’s former subsidiaries and these entities continue to be subject to taxation in the United States or in other countries. In each reporting period, the Company’s tax provision includes the effects of consolidating the results of operations of its subsidiaries.

During the years ended December 31, 2015 and 2016 and the six months ended June 30, 2016 and 2017 (unaudited), the Company recorded no income tax benefits for the net operating losses incurred in each year or interim period due to its uncertainty of realizing a benefit from those items.

The domestic and foreign components of loss before income taxes were as follows (in thousands):

 

    

Year Ended December 31,

 
     2015     2016  

Domestic

   $ (12,832   $ (27,148

Foreign

     (321     (5,493
  

 

 

   

 

 

 

Loss before income taxes

   $ (13,153   $ (32,641
  

 

 

   

 

 

 

 

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A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:

 

     Year Ended December 31,  
         2015             2016      

U.S. federal statutory income tax rate

     (34.0 )%      (34.0 )% 

State taxes, net of federal benefit

     (5.2     (4.4

Research and development tax credits

     (0.9     (1.7

Foreign rate differential

     0.3       2.3  

Nondeductible items

     10.2       4.8  

Increase in deferred tax asset valuation allowance

     29.6       33.0  
  

 

 

   

 

 

 

Effective income tax rate

     (0.0 )%      (0.0 )% 
  

 

 

   

 

 

 

Net deferred tax assets as of December 31, 2015 and 2016 consisted of the following (in thousands):

 

     December 31,  
     2015     2016  

Net operating loss carryforwards

   $ 5,806     $ 16,406  

Research and development tax credit carryforwards

     144       697  

Advance payments

     161       —    

Other

     46       49  
  

 

 

   

 

 

 

Total deferred tax assets

     6,157       17,152  

Valuation allowance

     (6,157     (17,152
  

 

 

   

 

 

 

Net deferred tax assets

   $ —       $ —    
  

 

 

   

 

 

 

As of December 31, 2016, the Company had U.S. federal and state net operating loss carryforwards of $39.8 million and $39.6 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2033. In addition, as of December 31, 2016, the Company had foreign net operating loss carryforwards of $3.8 million, which may be available to offset future income tax liabilities and do not expire. As of December 31, 2016, the Company also had federal and state research and development tax credit carryforwards of $0.6 million and $0.2 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2033 and 2028, respectively. During the six months ended June 30, 2017 (unaudited), gross deferred tax assets increased by approximately $7.2 million due to the operating loss incurred by the Company during that period.

Utilization of the U.S. net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the

 

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ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2015 and 2016 and June 30, 2017 (unaudited). Management reevaluates the positive and negative evidence at each reporting period.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2015 and 2016 related primarily to the increase in net operating loss carryforwards, capitalized research and development expenses and research and development tax credit carryforwards and were as follows (in thousands):

 

     Year Ended December 31,  
         2015             2016      

Valuation allowance as of beginning of year

   $ (2,172   $ (6,157

Decreases recorded as benefit to income tax provision

     —         —    

Increases recorded to income tax provision

     (3,985     (10,995
  

 

 

   

 

 

 

Valuation allowance as of end of year

   $ (6,157   $ (17,152
  

 

 

   

 

 

 

The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2015 or 2016. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2015 and 2016, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s statement of operations and comprehensive loss.

The Company’s subsidiaries separately file income tax returns in the U.S. and Massachusetts. The statute of limitations for assessment by the Internal Revenue Service and Massachusetts tax authorities remains open for all years since 2013. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state authorities to the extent utilized in a future period. No federal or state tax audits are currently in process.

11. Commitments and Contingencies

License Agreements

The Company has entered into license agreements with various parties under which it is obligated to make contingent and non-contingent payments (see Note 13).

Operating Leases

In August 2015, the Company entered into an operating lease agreement for office space that commenced in January 2016 and expires in December 2020. The lease requires annual payments of $0.4 million

 

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over the five-year term. The lease provides for a renewal option to extend the lease for an additional five years. Under the terms of the lease, the Company provided a security deposit of $0.2 million to the landlord, which is included in long-term assets in the accompanying consolidated balance sheets. The lease includes annual rent escalations as well as tenant incentives in the amount of $0.7 million, of which $0.3 million is reimbursed to the landlord over the term of the lease.

In July 2016, the Company entered into an agreement to lease laboratory space through November 30, 2019 from a sublessor, which requires annual lease payments of $0.3 million, subject to certain escalations.

Rent escalations and tenant incentives for operating leases are accrued, and rent expense is recognized on a straight-line basis over the terms of occupancy.

The following table summarizes the future minimum payments due under the operating leases as of December 31, 2016 (in thousands):

 

Year Ending December 31,

      

2017

   $ 803  

2018

     820  

2019

     808  

2020

     499  

2021

     —    
  

 

 

 
   $ 2,930  
  

 

 

 

Rent expense for the years ended December 31, 2015 and 2016 was $0.1 million and $0.4 million, respectively. Rent expense for the six months ended June 30, 2016 and 2017 (unaudited) was $0.1 million and $0.4 million, respectively.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2015, 2016 or June 30, 2017 (unaudited).

Legal Proceedings

The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.

 

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12. Government Contracts

U.S. Department of Defense

In September 2016, the Company was awarded a cooperative agreement with the DoD to further develop anti-infective agents to combat Gram-negative bacteria. The agreement is structured as a single, two-year $1.5 million award. The Company is eligible for the full funding from the DoD, and there are no options to be exercised at a later date. The DoD funding supports next-generation potentiator discovery and screening of SPR741 partners. The Company recognizes revenue under this agreement as qualifying expenses are incurred. During the year ended December 31, 2016, $0.3 million of revenue was recognized under this agreement, of which $0.3 million was invoiced but unpaid and included in other receivables at December 31, 2016. During the six months ended June 30, 2017 (unaudited), The Company recognized $0.3 million of revenue under this agreement, of which $0.1 million was invoiced but unpaid and included in other receivables at June 30, 2017 (unaudited).

NIAID

In February 2017, the Company was awarded a grant from NIAID to conduct additional preclinical studies of SPR720, the Company’s novel oral bacterial gyrase inhibitor, for the treatment of non-tuberculous mycobacterial infections. The award is structured as a 12-month $0.6 million base period and $0.4 million option period. Through June 30, 2017 (unaudited), only the base period funds had been committed. The Company recognized less than $0.1 million of revenue in the six months ended June 30, 2017 (unaudited) under this agreement.

CARB-X

In April 2017, the Company was awarded a grant from CARB-X, a public-private partnership funded by the Biomedical Advanced Research and Development Authority (“BARDA”) within the U.S. Department of Health and Human Services to be used to screen, identify and complete Phase 1 trials with at least one partner compound for SPR741, the Company’s lead Potentiator compound. The award commits to funding of $1.5 million over a 12-month period, with the possibility of up to a total of $6.8 million in funding over 36 months based on the successful progression of specified milestones. The Company recognized $0.1 million of revenue in the six months ended June 30, 2017 (unaudited) under this agreement.

13. Collaboration and License Agreements

The Company has certain obligations under license agreements with third parties that include annual maintenance fees and payments that are contingent upon achieving various development, regulatory and commercial milestones. Pursuant to these license agreements, the Company is required to make milestone payments if certain development, regulatory and commercial milestones are achieved, and may have certain additional research funding obligations. Also, pursuant to the terms of each of these license agreements, when and if commercial sales of a product commence, the Company will pay royalties to its licensors on net sales of the respective products.

Roche Collaboration Agreements

In April 2014, the Company and Roche entered into a research and development services and support agreement (“Research and Development Agreement”) and an option agreement (“Option Agreement”), whereby

 

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the Company was required to use its best efforts to research and develop a specified asset, while Roche would provide partial funding as well as participate on a joint steering committee for the development of this asset. As part of these agreements, the Company provided Roche with the option to participate in the Company’s next financing subsequent to April 2014 in an amount up to $2.0 million at 90.0% of the per unit price of the related financing (see Note 3). The subsequent financing occurred in June 2015 and, as Roche elected not to exercise its option, the option expired.

As consideration for the agreements, Roche made nonrefundable upfront payments aggregating to $2.0 million in 2014 and paid annual nonrefundable maintenance fees of $1.0 million in 2015. Due to the cooperative nature of the development plans as driven by the joint steering committee and the partial defrayment of development costs, the nonrefundable payments were considered reductions to research and development expense. Upon receipt, the payments the Company received in 2014 and 2015 from Roche were deferred and were recognized as reductions to research and development expense.

In June 2016, the Company provided notification to Roche that it intended to terminate its Research and Development Agreement with Roche based on its rights under the agreement, effective August 2016, resulting in a recognition of the remaining deferred advance research and development payments. There was no termination fee required under the agreement. Related to payments received under the concluded collaboration, the Company recognized reductions of research and development expense of $1.5 million and $0.9 million for the years ended December 31, 2015 and 2016, respectively, and $0.7 million for the six months ended June 30, 2016 (unaudited).

MGH License Agreement

In March 2014, the Company entered into a license agreement with The General Hospital Corporation, doing business as Massachusetts General Hospital, (“MGH”) to obtain an exclusive worldwide license to research, develop, manufacture and sell products based on technology related to inhibitors of bacteria quorum sensing and technology pertaining to the methods for identifying compounds for treating, reducing or preventing pathogenic infections.

Upon signing of the license agreement, the Company issued to MGH 150,000 common units. The Company also agreed to reimburse MGH for all patent costs related to the exclusive patent for the duration of the agreement. In November 2016, the Company terminated its license agreement with MGH. There were no termination payments required.

Ascenion License Agreement

In September 2014, the Company entered into a license agreement with Ascenion GmbH (formerly known as Helmholtz Zentrum fur Infektionsforschung GmbH) to obtain an exclusive worldwide license to research, develop, manufacture and sell products based on Ascenion’s PqsR modulator technology. Upon signing of the license agreement, the Company issued to Ascenion 58,495 common units. In November 2016, the Company terminated its license agreement with Ascenion. There were no termination payments required.

Aviragen Agreement

Under the Company’s agreement with Aviragen (see Note 9) for certain intellectual property and know-how relating to developing a gyrase inhibitor to develop therapies for Gram-negative infections, the Company is obligated to make milestone payments of up to an aggregate of $12.0 million upon the achievement of specified clinical, regulatory and commercial milestones and to pay royalties of low single-digit percentages based on net sales of products the Company acquired under the agreement.

 

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Cantab License Agreement

Under the Cantab Agreements (see Note 9), the Company is obligated to make milestone payments of up to $5.8 million upon the achievement of specified clinical and regulatory milestones and a payment of £5.0 million ($6.2 million as of December 31, 2016 and $6.5 million as of June 30, 2017 (unaudited)) upon the achievement of a specified commercial milestone. In addition, the Company has agreed to pay to PBB royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement.

The Cantab Agreements continue indefinitely, with royalty payment obligations thereunder continuing on a product-by-product and country-by-country basis until the later of ten years after the first commercial sale of such product in such country or the expiration in such country of the last to expire valid claim of any of the applicable patents.

Vertex License Agreement

In May 2016, the Company entered into an agreement with Vertex Pharmaceuticals Incorporated (“Vertex”) whereby Vertex granted the Company certain know-how and a sublicense to research, develop, manufacture and sell products for a proprietary compound, as well as a transfer of materials. In exchange for the know-how, sublicense and materials, Spero paid Vertex an upfront, one-time, nonrefundable, non-creditable fee of $0.5 million, which was recognized as research and development expense. As part of the agreement, the Company is obligated to make future milestone payments of up to $81.1 million upon the achievement of specified clinical, regulatory and commercial milestones and to pay Vertex tiered royalties, on a product-by-product and country-by-country basis, of a mid single-digit to low double-digit percentage based on net sales of products licensed under the agreement.

The agreement continues in effect until the expiration of all payment obligations thereunder, with royalty payment obligations continuing on a product-by-product and country-by-country basis until the later of a specified period after the first commercial sale of such product in such country or the date of expiration in such country of the last to expire applicable patent. Further, Vertex has the right to terminate the agreement if provided with notification from the Company of intent to cease all development or if no material development or commercialization efforts occur for one year.

Meiji License Agreement

In June 2017, the Company entered into agreements with Meiji Seika Pharma Co. Ltd. (“Meiji”), a Japanese corporation, whereby Meiji granted to the Company certain know-how and a license to research, develop, manufacture and sell products for a proprietary compound in the licensed territory. In exchange for the know-how and license, the Company paid Meiji an upfront, one-time, nonrefundable, non-creditable fee of $0.6 million, which was recognized as research and development expense. As part of the agreement, the Company is obligated to make milestone payments of up to $3.0 million upon the achievement of specified clinical and regulatory milestones, to pay royalties, on a product-by-product and country-by-country basis, of a low single-digit percentage based on net sales of products licensed under the agreement and to pay Meiji a low double-digit percentage of any sublicense fees received by the Company up to $7.5 million.

The agreement continues in effect until the expiration of all payment obligations thereunder (including royalty payments and licensee revenue) on a product-by-product and country-by-country basis, unless earlier

 

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terminated by the parties. Pursuant to the terms of the agreement, in addition to each party’s right to terminate the agreement upon the other party’s material breach (if not cured within a specified period after receipt of notice) or insolvency, the Company also has unilateral termination rights (i) in the event that the Company abandons the development and commercialization of SPR994 for efficacy, safety, legal or business factors, and (ii) under certain circumstances arising out of the head license with a global pharmaceutical company.

Northern License Agreement

In June 2017, in connection with the repurchase of all of the outstanding shares of Spero Potentiator (see Note 9), the Company amended its license agreement with Northern such that the Company agreed to pay Northern up to $7.0 million upon the achievement of specified clinical, regulatory and other milestones, including a total payment of $2.5 million upon the closing of an initial public offering. In addition, under an exchange agreement the Company entered into with Northern, the Company is obligated to make a payment to Northern of $0.1 million upon the closing of an initial public offering. The agreement has a perpetual term and no express termination rights.

14. Australia Research and Development Tax Incentive

The Australian government has established a research and development tax incentive to encourage industry investment in research and development, which is available to companies incorporated under Australian law that have core research and development activities. In September 2016, the Company established Spero Potentiator Australia Pty Limited to carry out certain research and development activities. As this subsidiary meets the eligibility requirements of the Australian tax law, it is eligible to receive a 43.5% tax incentive for qualified research and development activities. For the year ended December 31, 2016 and the six months ended June 30, 2017 (unaudited), $0.1 million and $0.7 million, respectively, was recorded as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss associated with this tax incentive, representing 43.5% of the Company’s qualified research and development spending in Australia. The refund is denominated in Australian dollars and, therefore, the receivable is re-measured to U.S. dollars as of each reporting date. As of December 31, 2016 and June 30, 2017 (unaudited), the Company’s tax incentive receivables from the Australian government totaled $0.1 million and $0.8 million, respectively.

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

15. Net Loss and Unaudited Pro Forma Net Loss per Share

Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. was calculated as follows (in thousands, except share and per share amounts):

 

     Year Ended December 31,     Six Months Ended June 30,  
     2015     2016     2016     2017  
                 (unaudited)  

Numerator:

        

Net loss

   $ (13,153   $ (32,641   $ (16,526   $ (16,174

Less: Net loss attributable to non-controlling interests

     (2,999     (7,150     (4,562     (1,129

Plus: Cumulative dividends on redeemable convertible preferred shares

     (932     (3,441     (1,607     (3,261

Plus: Accretion of bridge units and redeemable convertible preferred shares to redemption value

     (2,341     (996     (614     (945
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders of Spero Therapeutics, Inc.

   $ (13,427   $ (29,928   $ (14,185   $ (19,251
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Weighted average common shares outstanding, basic and diluted

     1,536,412       1,897,173       1,837,227       2,021,230  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted

   $ (8.74   $ (15.78   $ (7.72   $ (9.52
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company’s potential dilutive securities, which include redeemable convertible preferred stock and incentive units, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

     December 31,      June 30,  
     2015      2016      2016      2017  
                   (unaudited)  

Redeemable convertible preferred shares (as converted to common shares)

     7,640,596        13,549,685        13,549,685        48,929,631  

Incentive units

     1,043,844        2,511,583        1,465,135        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     8,684,440        16,061,268        15,014,820        48,929,631  
  

 

 

    

 

 

    

 

 

    

 

 

 

Unaudited Pro Forma Net Loss per Share

The unaudited pro forma basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. for the year ended December 31, 2016 and the six months ended June 30, 2017 have

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

been prepared to give effect to adjustments arising upon the closing of a qualified initial public offering. The unaudited pro forma net loss attributable to common stockholders of Spero Therapeutics, Inc. used in the calculation of unaudited pro forma basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. does not include the effects of the cumulative dividends on preferred shares or the accretion of bridge units and redeemable convertible preferred shares to redemption value because the calculation gives effect to the automatic conversion of all shares of redeemable convertible preferred stock outstanding as of June 30, 2017 into shares of common stock as if the proposed initial public offering had occurred on the later of January 1, 2016 or the issuance date of the redeemable convertible preferred stock.

The unaudited pro forma basic and diluted weighted average common shares outstanding used in the calculation of unaudited pro forma basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. for the year ended December 31, 2016 and the six months ended June 30, 2017 have been prepared to give effect, upon a qualified initial public offering, to the automatic conversion of all outstanding shares of redeemable convertible preferred stock into common stock as if the proposed initial public offering had occurred on the later of January 1, 2016 or the issuance date of the redeemable convertible preferred shares.

Unaudited pro forma basic and diluted net loss per share attributable to common stockholders of Spero Therapeutics, Inc. was calculated as follows (in thousands, except share and per share data):

 

    

Year Ended
December 31, 2016

   

Six Months Ended
June 30, 2017

 
     (unaudited)  

Numerator:

    

Net loss attributable to common stockholders of Spero Therapeutics, Inc.

   $ (29,928   $ (19,251

Less: Cumulative dividends on redeemable convertible preferred shares

     (3,441     (3,261

Less: Accretion of bridge units and redeemable convertible preferred shares to redemption value

     (996     (945
  

 

 

   

 

 

 

Pro forma net loss attributable to common stockholders of Spero Therapeutics, Inc.

   $ (25,491   $ (15,045
  

 

 

   

 

 

 

Denominator:

    

Weighted average common shares outstanding, basic and diluted

     1,897,173       2,021,230  

Pro forma adjustment to reflect automatic conversion of redeemable convertible preferred stock upon the closing of the proposed initial public offering

     12,989,442       38,118,911  
  

 

 

   

 

 

 

Pro forma weighted average common shares outstanding, basic and diluted

     14,886,615       40,140,141  
  

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders of Spero Therapeutics, Inc., basic and diluted

   $ (1.71   $ (0.37
  

 

 

   

 

 

 

16. Retirement Plan

The Company has a defined-contribution plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. As currently

 

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SPERO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

established, the Company is not required to make and to date has not made any contributions to the 401(k) Plan. The Company did not make any matching contributions during the years ended December 31, 2015 and 2016 or during the six months ended June 30, 2016 and 2017 (unaudited).

17. Subsequent Events

For its consolidated financial statements as of December 31, 2016 and for the year then ended and for its interim consolidated financial statements as of June 30, 2017 and for the six months then ended, the Company evaluated subsequent events through August 25, 2017, the date on which those financial statements were issued.

Grant of Stock Options under 2017 Stock Incentive Plan

In July 2017, the Company granted options for the purchase of 9,373,425 shares of common stock at an exercise price of $0.97 per share under the 2017 Stock Incentive Plan, of which options for the purchase of 2,353,753 shares of common stock were considered for accounting purposes to be modified options of the incentive units cancelled in connection with the Reorganization (see Note 8). The incremental fair value of the replacement options, based on the positive difference between the fair value of the modified award and the fair value of the original award immediately before it was modified is not material.

Repurchase of Non-Controlling Interest in Spero Cantab

In July 2017, the Company repurchased all of the outstanding shares of Spero Cantab owned by PBB in exchange for a cash payment of $0.2 million and an amendment to the licensing agreement to increase the first two contingent milestone payments by a total of $0.1 million.

Adjustment to Conversion Prices of Series A and Series B Preferred Stock

In July 2017, after the consummation of the Reorganization, the Company sold to its Chief Financial Officer 61,880 shares of the Company’s Series C preferred stock at a price of $1.7749 per share, for proceeds of $0.1 million. Because the price per share of the Series C preferred stock in this transaction was lower than the Conversion Price of the Company’s Series A and Series B preferred stock, in accordance with the Company’s certificate of incorporation, as amended and restated, the Conversion Price of Series A preferred stock was adjusted from $2.5622 to $2.5612 per share and the Conversion Price of Series B preferred stock was adjusted from $2.7521 to $2.7508 per share. The Conversion Price for Junior preferred stock was not adjusted according to its terms.

 

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Through and including                     , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

            Shares

 

 

LOGO

Common Stock

 

 

PROSPECTUS

 

BofA Merrill Lynch

Cowen

Stifel

Oppenheimer & Co.

                    , 2017

 

 

 


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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all costs and expenses, other than underwriting discounts and commissions, paid or payable by the Registrant in connection with the sale of the common stock being registered. All amounts shown are estimates except for the Securities and Exchange Commission, or SEC, registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and The NASDAQ Global Market initial listing fee.

 

     Amount  

SEC registration fee

   $ 10,739  

FINRA filing fee

     13,438  

NASDAQ Global Market initial listing fee

     *      

Printing and engraving expenses

     *      

Legal fees and expenses

     *      

Accountants’ fees and expenses

     *      

Transfer agent and registrar fees and expenses

     *      

Miscellaneous expenses

             *      
  

 

 

 

Total

   $         *      
  

 

 

 

 

* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145(a) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee or agent 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 actually and reasonably incurred by the person in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Section 145(b) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor because the person is or was a director, officer, employee or agent 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) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made with respect to any claim, issue or matter as to which he or she 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, he or she is fairly and reasonably entitled to indemnity for such expenses that the Court of Chancery or other adjudicating court shall deem proper.

 

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Section 145(g) of the Delaware General Corporation Law provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent 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 any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify the person against such liability under Section 145 of the Delaware General Corporation Law.

Our amended and restated certificate of incorporation that will become effective upon completion of this offering provides that no director of our company shall be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to us or our stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) in respect of unlawful dividend payments or stock redemptions or repurchases, or (4) for any transaction from which the director derived an improper personal benefit. In addition, our amended and restated certificate of incorporation provides that if the Delaware General Corporation Law is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of our company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

The amended and restated certificate of incorporation further provides that any repeal or modification of such article by our stockholders or amendment to the Delaware General Corporation Law will not adversely affect any right or protection existing at the time of such repeal or modification with respect to any acts or omissions occurring before such repeal or modification of a director serving at the time of such repeal or modification.

Our amended and restated by-laws that will become effective upon completion of this offering provide that we will indemnify each of our directors and officers and, in the discretion of our board of directors, certain employees, to the fullest extent permitted by the Delaware General Corporation Law as the same may be amended (except that in the case of amendment, only to the extent that the amendment permits us to provide broader indemnification rights than the Delaware General Corporation Law permitted us to provide prior to such the amendment) against any and all expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by the director, officer or such employee or on the director’s, officer’s or employee’s behalf in connection with any threatened, pending or completed proceeding or any claim, issue or matter therein, to which he or she is or is threatened to be made a party because he or she is or was serving as a director, officer or employee of our company, or at our request as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of our company and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. Article              of the amended and restated by-laws further provides for the advancement of expenses to each of our directors and, in the discretion of our board of directors, to certain officers and employees.

In addition, the amended and restated by-laws provide that the right of each of our directors and officers to indemnification and advancement of expenses shall be a contract right and shall not be exclusive of any other right now possessed or hereafter acquired under any statute, provision of the amended and restated certificate of incorporation or amended and restated by-laws, agreement, vote of stockholders or otherwise. Furthermore, Article              of the amended and restated by-laws authorizes us to provide insurance for our directors, officers and employees, against any liability, whether or not we would have the power to indemnify such person against such liability under the Delaware General Corporation Law or the provisions of Article              of the amended and restated by-laws.

In connection with the sale of common stock being registered hereby, we have entered into indemnification agreements with each of our directors and our executive officers. These agreements will provide

 

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that we will indemnify each of our directors and such officers to the fullest extent permitted by law and the amended and restated certificate of incorporation and amended and restated by-laws.

We also maintain a general liability insurance policy, which covers certain liabilities of directors and officers of our company arising out of claims based on acts or omissions in their capacities as directors or officers.

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.

In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act of 1933, as amended, or the Securities Act:

In January 2014, we issued and sold 1,531,148 bridge units to investors upon the conversion of convertible notes in a total amount of $1,531,148.

In March 2014, we issued 150,000 common units to MGH as consideration in connection with entering into a license agreement with MGH.

In April 2014, we issued an aggregate of 3,438,318 junior preferred units, consisting of (i) 1,500,000 junior preferred units issued and sold at a price per unit of $1.00 for an aggregate purchase price of $1.5 million, and (ii) 1,938,318 junior preferred units issued upon the conversion of the 2014 bridge units.

In September 2014, we issued 58,495 common units to Ascenion, as consideration in connection with entering into a license agreement with Ascenion.

In January 2015, we issued and sold 8,000 bridge units to existing investors at a price per unit of $1,000 for an aggregate purchase price of $8.0 million. Such bridge units were subsequently exchanged for Class A-1 preferred units.

In June 2015, we issued an aggregate of 4,202,278 Class A-1 preferred units, consisting of (i) 2,279,202 Class A-1 preferred units issued to existing investors in exchange for 8,000 bridge units, and (ii) 1,923,076 Class A-1 preferred units issued and sold at a price per unit of $3.90 for an aggregate purchase price of approximately $7.5 million. The Class A-1 preferred units were subsequently reclassified as Class A preferred units.

In February 2016, we issued and sold 5,909,089 Class B-1 preferred units at a price per unit of $4.40, for an aggregate purchase price of approximately $26.0 million. The Class B-1 preferred units were subsequently reclassified as Class B preferred units.

In December 2016, we issued and sold 8,500 bridge units at a price per unit of $1,000 for an aggregate purchase price of approximately $8.5 million. Such bridge units were subsequently converted into Class C preferred units.

In March 2017, we issued an aggregate of 29,647,582 Class C preferred units, consisting of (i) 5,321,112 Class C preferred units in exchange for 8,500 bridge units and (ii) 24,326,470 Class C preferred units at a price per unit of $1.7749 for an aggregate purchase price of approximately $43,177,052.

 

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On June 30, 2017, as part of the Reorganization, each of the capital units of Spero Therapeutics, LLC issued and outstanding prior to the Reorganization was cancelled and converted into and exchanged for one share of Spero Therapeutics, Inc. capital stock of the same class and/or series.

In July 2017, after the consummation of the Reorganization, we sold to Joel Sendek, our Chief Financial Officer, 61,880 shares of our Series C preferred stock, at a purchase price of $1.7749 per share, for an aggregate purchase price of $109,831. Such purchase and sale was made in accordance with the terms of Mr. Sendek’s offer letter. In October 2017, Mr. Sendek transferred his 61,880 shares of Series C preferred stock to a retained annuity trust that he established and of which he is a beneficiary.

Prior to the Reorganization, we had granted a total of 2,621,636 incentive units to our employees, directors, and consultants, pursuant to the operating agreement of Spero Therapeutics, LLC, as amended, at threshold prices ranging between $0.21 and $0.96 per incentive unit. In connection with the Reorganization, such incentive units were cancelled as they were deemed to be valueless based on a liquidation valuation basis for federal income tax purposes and pursuant to contractual rights under the operating agreement of Spero Therapeutics, LLC. Promptly after the Reorganization, previous holders of incentive units who were still employed by us at the time of the Reorganization received stock options under the 2017 Plan. Such stock options were granted for the same number of shares of our common stock as the number of incentive units cancelled, and the stock options were granted on the same vesting terms and with similar rights and restrictions as the incentive units. Effective on July 6, 2017, we granted stock options to purchase an aggregate of 9,187,971 shares of our common stock. All such stock options have an exercise price of $0.97. Further, on July 17, 2017, we granted to Frank Thomas, a newly appointed member of our board of directors, stock options to purchase 185,454 shares of our common stock, at an exercise price of $0.97 per share.

No underwriters were used in the foregoing transactions, and no discounts or commissions were paid. All sales of securities described above were exempt from the registration requirements of the Securities Act in reliance on Section 4(a)(2) of the Securities Act, Rule 701 promulgated under the Securities Act or Regulation D promulgated under the Securities Act, relating to transactions by an issuer not involving a public offering. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

EXHIBIT INDEX

 

Exhibit

Number

  

Description of Exhibit

  1.1*    Form of Underwriting Agreement.
  3.1    Amended and Restated Certificate of Incorporation of the Registrant (currently in effect).
  3.2*    Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant.
  3.3*    Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed with the Secretary of State of the State of Delaware and effective upon completion of this offering.
  3.4    By-Laws of the Registrant.
  3.5*    Form of Amended and Restated By-Laws of the Registrant to be effective upon completion of this offering.
  4.1    Form of Common Stock Certificate.
  4.2    Investors’ Rights Agreement, dated as of June 30, 2017, by and between the Registrant and the other parties thereto.

 

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Exhibit

Number

  

Description of Exhibit

  5.1*    Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
10.1†    2017 Stock Incentive Plan.
10.2†    Form of Stock Option Agreement under 2017 Stock Incentive Plan .
10.3†    Form of Restricted Stock Agreement under 2017 Stock Incentive Plan.
10.4†    Form of Director and Officer Indemnification Agreement.
10.5*†    Employment Agreement, dated                     , by and between the Registrant and Ankit Mahadevia, M.D.
10.6*†    Employment Agreement, dated                     , by and between the Registrant and Joel Sendek.
10.7*†    Employment Agreement, dated                     , by and between the Registrant and Thomas Parr Jr., Ph.D.
10.8*†    Employment Agreement, dated                     , by and between the Registrant and Cristina Larkin.
10.9†    Letter Agreement, dated June 24, 2015, by and between the Registrant and John Tomayko, M.D.
10.10†    Termination and Release, dated April 14, 2017, by and between the Registrant and John Tomayko, M.D.
10.11    Lease Agreement, dated August 24, 2015, by and between the Registrant and U.S. REIF Central Plaza Massachusetts, LLC with respect to 675 Massachusetts Avenue.
10.12    Sublease, dated July 6, 2016, by and between the Registrant and Tetraphase Pharmaceuticals, Inc. with respect to 480 Arsenal Street.
10.13#    Stock Purchase Agreement, dated June  6, 2016, by and among Spero Cantab, Inc., the Registrant, Spero Cantab UK Limited, PBB Distributions Limited, New Pharma License Holdings Limited, Cantab Anti-Infectives Ltd and Pro Bono Bio PLC, as amended by Amendment to Stock Purchase Agreement, dated July 18, 2017.
10.14#    Assignment and License Agreement, dated May 9, 2016, by and among Spero Trinem, Inc., the Registrant and Vertex Pharmaceuticals Incorporated.
10.15#    License Agreement, dated June 14, 2017, by and between the Registrant and Meiji Seika Pharma Co., Ltd., as supplemented by Addendum to License Agreement, dated June 14, 2017.
10.16#    Amended and Restated License Agreement, dated June 28, 2017, by and between Spero Potentiator, Inc. and Northern Antibiotics Oy (Ltd.).
16.1    Letter of KPMG LLP, dated August 25, 2017, regarding changes in the Registrant’s certifying accountants.
21.1    Subsidiaries of the Registrant.
23.1    Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
23.2*    Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (included in Exhibit 5.1).
24.1    Power of Attorney (included on signature page).

 

* To be filed by amendment.

 

# Confidential treatment is being requested for portions of this exhibit. These portions have been omitted from the registration statement and have been filed separately with the Securities and Exchange Commission.

 

Denotes management compensation plan or contract.

 

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(b) Financial Statement Schedules.

No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or notes.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

 

  (a) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

  (b) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Cambridge, Massachusetts, on this 6th day of October, 2017.

 

SPERO THERAPEUTICS, INC.

By:

 

/s/ Ankit Mahadevia, M.D.

  Ankit Mahadevia, M.D.
  Chief Executive Officer and President

 

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SIGNATURES AND POWER OF ATTORNEY

We, the undersigned directors and officers of Spero Therapeutics, Inc., hereby severally constitute and appoint Ankit Mahadevia, M.D. and Joel Sendek, and each of them singly, our true and lawful attorneys, with full power to them, and to each of them singly, to sign for us and in our names in the capacities indicated below, the registration statement on Form S-1 filed herewith, and any and all pre-effective and post-effective amendments to said registration statement, and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of equity securities of Spero Therapeutics, Inc., and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of us might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney.

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/ Ankit Mahadevia, M.D.

  

Chief Executive Officer and President and Director

( Principal Executive Officer )

  October 6, 2017
Ankit Mahadevia, M.D.     

/s/ Joel Sendek

Joel Sendek

  

Chief Financial Officer and Treasurer

( Principal Financial Officer and Principal

Accounting Officer )

  October 6, 2017
    

/s/ Casper Breum

   Director   October 6, 2017
Casper Breum     

/s/ Milind Deshpande, Ph.D.

   Director   October 6, 2017
Milind Deshpande, Ph.D.     

/s/ Jean-François Formela, M.D.

   Director   October 6, 2017
Jean-François Formela, M.D.     

/s/ Vikas Goyal

   Director   October 6, 2017
Vikas Goyal     

/s/ Reza Halse, Ph.D.

   Director   October 6, 2017
Reza Halse, Ph.D.     

/s/ Frank Thomas

   Director   October 6, 2017
Frank Thomas     

/s/ Patrick Vink, M.D.

   Director   October 6, 2017
Patrick Vink, M.D.     

 

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Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

SPERO THERAPEUTICS, INC.

The undersigned, as President of Spero Therapeutics, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “ Corporation ”) does hereby certify as follows:

1. The name of the Corporation is Spero Therapeutics, Inc.

2. The Certificate of Incorporation of the Corporation was filed with the Secretary of the State of Delaware on December 12, 2013 under the name Spero Opco, Inc. A Certificate of Amendment to Certificate of Incorporation was filed on June 16, 2017 to among other things to change the name of the Corporation from Spero Opco, Inc. to Spero Therapeutics, Inc.

3. The Board of Directors of the Corporation, at a meeting duly called and held at which a quorum was present and voting, adopted a resolution pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware amending and restating the Certificate of Incorporation of the Corporation as amended to date.

4. Pursuant to Section 228(a) of the General Corporation Law of the State of Delaware, the holders of outstanding shares of the Corporation having no less than the minimum number of votes that would be necessary to authorize or take such actions at a meeting at which all shares entitled to vote thereon were present and voted, consented to the adoption of the aforesaid amendments without a meeting, without a vote and without prior notice and that written notice of the taking of such actions is being given in accordance with Section 228(e) of the General Corporation Law of the State of Delaware.

5. This Amended and Restated Certificate of Incorporation amends and restates the Certificate of Incorporation, as amended, of the Corporation in its entirety as follows:


AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

SPERO THERAPEUTICS, INC.

FIRST:  The name of this corporation is Spero Therapeutics, Inc. (the “ Corporation ”).

SECOND:  The address, including street, number, city, and county, of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801; and the name of the registered agent of the Corporation in the State of Delaware is Corporation Trust Company.

THIRD:  The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (the “ DGCL ”).

FOURTH:  The total number of shares of all classes of stock which the Corporation shall have the authority to issue shall be (i) 61,917,986 shares of Common Stock, par value $0.001 per share (the “ Common Stock ”), and (ii) 43,297,267 shares of Preferred Stock, $0.001 par value per share (the “ Preferred Stock ”).

The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.

A. COMMON STOCK

1. General.  The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

2. Voting.  The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided , however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law. There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation


entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.

B. PREFERRED STOCK

3,438,318 shares of the authorized Preferred Stock of the Corporation are hereby designated “ Junior Preferred Stock ”, 4,202,278 shares of the authorized Preferred Stock of the Corporation are hereby designated “ Series A Preferred Stock ”, 5,909,089 shares of the authorized Preferred Stock of the Corporation are hereby designated “ Series B Preferred Stock ” and 29,747,582 shares of the authorized Preferred Stock of the Corporation are hereby designated “ Series C Preferred Stock ”, each with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to “ sections ” or “ subsections ” in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.

1. Dividends.

1.1 Series C Dividends . From and after March 7, 2017, cumulative dividends at the rate per annum equal to eight percent (8%) of the Series C Original Issue Price (as defined below), compounded annually, shall accrue on such shares of Series C Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series C Preferred Stock) (the “ Series C Accruing Dividends ”). Series C Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided , however , that except as set forth in the following sentence of this Section  1.1 or in Subsection  2.1 and Section  6 , such Series C Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors of the Corporation (the “ Board of Directors ”) and the Corporation shall be under no obligation to pay such Series C Accruing Dividends. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of the Series C Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series C Preferred Stock in an amount at least equal to the greater of (i) the amount of the aggregate Series C Accruing Dividends then accrued on such share of Series C Preferred Stock and not previously paid and (ii) (A) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Series C Preferred Stock as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Series C Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series C Preferred Stock determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount equal to the Series C Original Issue Price (as defined

 

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below); provided that if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Series C Preferred Stock pursuant to this Section  1.1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series C Preferred Stock dividend.

1.2 Series B Dividends . From and after February 1, 2016, cumulative dividends at the rate per annum equal to eight percent (8%) of the Series B Original Issue Price (as defined below), compounded annually, shall accrue on such shares of Series B Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred Stock) (the “ Series B Accruing Dividends ”). Series B Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided , however , that except as set forth in the following sentence of this Section  1.2 or in Subsection  2.2 and Section  6 , such Series B Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Corporation shall be under no obligation to pay such Series B Accruing Dividends. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Series C Preferred Stock pursuant to Subsection 1.1 and dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of the Series B Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series B Preferred Stock in an amount at least equal to the greater of (i) the amount of the aggregate Series B Accruing Dividends then accrued on such share of Series B Preferred Stock and not previously paid and (ii) (A) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Series B Preferred Stock as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Series B Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series B Preferred Stock determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount equal to the Series B Original Issue Price; provided that if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Series B Preferred Stock pursuant to this Section  1.2 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series B Preferred Stock dividend.

1.3 Series A Dividends . From and after June 4, 2015, cumulative dividends at the rate per annum equal to eight percent (8%) of the Series A Original Issue Price (as defined below), compounded annually, shall accrue on such shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock) (the “ Series A Accruing

 

4


Dividends ”). Series A Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided , however , that except as set forth in the following sentence of this Section  1.3 or in Subsection  2.3 and Section  6 , such Series A Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Corporation shall be under no obligation to pay such Series A Accruing Dividends. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Series C Preferred Stock pursuant to Subsection 1.1 , dividends on shares of Series B Preferred Stock pursuant to Subsection 1.2 , and dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of the Series A Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred Stock in an amount at least equal to the greater of (i) the amount of the aggregate Series A Accruing Dividends then accrued on such share of Series A Preferred Stock and not previously paid and (ii) (A) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Series A Preferred Stock as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Series A Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series A Preferred Stock determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount equal to the Series A Original Issue Price; provided that if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Series A Preferred Stock pursuant to this Section  1.3 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series A Preferred Stock dividend.

1.4 Junior Preferred Dividends . From and after April 8, 2014, cumulative dividends at the rate per annum equal to five percent (5%) of the Junior Preferred Stock Original Issue Price (as defined below), compounded annually, shall accrue on such shares of Junior Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Junior Preferred Stock) (the “ Junior Preferred Stock Accruing Dividends ” and together with the Series C Accruing Dividends, the Series B Accruing Dividends and the Series A Accruing Dividends, the “ Accruing Dividends ”). Junior Preferred Stock Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided , however , that except as set forth in the following sentence of this Section  1.4 or in Subsection  2.5 and Section  6 , such Junior Preferred Stock Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Corporation shall be under no obligation to pay such Junior Preferred Stock Accruing Dividends. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Series C Preferred Stock pursuant to Subsection 1.1 , dividends on shares of Series B Preferred

 

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Stock pursuant to Subsection 1.2 , dividends on shares of Series A Preferred Stock pursuant to Subsection 1.3 , and dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of the Junior Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Junior Preferred Stock in an amount at least equal to the greater of (i) the amount of the aggregate Junior Preferred Stock Accruing Dividends then accrued on such share of Junior Preferred Stock and not previously paid and (ii) (A) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Junior Preferred Stock as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Junior Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Junior Preferred Stock determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount equal to the Junior Preferred Stock Original Issue Price; provided that if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Junior Preferred Stock pursuant to this Section  1.4 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Junior Preferred Stock dividend.

1.5 Original Issue Price . The “ Original Issue Price ” for each series of Preferred Stock is as follows: (i) The “ Series C Original Issue Price ” shall mean $1.7749 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series C Preferred Stock; (ii) the “ Series B Original Issue Price ” shall mean $4.40 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred Stock; (iii) the “ Series A Original Issue Price ” shall mean $3.90 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock; (iv) the “ Junior Preferred Original Issue Price ” shall mean $1.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Junior Preferred Stock.

2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales .

2.1 Preferential Payments to Holders of Series C Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event (as defined below), the holders of shares of Series C Preferred Stock then outstanding shall be entitled to be paid, on a pari passu basis, out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of any Series B Preferred Stock, Series A Preferred Stock, Junior Preferred Stock or

 

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Common Stock by reason of their ownership thereof, an amount per share equal to the Series C Original Issue Price, plus any Series C Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series C Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1 , the holders of shares of Series C Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

2.2 Preferential Payments to Holders of Series B Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all amounts required to be paid pursuant to Subsection 2.1 , the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid, on a pari passu basis, out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of any Series A Preferred Stock, Junior Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to the Series B Original Issue Price, plus any Series B Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series B Preferred Stock the full amount to which they shall be entitled under this Subsection 2.2 , the holders of shares of Series B Preferred Stock shall share ratably in any distribution of the assets available for distribution remaining after distributions made pursuant to Subsection 2.1 in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

2.3 Preferential Payments to Holders of Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all amounts required to be paid pursuant to Subsections 2.1 and 2.2 , the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid, on a pari passu basis, out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of any Junior Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to the Series A Original Issue Price, plus any Series A Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled under this Subsection 2.3 , the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution remaining after distributions made pursuant to Subsections 2.1 and 2.2 in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

 

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2.4 Potentiator Related Preferential Payments to Holders of Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all amounts required to be paid pursuant to Subsections 2.1 , 2.2 and 2.3 , and solely if (i) Capital Transaction Proceeds (as defined below) are or have been received by the Corporation in connection with a Capital Transaction (as defined below) of Spero Potentiator, Inc., and (ii) the NAB Condition (as defined below) is or was satisfied, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid, on a pari passu basis, out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of any Junior Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to the Adjusted Potentiator Shortfall Amount (as defined below). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event where the Adjusted Potentiator Shortfall Amount is payable pursuant to this Subsection 2.4 , the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full Adjusted Potentiator Shortfall Amount to which they shall be entitled under this Subsection 2.4 , the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution remaining after distributions made pursuant to Subsections 2.1 , 2.2 and 2.3 in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

2.4.1 Certain Definitions .

(a) Adjusted Potentiator Shortfall Amount ” means, as of a particular time, with respect to each share of Series A Preferred Stock, (i) the quotient of the Aggregate Potentiator Shortfall (as defined below) divided by the number of shares of Series A Preferred Stock then outstanding, reduced by (ii) the aggregate amount previously paid per share of Series A Preferred Stock pursuant to or in accordance with this Subsection 2.4 as of such time.

(b) “ Aggregate Potentiator Shortfall ” means, as determined at the time of the consummation of a Capital Transaction of Spero Potentiator, Inc. to a third party: (i) if the total proceeds paid or payable to the equity owners of Spero Potentiator, Inc. in such Capital Transaction are less than $400,000,000, the amount by which eighty-five percent (85%) of such proceeds exceeds the aggregate proceeds paid or payable to the Corporation in respect of the Corporation’s equity ownership in Spero Potentiator, Inc.; and (ii) if the total proceeds paid or payable to the equity owners of Spero Potentiator, Inc. in such Capital Transaction are greater than or equal to $400,000,000, the amount by which seventy-five percent (75%) of such proceeds exceeds the aggregate proceeds paid or payable to the Corporation in respect of the Corporation’s equity ownership in Spero Potentiator, Inc., provided that if the NAB Condition is not satisfied on such date, the Aggregate Potentiator Shortfall shall be zero (0).

(c) “ Capital Transaction ” means any: (i) merger or consolidation in which (x) the Corporation is a constituent party or (y) a subsidiary of the Corporation is a constituent party and the Corporation issues equity securities pursuant to

 

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such merger or consolidation, except any such merger or consolidation involving the Corporation or a subsidiary in which the equity ownership of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for equity securities that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the equity ownership of (a) the surviving or resulting entity, or (b) if the surviving or resulting entity is a wholly owned subsidiary of another entity immediately following such merger or consolidation, the parent entity of such surviving or resulting entity (provided that, all equity interests issuable upon exercise of Options outstanding immediately prior to such merger or consolidation or upon conversion of Convertible Securities outstanding prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding equity interests are converted or exchanged); or (ii) sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.

(d) “ Capital Transaction Proceeds ” means the net amounts received resulting from a Capital Transaction after deducting (a) all costs and expenses of the Corporation directly related to the Capital Transaction, (b) the amount (if any) to discharge all debts and obligations of the Corporation required to be paid as a result of the Capital Transaction, and (c) any reasonable reserves that are required for the fixed, contingent or future liabilities or obligations of the Corporation. For the avoidance of doubt, in the event of a Capital Transaction in which the Corporation’s equity interests in any of its subsidiaries are transferred to the stockholders of the Corporation, the “Capital Transaction Proceeds” shall mean the equity interests of such subsidiary so distributed.

(e) “ NAB Condition ” means, at the time of a Capital Transaction of Spero Potentiator, Inc.: (i) if the total proceeds paid or payable to the equity owners of Spero Potentiator, Inc. in such Capital Transaction are less than $400,000,000 and the Corporation is entitled to less than eighty-five percent (85%) of such proceeds; and (ii) if the total proceeds paid or payable to the equity owners of Spero Potentiator, Inc. in such Capital Transaction are greater than or equal to $400,000,000 and the Corporation is entitled to less than seventy-five percent (75%) of such proceeds.

2.5 Preferential Payments to Holders of Junior Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all amounts required to be paid pursuant to Subsections 2.1 , 2.2 , 2.3 and 2.4 , the holders of shares of Junior Preferred Stock then outstanding shall be entitled to be paid, on a pari passu basis, out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common

 

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Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Junior Original Issue Price, plus any Junior Preferred Stock Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Junior Preferred Stock been converted into Common Stock pursuant to Section  4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Junior Preferred Stock the full amount to which they shall be entitled under this Subsection 2.5 , the holders of shares of Junior Preferred Stock shall share ratably in any distribution of the assets available for distribution remaining after distributions made pursuant to Subsections 2.1 , 2.2 , 2.3 and 2.4 in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

2.6 Distribution of Remaining Assets . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all amounts required to be paid pursuant to Subsections 2.1 , 2.2 , 2.3 , 2.4 and 2.5 the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of the shares of Series C Preferred Stock, Series B Preferred Stock, Series A Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock pursuant to the terms of the Certificate of Incorporation immediately prior to such liquidation, dissolution or winding up of the Corporation. The aggregate amount which a holder of a share of Series C Preferred Stock is entitled to receive under this Section  2 is hereinafter referred to as the “ S eries C Liquidation Amount, ” the aggregate amount which a holder of a share of Series B Preferred Stock is entitled to receive under this Section 2 is hereinafter referred to as the “ S eries B Liquidation Amount, ” the aggregate amount which a holder of a share of Series A Preferred Stock is entitled to receive under this Section 2 is hereinafter referred to as the “ S eries A Liquidation Amount, ” and the aggregate amount which a holder of a share of Junior Preferred Stock is entitled to receive under this Section 2 is hereinafter referred to as the “ Junior Preferred Liquidation Amount ” and together with the Series C Liquidation Amount, the Series B Liquidation Amount and the Series A Liquidation Amount the “ Liquidation Amount .”

2.7 Deemed Liquidation Events .

2.7.1 Definition . Each of the following events shall be considered a “ Deemed Liquidation Event ” unless a Majority Preferred Interest (as defined below) and the Requisite Series C Interest (as defined below) elect otherwise by written notice sent to the Corporation at least 20 days prior to the effective date of any such event:

(a) a merger or consolidation in which

(i) the Corporation is a constituent party or

 

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  (ii) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,

except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or

(b) the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, the exclusive license of all or substantially all of the intellectual property of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.

2.7.2 Effecting a Deemed Liquidation Event .

(a) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.7 unless the agreement or plan of merger or consolidation for such transaction (the “ Merger Agreement ”) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with this Section  2.

(b) In the event of a Deemed Liquidation Event referred to in Subsection 2.7.1(a)(ii) or 2.7.1(b) , if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within ninety (90) days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Preferred Stock no later than the ninetieth (90 th ) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (ii)  to require the redemption of such shares of Preferred Stock, and (ii) if a Majority Preferred Interest so requests in a written instrument delivered to the Corporation not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the “ Available Proceeds ”), on the one hundred fiftieth (150 th ) day after such Deemed Liquidation Event, to redeem all outstanding shares of Preferred Stock at a

 

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price per share equal to the applicable Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, the Corporation shall (v) first, ratably redeem each holder’s shares of Series C Preferred Stock to the fullest extent of such Available Proceeds, (w) second, after redemption of all of the Series C Preferred Stock, ratably redeem each holder’s shares of Series B Preferred Stock to the fullest extent of such Available Proceeds, (x) third, after redemption of all of the Series C Preferred Stock and Series B Preferred Stock, ratably redeem each holder’s shares of Series A Preferred Stock to the fullest extent of such Available Proceeds, (y) fourth, after redemption of all of the Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock, ratably redeem each holder’s shares of Junior Preferred Stock to the fullest extent of such Available Proceeds, and (z) finally, redeem the remaining shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders. The provisions of Section  6 shall apply, with such necessary changes in the details thereof as are necessitated by the context, to the redemption of the Preferred Stock pursuant to this Subsection 2.7.2(b) . Prior to the distribution or redemption provided for in this Subsection 2.7.2(b) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.

(c) On or before the redemption date, each holder of shares of Preferred Stock to be redeemed on such redemption date shall surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the redemption notice, and thereupon the redemption price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Preferred Stock represented by a certificate are redeemed, a new certificate representing the unredeemed shares of Preferred Stock shall promptly be issued to such holder. If the redemption price is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that the certificates evidencing any of the shares of Preferred Stock so called for redemption shall not have been surrendered, dividends with respect to such shares of Preferred Stock shall cease to accrue after such date and all rights with respect to such shares shall forthwith after the redemption date terminate, except only the right of the holders to receive the redemption price without interest upon surrender of their certificate or certificates therefor.

2.7.3 Amount Deemed Paid or Distributed.  The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors.

 

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2.7.4 Allocation of Escrow and Contingent Consideration.  In the event of a Deemed Liquidation Event, if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the “ Additional Consideration ”), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the “ Initial Consideration ”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 , 2.2 , 2.3 , 2.4 , 2.5 and 2.6 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 , 2.2 , 2.3 , 2.4 , 2.5 and 2.6 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.7.4 , consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.

3. Voting.

3.1 General.  On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class.

3.2 Election of Directors.  The holders of record of the shares of Preferred Stock, exclusively and as a separate class, shall be entitled to elect four (4) directors of the Corporation prior to the delivery of the Series C Director Notice, as defined in and delivered pursuant to that certain Voting Agreement, dated as of June 30, 2017, by and among the Corporation and the stockholders of the Corporation named therein, and five (5) directors of the Corporation from and after the delivery of the Series C Director Notice (the “ Preferred Directors ”). Any director elected as provided in this Subsection 3.2 may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Preferred Stock fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect voting exclusively and as a separate class, pursuant to this Subsection 3.2 , then any directorship not so filled shall remain vacant until such time as the holders of Preferred Stock elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Preferred Stock), exclusively and voting together as a single class, shall be entitled to elect the balance of

 

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the total number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Subsection 3.2 , a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3.2 .

3.3 Protective Provisions.

3.3.1 Majority Preferred Interest . At any time when shares of Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least sixty percent (60%) of the then-outstanding Series B Preferred Stock and Series C Preferred Stock, voting together on an as-if converted to Common Stock basis, as a single class, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class (such written consent or affirmative vote, a “ Majority Preferred Interest ”), and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

(a) liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any Deemed Liquidation Event, or consent to any of the foregoing;

(b) acquire another entity, whether through a merger or consolidation with such entity, the purchase of such entity’s outstanding equity securities, or the purchase, lease, exclusive license or other receipt by the Corporation or any of its subsidiaries, in a single transaction or series of related transaction, of all or substantially all of the assets of such entity;

(c) amend, alter or repeal any provision of this Certificate of Incorporation or the Bylaws of the Corporation;

(d) create, or authorize the creation of or issue or obligate itself to issue any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation and redemption rights;

(e) purchase or redeem (or permit any subsidiary to purchase or redeem) or make any dividend or distribution on, any shares of capital stock other than (i) redemptions of or distributions on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock as expressly authorized herein, (ii) dividends or distributions payable on the Common Stock solely in the form of additional shares of Common Stock, (iii) repurchases of capital stock from former employees,

 

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officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary pursuant to the provisions of plans or agreements approved by the Board of Directors (including a majority of the Preferred Directors), in connection with the cessation of such employment or service at the lower of the original purchase price and the then-current fair market value thereof, or (iv) a purchase or redemption in connection with a collaboration, license, purchase option, warrant or other strategic transaction with an unaffiliated third party approved by the Board of Directors (including a majority of the Preferred Directors);

(f) create, or authorize the creation of, or issue, or authorize the issuance of any debt security, or permit any subsidiary to take any such action with respect to any debt security, if the aggregate indebtedness of the Corporation and its subsidiaries for borrowed money following such action would exceed $100,000, other than equipment leases or bank lines of credit approved by the Board of Directors (including a majority of the Preferred Directors);

(g) (i) create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Corporation, (ii) sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Corporation, or (iii) permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary;

(h) increase or decrease the authorized number of Directors constituting the Board of Directors, except upon delivery of the Series C Director Notice;

(i) increase the number of shares authorized for issuance under any existing stock or option plan, or create any new stock or option plan other than an increase approved by the Board of Directors (including a majority of the Preferred Directors);

(j) increase the number of authorized shares of Common Stock other than an increase approved by the Board of Directors (including a majority of the Preferred Directors); or

(k) incur any aggregate indebtedness in excess of $100,000 that is not already included in a budget approved by the Board of Directors, other than trade credit incurred in the ordinary course of business.

3.3.2 Series A Protective Provisions . At any time when shares of Series A Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of (i) at least fifty percent (50%) in number of the Major Investors (as defined below) that hold Series A Preferred Stock, which Major Investors must include at least one of Merck, Kraft and Lundbeckfond Ventures (each as

 

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defined below) so long as one of them continues to be a Major Investor and continues to hold Series A Preferred Stock, and (ii) at least a majority of the Lead Investors (as defined below), given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

(a) alter or amend any of the terms of the Series A Preferred Stock;

(b) waive any of the rights of the Series A Preferred Stock hereunder;

(c) reclassify, alter or amend any security that is junior to or pari passu with the Series A Preferred Stock if such reclassification, alteration or amendment would render such security senior to or pari passu with the Series A Preferred Stock, provided that the foregoing shall not be deemed to require consent to the creation of any new class of security (including the creation of a class of security that ranks senior to or pari passu with the Series A Preferred Stock);

(d) create, or authorize the creation of, any additional class or series of security unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of proceeds upon a Deemed Liquidation Event; or

(e) issue additional shares of Series A Preferred Stock to any person.

3.3.3 Junior Preferred Protective Provisions . At any time when shares of Junior Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least sixty percent (60%) of the outstanding Junior Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

(a) alter or amend any of the terms of the Junior Preferred Stock;

(b) waive any of the rights of the Junior Preferred Stock hereunder;

(c) reclassify, alter or amend any security that is junior to or pari passu with the Junior Preferred Stock if such reclassification, alteration or amendment would render such security senior to or pari passu with the Junior Preferred Stock, provided that the foregoing shall not be deemed to require consent to the creation of any new class of security (including the creation of a class of security that ranks senior to or pari passu with the Junior Preferred Stock);

 

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(d) create, or authorize the creation of, any additional class or series of security unless the same ranks junior to the Junior Preferred Stock with respect to the distribution of proceeds upon a Deemed Liquidation Event; or

(e) issue additional shares of Junior Preferred Stock to any person.

3.3.4 Series B Protective Provisions . At any time when shares of Series B Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least sixty percent (60%) of the outstanding Series B Preferred Stock (the “ Requisite Series B Interest ”), given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

(a) alter or amend any of the terms of the Series B Preferred Stock;

(b) waive any of the rights of the Series B Preferred Stock hereunder;

(c) reclassify, alter or amend any security that is junior to or pari passu with the Series B Preferred Stock if such reclassification, alteration or amendment would render such security senior to or pari passu with the Series B Preferred Stock, provided that the foregoing shall not be deemed to require consent to the creation of any new class of security (including the creation of a class of security that ranks senior to or pari passu with the Series B Preferred Stock);

(d) create, or authorize the creation of, any additional class or series of security unless the same ranks junior to the Series B Preferred Stock with respect to the distribution of proceeds upon a Deemed Liquidation Event; or

(e) issue additional shares of Series B Preferred Stock to any person.

3.3.5 Series C Protective Provisions . At any time when shares of Series C Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least sixty percent (60%) of the outstanding Series C Preferred Stock (the “ Requisite Series C Interest ”), given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

 

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(a) alter or amend any of the terms of the Series C Preferred Stock;

(b) waive any of the rights of the Series C Preferred Stock hereunder;

(c) reclassify, alter or amend any security that is junior to or pari passu with the Series C Preferred Stock if such reclassification, alteration or amendment would render such security senior to or pari passu with the Series C Preferred Stock, provided that the foregoing shall not be deemed to require consent to the creation of any new class of security (including the creation of a class of security that ranks senior to or pari passu with the Series C Preferred Stock);

(d) create, or authorize the creation of, any additional class or series of security unless the same ranks junior to the Series C Preferred Stock with respect to the distribution of proceeds upon a Deemed Liquidation Event;

(e) incur or guarantee indebtedness, or permit any subsidiary to incur or guarantee, indebtedness for money borrowed in an aggregate amount, at any one time outstanding, in excess of $5,000,000;

(f) issue additional Series C Preferred Stock to any person; or

(g) other than in connection with a bona fide preferred equity financing of the Corporation or its successor or the Potentiator Restructuring (as defined in Subsection 4.4.1 ), issue any shares of capital stock to NAB (as defined in Subsection 4.4.1 ).

3.3.6 Certain Definitions .

(a) “ Atlas ” shall mean means Atlas Venture Fund IX, L.P. and Atlas Venture Fund X, L.P.

(b) “ Kraft ” shall mean KPC Venture Capital LLC.

(c) “ Lead Investors ” shall mean means each of Atlas, S.R. One and Lundbeckfond Ventures for so long as such entity remains a Major Investor.

(d) “ Lundbeckfond Ventures ” shall mean Lundbeckfond Invest A/S.

(e) “ Major Investor ” shall have the meaning ascribed to such term in that certain Investors’ Rights Agreement, dated June 30, 2017, by and among the Corporation and the stockholders of the Corporation named therein.

 

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(f) “ Merck ” shall mean means MRL Ventures Fund, LLC

(g) “ S.R. One ” shall mean S.R. One, Limited.

4. Optional Conversion .

The holders of the Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

4.1 Right to Convert .

4.1.1 Conversion Ratio . Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing (i) in the case of the Junior Preferred Stock, the applicable Junior Preferred Original Issue Price by the applicable Junior Preferred Conversion Price (as defined below) in effect at the time of conversion (ii) in the case of the Series A Preferred Stock, the applicable Series A Original Issue Price by the applicable Series A Conversion Price (as defined below) in effect at the time of conversion, (iii) in the case of the Series B Preferred Stock, the Series B Original Issue Price by the Series B Conversion Price (as defined below) in effect at the time of conversion, and (iv) in the case of the Series C Preferred Stock, the Series C Original Issue Price by the Series C Conversion Price (as defined below) in effect at the time of conversion. The “ Series Junior Preferred Conversion Price ” shall initially be equal to $1.00; the “ Series A Conversion Price ” shall initially be equal to $2.5622; the “ Series B Conversion Price ” shall initially be equal to $2.7521; and the “ Series C Conversion Price ” shall initially be equal to $1.7749 (and with the Junior Preferred Conversion Price, Series A Conversion Price, and the Series B Conversion Price, each a “ Conversion Price ” and collectively the “ Conversion Prices ”). Such Conversion Prices, and the rate at which such shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

4.1.2 Termination of Conversion Rights . In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock.

4.2 Fractional Shares . No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.

 

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4.3 Mechanics of Conversion .

4.3.1 Notice of Conversion . In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall (a) provide written notice to the Corporation’s transfer agent at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holder’s shares of Preferred Stock and, if applicable, any event on which such conversion is contingent and (b), if such holder’s shares are certificated, surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the shares of Common Stock to be issued. If required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or lost certificate affidavit and agreement) shall be the time of conversion (the “ Conversion Time ”), and the shares of Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection  4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Preferred Stock converted.

4.3.2 Reservation of Shares . The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the applicable Conversion Price below the then par value of the shares of Common Stock

 

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issuable upon conversion of the Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Conversion Price.

4.3.3 Effect of Conversion . All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

4.3.4 No Further Adjustment . Upon any such conversion, no adjustment to the applicable Conversion Price shall be made for any declared but unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.

4.3.5 Taxes . The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section  4 . The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

4.4 Adjustments to Conversion Prices for Diluting Issues .

4.4.1 Special Definitions . For purposes of this Article Fourth, the following definitions shall apply:

(a) “ Additional Shares of Common Stock ” shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the Corporation after the Filing Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, “ Exempted Securities ”):

 

  (i) shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Preferred Stock;

 

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  (ii) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection 4.5 , 4.6 , 4.7 or 4.8 ;

 

  (iii) shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement (and any amendments thereto) approved by the Board of Directors;

 

  (iv) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case, outstanding as of the Filing Date and provided such issuance is pursuant to the terms of such Option or Convertible Security; or

 

  (v) shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors, including a majority of the Preferred Directors.

(b) “ Convertible Securities ” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

(c) “ Filing Date ” shall mean the date on which this Certificate of Incorporation is filed with the Secretary of State of the State of Delaware.

(d) “ Option ” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(e) “ Potentiator Restructuring ” means the restructuring of Spero Potentiator, Inc. in connection with which Northern Antibiotics Oy (Ltd.) (“ NAB ”) will be issued certain shares of Common Stock and, immediately following which, Spero Potentiator, Inc. will be a wholly-owned subsidiary of the Corporation.

4.4.2 No Adjustment of Conversion Prices . No adjustment in the applicable Conversion Price shall be made as the result of the issuance or deemed issuance

 

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of Additional Shares of Common Stock if the Corporation receives (a) with respect to the Conversion Price of the Series A Preferred Stock, the Series B Preferred Stock or the Junior Preferred Stock, written notice from the Requisite Series B Interest agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock, and (b) with respect to the Conversion Price of the Series C Preferred Stock, written notice from the Requisite Series C Interest agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.

4.4.3 Deemed Issue of Additional Shares of Common Stock .

(a) If the Corporation at any time or from time to time after the Filing Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to a Conversion Price pursuant to the terms of Subsection 4.4.4 , are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, such Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing a Conversion Price to an amount which exceeds the lower of (i) the Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, and (ii) the Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.

 

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(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to a Conversion Price pursuant to the terms of Subsection 4.4.4 (either because the consideration per share (determined pursuant to Subsection 4.4.5 ) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Conversion Price then in effect, or because such Option or Convertible Security was issued before the Filing Date), are revised after the Filing Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.3(a) ) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to a Conversion Price pursuant to the terms of Subsection 4.4.4 , such Conversion Price shall be readjusted to the Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to a Conversion Price provided for in this Subsection 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 4.4.3 ). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to a Conversion Price that would result under the terms of this Subsection 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Conversion Price that such issuance or amendment took place at the time such calculation can first be made.

4.4.4 Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock . In the event the Corporation shall at any time after the Filing Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.3 ), without consideration or for a consideration per share less than the applicable Conversion Price for a series of Preferred Stock

 

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in effect immediately prior to such issue, then the applicable Conversion Price for such series shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

P = (P 1 * (Q 1 + Q 2 )) / (Q 1 + Q 3 )

For purposes of the foregoing formula, the following definitions shall apply:

(a) “P” shall mean the applicable Conversion Price in effect immediately after such issuance of Additional Shares of Common Stock;

(b) “P 1 ” shall mean the Conversion Price in effect immediately prior to such issuance of Additional Shares of Common Stock;

(c) “Q 1 ” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);

(d) “Q 2 ” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to P 1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by P 1 ); and

(e) “Q 3 ” shall mean the number of such Additional Shares of Common Stock issued in such transaction.

4.4.5 Determination of Consideration . For purposes of this Subsection 4.4 , the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

(a) Cash and Property : Such consideration shall:

 

  (i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;

 

  (ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors, including a majority of the Preferred Directors; and

 

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  (iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors, including a majority of the Preferred Directors.

(b) Options and Convertible Securities . The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4.4.3 , relating to Options and Convertible Securities, shall be determined by dividing:

 

  (i) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by

 

  (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

4.4.6 Multiple Closing Dates . In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to a Conversion Price pursuant to the terms of Subsection 4.4.4 , then, upon the final such issuance,

 

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such Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).

4.5 Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from time to time after the Filing Date effect a subdivision of the outstanding Common Stock, the Conversion Prices in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Filing Date combine the outstanding shares of Common Stock, the Conversion Prices in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.

4.6 Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Filing Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Conversion Prices in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the applicable Conversion Prices then in effect by a fraction:

(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

Notwithstanding the foregoing (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Prices shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Prices shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

4.7 Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Filing Date shall make or issue, or fix a

 

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record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section  1 do not apply to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

4.8 Adjustment for Merger or Reorganization, etc . Subject to the provisions of Subsection 2.7 , if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 4.4 , 4.6 or 4.7 ), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Section  4 with respect to the rights and interests thereafter of the holders of the Preferred Stock, to the end that the provisions set forth in this Section  4 (including provisions with respect to changes in and other adjustments of the Conversion Prices) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Preferred Stock. For the avoidance of doubt, nothing in this Subsection 4.8 shall be construed as preventing the holders of Preferred Stock from seeking any appraisal rights to which they are otherwise entitled under the DGCL in connection with a merger triggering an adjustment hereunder, nor shall this Subsection 4.8 be deemed conclusive evidence of the fair value of the shares of Preferred Stock in any such appraisal proceeding.

4.9 Series C Adjustment for Reserved Equity Available Limitation . If the Corporation shall, at any time or from time to time after the Filing Date but on or prior to September 8, 2018, increase the number of shares of Common Stock reserved for issuance under the Incentive Plans (as defined below) above the Reserved Equity Available Limitation (other than an increase made in connection with a bona fide preferred stock financing of the Corporation or its successor in which the Corporation or its successor raises at least $15,000,000 where such increase is included in the pre-money valuation for such financing), unless waived by the Requisite Series C Interest, which must include for this purpose GV 2015, L.P. (“ GV ”), the Series C Conversion Price will automatically be changed to such a price (rounded to the nearest one-hundredth of one cent) so that the Percentage Interest of Series C Preferred Stock (as defined below), as of immediately prior to such increase, will remain unchanged as of immediately following the increase to the number of shares of Common Stock reserved for issuance under the Incentive Plans (after taking into account all other adjustments). As used herein, “ Percentage Interest of Series C Preferred Stock ” shall mean a fraction (presented in percentages) obtained

 

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by dividing (A) the number of shares of Common Stock issued and issuable upon conversion of all outstanding shares of Series C Preferred Stock to Common Stock at the time of determination by (B) the Fully Diluted Securities (defined below). As used herein, “ Reserved Equity Available Limitation ” means, as of the Filing Date, an aggregate of 10,850,693 shares of Common Stock (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof) reserved for issuance under one or more Incentive Plans. As used herein, “ Incentive Plans ” means any plan, agreement or other arrangement approved by the Board of Directors pursuant to which stock, options or other rights to purchase stock may be issued or issuable for equity compensation purposes to directors, officers, employees, advisors, consultants or other service providers to this corporation or its subsidiaries. As used herein, “ Fully Diluted Securities ” means the number of securities equal to the sum of (i) all outstanding shares of Common Stock, (ii) all outstanding shares of Preferred Stock and other outstanding Convertible Securities, (iii) all outstanding Options and (iv) all shares of Common Stock, shares of Preferred Stock, and other Convertible Securities and Options that remain unissued but reserved for issuance under any and all Incentive Plans, in each case on an as-converted to Common Stock basis. This Subsection 4.9 will terminate and be of no further force or effect immediately prior to the closing of an IPO.

4.10 Series C Adjustment for Potentiator Restructuring . If the Corporation shall, at any time or from time to time after the Filing Date, issue any shares of Common Stock to NAB in connection with the Potentiator Restructuring (a “ NAB Issuance ”), unless waived by the Requisite Series C Interest, which must include for this purpose GV, the Series C Conversion Price will automatically be changed to such a price (rounded to the nearest one-hundredth of one cent) so that the Percentage Interest of Series C Preferred Stock, as of immediately prior to such NAB Issuance, will remain unchanged as of immediately following such NAB Issuance.

4.11 Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of a Conversion Price pursuant to this Section  4 , the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Conversion Price then in effect for those series of Preferred Stock then held by such holder, (ii) the fraction (presented in percentages) obtained by dividing (A) the number of shares of Common Stock issued and issuable upon conversion of all issued shares of Common Stock, Options or Convertible Securities held by such holder at the time of such written request by (B) the number of shares Common Stock outstanding at the time of such determination (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding at the time of such written request or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) at the time of such determination, and (iii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of such series of Preferred Stock.

 

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4.12 Notice of Record Date . In the event:

(a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or

(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or

(c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,

then, and in each such case, the Corporation will send or cause to be sent to the holders of the Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Preferred Stock and the Common Stock. Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice.

5. Mandatory Conversion .

5.1 Trigger Events . Upon either (a) the closing of the sale of shares of Common Stock to the public at a price of at least $2.6624 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Common Stock), in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in gross proceeds of at least $50,000,000 to the Corporation (a “ Qualified IPO ”) or (b) the date and time, or the occurrence of an event, specified by vote or written consent of a Majority Preferred Interest (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “ Mandatory Conversion Time ”), then (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate as calculated pursuant to Subsection 4.1.1 and (ii) such shares may not be reissued by the Corporation.

5.2 Procedural Requirements . All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section  5 . Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon

 

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receipt of such notice, each holder of shares of Preferred Stock in certificated form shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to Subsection 5.1 , including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender any certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of any certificate or certificates of such holders (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Subsection 5.2 . As soon as practicable after the Mandatory Conversion Time and, if applicable, the surrender of any certificate or certificates (or lost certificate affidavit and agreement) for Preferred Stock, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and (b) pay cash as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

6. Redemption .

6.1 General . Unless prohibited by Delaware law governing distributions to the stockholders, shares of Preferred Stock shall be redeemed by the Corporation at a price per share equal to the applicable Original Issue Price, plus Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other declared but unpaid dividends thereon (as applicable, the “ Redemption Price ”), in three (3) annual installments commencing not more than sixty (60) days after receipt by the Corporation at any time on or after February 1, 2021, from the Majority Preferred Interest of written notice requesting redemption of all such shares of Preferred Stock (the “ Redemption Request ”). Upon receipt of a Redemption Request, the Corporation shall apply all of its assets to any such redemption, and to no other purpose, except to the extent prohibited by Delaware law governing distributions to stockholders (the “ Available Assets ”). The date of each such installment shall be referred to as a “ Redemption Date .” On each Redemption Date, the Corporation shall redeem, on a pro rata basis in accordance with the number of shares of Preferred Stock owned by each holder, that number of outstanding shares of Preferred Stock determined by dividing (i) the total number of shares of Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies). If on any Redemption Date Delaware law governing distributions to stockholders prevents the Corporation from redeeming all Preferred Stock to be redeemed, the Corporation (w) shall first redeem the

 

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maximum number of shares of Series C Preferred Stock until the Redemption Price payable on such Redemption Date with respect to such shares of Series C Preferred Stock has been paid in full or, in the event that the Available Assets are insufficient to cover such payment in full, pro rata based on the respective amounts payable in respect of the shares of Series C Preferred Stock owned by each such holder, (x) if any Available Assets then remain after redeeming all shares of Series C Preferred Stock, shall next redeem the maximum number of shares of Series B Preferred Stock until the Redemption Price payable on such Redemption Date with respect to such shares of Series B Preferred Stock has been paid in full or, in the event that the Available Assets are insufficient to cover such payment in full, pro rata based on the respective amounts payable in respect of the shares of Series B Preferred Stock owned by each such holder, (y) if any Available Assets then remain after redeeming all shares of Series C Preferred Stock and Series B Preferred Stock, shall next redeem the maximum number of shares of Series A Preferred Stock until the Redemption Price payable on such Redemption Date with respect to such shares of Series A Preferred Stock has been paid in full or, in the event that the Available Assets are insufficient to cover such payment in full, pro rata based on the respective amounts payable in respect of the shares of Series A Preferred Stock owned by each such holder, and (z) if any Available Assets then remain after redeeming all shares of Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock, shall next redeem the maximum number of shares of Junior Preferred Stock until the Redemption Price payable on such Redemption Date with respect to such shares of Junior Preferred Stock has been paid in full or, in the event that the Available Assets are insufficient to cover such payment in full, pro rata based on the respective amounts payable in respect of the shares of Junior Preferred Stock owned by each such.

6.2 Redemption Notice . The Corporation shall send written notice of the mandatory redemption (the “Redemption Notice”) to each holder of record of Preferred Stock not less than forty (40) days prior to each Redemption Date, as applicable. Each Redemption Notice shall state:

(a) the number of shares of Preferred Stock held by the holder that the Corporation shall redeem on the Redemption Date specified in the Redemption Notice;

(b) the Redemption Date and the Redemption Price;

(c) the date upon which the holder’s right to convert such shares terminates (as determined in accordance with Subsection 4.1); and

(d) for holders of shares in certificated form, that the holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Preferred Stock to be redeemed.

6.3 Surrender of Certificates; Payment . On or before the applicable Redemption Date, each holder of shares of Preferred Stock to be redeemed on such Redemption Date, unless such holder has exercised his, her or its right to convert such shares as provided in Section  4 , shall, if a holder of shares in certificated form, surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost,

 

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stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Corporation shall pay the Redemption Price for each share of Preferred Stock being redeemed to the order of the stockholder holding such shares of Preferred Stock as reflected in the Corporation’s records and shall reflect the cancellation of such shares of Series C Preferred Stock, Series B Preferred Stock, Series A Preferred Stock and Junior Preferred Stock on the books and records of the Corporation. Notwithstanding anything to the contrary contained in this Section  6 , in the event that the aggregate Redemption Price for the shares of Preferred Stock being redeemed on a given Redemption Date exceeds the Available Assets, the Available Assets shall be distributed as follows with respect to such Redemption Date: (a) first, to the holders of Series C Preferred Stock until the Redemption Price payable on such Redemption Date with respect to such shares of Series C Preferred Stock has been paid in full or, in the event that the Available Assets are insufficient to cover such payment in full, pro rata based on the respective amounts payable in respect of the shares of Series C Preferred Stock owned by each such holder, (b) second, to the holders of Series B Preferred Stock, until the Redemption Price payable on such Redemption Date with respect to such shares of Series B Preferred Stock has been paid in full or, in the event that the Available Assets are insufficient to cover such payment in full, pro rata based on the respective amounts payable in respect of the shares of Series B Preferred Stock owned by each such holder, (c) third, to the holders of Series A Preferred Stock, until the Redemption Price payable on such Redemption Date with respect to such shares of Series A Preferred Stock has been paid in full or, in the event that the Available Assets are insufficient to cover such payment in full, pro rata based on the respective amounts payable in respect of such shares of Series A Preferred Stock owned by each such holder, and (d) fourth, in the event that Available Assets remain after the payment in full provided in clauses (a), (b) and (c) of this Subsection 6.3 , to the holders of the Junior Preferred Stock, until the Redemption Price payable on such Redemption Date with respect to such shares of Junior Preferred Stock has been paid in full or, in the event that the Available Assets are insufficient to cover such payment in full, pro rata based on the respective amounts payable in respect of the Junior Preferred Stock owned by each such holder.

6.4 Rights Subsequent to Redemption . If the Redemption Notice shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the Preferred Stock to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor, then all rights with respect to such shares of Preferred Stock shall forthwith after such Redemption Date terminate, except only the right to receive the Redemption Price.

6.5 Redeemed or Otherwise Acquired Preferred Stock . Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption or acquisition by the Corporation.

 

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7. Waiver . Except as otherwise specifically set forth herein: (a) any of the rights, powers, preferences and other terms of Junior Preferred Stock set forth herein may be waived on behalf of all holders of such series of Junior Preferred Stock by the affirmative written consent or vote of the holders of at least sixty percent (60%) of the outstanding Junior Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class; (b) any of the rights, powers, preferences and other terms of Series A Preferred Stock set forth herein may be waived on behalf of all holders of such series of Series A Preferred Stock by the affirmative written consent or vote of (i) at least fifty percent (50%) in number of the Major Investors that hold Series A Preferred Stock, which Major Investors must include at least one of Merck, Kraft and Lundbeckfond Ventures so long as one of them continues to be a Major Investor and continues to hold Series A Preferred Stock, and (ii) at least a majority of the Lead Investors, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class; (c) any of the rights, powers, preferences and other terms of Series B Preferred Stock set forth herein may be waived on behalf of all holders of such series of Series B Preferred Stock by the affirmative written consent or vote of the Requisite Series B Interest, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class; and (d) any of the rights, powers, preferences and other terms of Series C Preferred Stock set forth herein may be waived on behalf of all holders of such series of Series C Preferred Stock by the affirmative written consent or vote of the Requisite Series C Interest, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. Notwithstanding anything herein, Section 4.9 and Section 4.10 may not be waived or amended without the prior written consent of GV.

8. Notices.  Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.

FIFTH:  Subject to any additional vote required by the Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

SIXTH:  Subject to any additional vote required by the Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.

SEVENTH:  Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

EIGHTH:  Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

 

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NINTH:  To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.

Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

TENTH:  The following indemnification provisions shall apply to the persons enumerated below.

1. Right to Indemnification . Subject to the provisions of this Article Tenth, the Corporation shall indemnify, to the fullest extent permissible under the DGCL, all Indemnified Persons against all expenses incurred by the Indemnified Persons (as defined below) in connection with any proceeding in which an Indemnified Person is involved as a result of serving in the capacity by reason of which such person is deemed to be an “Indemnified Person” pursuant to Section  3(b) of this Article Tenth.

2. Award of Indemnification . The determination of whether the Corporation is authorized to indemnify the Indemnified Persons hereunder and any award of indemnification shall be made by one of the following methods, which shall be at the election of the Board of Directors: (a) by a majority of the votes held by Directors who are not parties to the proceeding in question, even though less than a quorum, (b) by a committee of Directors designated by a majority of the Directors who are not parties to the proceeding in question, even though less than a quorum, (c) if there are no Directors who are not parties to the proceeding in question or if the Directors who are not parties to the proceeding in question so direct, by Independent Counsel appointed by the Directors or a Majority Preferred Interest or (d) if so directed by the Board of Directors, by the stockholders.

3. Definitions . For purposes of this Article Tenth:

(a) “ 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 and any federal, state, local or foreign taxes imposed on the Indemnified Person as a result of the actual or deemed receipt of any payments hereunder, including without limitation the premium, security for, and other costs relating to any cost bond,

 

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supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by the Indemnified Person or the amount of judgments or fines against the Indemnified Person.

(b) “ Indemnified Person ” includes (i) a person serving as a Director or an Officer of the Corporation or in a similar executive capacity appointed by the Directors and exercising rights and duties delegated by the Directors, (ii) a person serving at the request of the Corporation as a Director, Officer, employee or other agent of another organization, including, without limitation, any subsidiary of the Corporation, and (iii) any person who formerly served in any of the foregoing capacities (with respect to matters relating to such services).

(c) “ 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 (5) years has been, retained to represent: (i) the Corporation or the Indemnified Person in any matter material to either such party (other than with respect to matters concerning the Indemnified Person hereunder, 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 law firm or member of a law firm who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or the Indemnified Person in an action to determine the Indemnified Person’s rights hereunder.

(d) “ 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 Corporation or otherwise and whether civil, criminal, administrative or investigative, in which the Indemnified Person was, is or will be involved as a party or otherwise; 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 hereunder; including one pending on or before the filing of this Certificate of Incorporation, but excluding one initiated by the Indemnified Person pursuant to Section 10.1 above to enforce his or her rights hereunder.

4. Insurance . The Corporation shall have power to purchase and maintain insurance on behalf of any Director, Officer, agent or employee against any liability or cost incurred by such person in any such capacity or arising out of its status as such, whether or not the Corporation would have power to indemnify against such liability or cost.

5. Successor Indemnification . The indemnification provided by this Article Tenth shall inure to the benefit of the heirs and personal representatives of the Director. If the Corporation or any of its successors or assignees consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Corporation assume the obligations of the Corporation with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained herein, or elsewhere, as the case may be.

 

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6. Non-Exclusivity . The provisions of this Article Tenth shall not be construed to limit the power of the Corporation to indemnify its or any of its subsidiaries’ directors, members, stockholders, partners, officers, employees or agents to the full extent permitted by applicable law, or to enter into specific agreements, commitments or arrangements for indemnification that are so permitted. The absence of any express provision for indemnification herein shall not limit any right of indemnification existing independently of this Article Tenth.

7. Amendment . The provisions of this Article Tenth may be amended or repealed in accordance with Section  3 of Article Fourth; provided , however , that no amendment or repeal of such provisions that adversely affects the rights of a Director under this Article Tenth with respect to his acts or omissions at any time prior to such amendment or repeal, shall apply to the Director without his or her consent.

ELEVENTH:  The Corporation hereby renounces, to the fullest extent permitted by applicable law, any interest or expectancy of the Corporation in, or in being offered, an opportunity to participate in, any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any Director who is not an employee or consultant of the Corporation or any of its subsidiaries, or (ii) any stockholder or any partner, member, director, stockholder, officer, employee or agent of any such stockholder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “ Covered Persons ”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a member of the Board of Directors (an “ Investor Business Opportunity ”). To the fullest extent permitted by law, and solely in connection therewith, the Corporation hereby waives any claim against a Covered Person, and agrees to indemnify all Covered Persons against any claim, that is based on fiduciary duties, the corporate opportunity doctrine or any other legal theory which could limit any Covered Person from pursuing or engaging in any Investor Business Opportunity.

TWELFTH:  Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (c) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s certificate of incorporation or bylaws or (d) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (a) through (d) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article Twelfth shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such

 

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provisions in any other circumstance and of the remaining provisions of this Article Twelfth (including, without limitation, each portion of any sentence of this Article Twelfth containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.

*     *     *

 

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IN WITNESS WHEREOF , this Amended and Restated Certificate of Incorporation has been executed on this 29th day of June, 2017.

 

By:  

/s/ Ankit Mahadevia

  Name: Ankit Mahadevia
  Title: Chief Executive Officer

Exhibit 3.4

SPERO THERAPEUTICS, INC.

BY-LAWS

ARTICLE I - STOCKHOLDERS

Section  1. Annual Meeting .

An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at ten o’clock a.m. or such other time as is determined by the Board of Directors, on such date (other than a Saturday, Sunday or legal holiday) as is determined by the Board of Directors, which date shall be within 13 months subsequent to the later of the date of incorporation or the last annual meeting of stockholders, and at such place as the Board of Directors shall each year fix.

Section  2. Special Meetings .

Subject to the rights of the holders of any class or series of preferred stock of Spero Therapeutics, Inc. (the “Corporation”), special meetings of stockholders of the Corporation may be called only by the Majority Preferred Interest, as defined in the Corporation’s Certificate of Incorporation, or the consent of any two (2) or more members of the Board of Directors upon ten (10) days written or electronic mail notice. Notice of any such meeting may be waived by any stockholder upon either the signing of a written waiver thereof or presence at a meeting by such stockholder as provided herein; provided , that a Majority Preferred Interest may waive any such notice and such waiver shall be binding on all stockholders. Special meetings of the stockholders may be held at such place within or without the State of Delaware as may be stated in such resolution.

Section  3. Notice of Meetings .

Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than 10 nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation).

When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.


Section 4. Quorum.

At any meeting of the stockholders, stockholders representing a Majority Preferred Interest, present in person or by proxy, shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time and the meeting may be held as adjourned without further notice upon reaching a quorum. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.

If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time.

Section 5. Organization.

The Chairman of the Board of Directors or, in his or her absence, such person as the Board of Directors may have designated or, in his or her absence, the Chief Executive Officer of the Corporation (the “CEO”) or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman of the meeting appoints.

Section 6. Conduct of Business.

The Chairman of the Board of Directors or his or her designee or, if neither the Chairman of the Board nor his or her designee is present at the meeting, then a person appointed by a majority of the Board of Directors, shall preside at, and act as chairman of, any meeting of the stockholders. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as he or she deems to be appropriate.

Section 7. Proxies and Voting.

At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedure established for the meeting.

Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or required by law.

All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however , that upon demand therefor by a stockholder entitled to vote or his or her proxy, a vote by ballot shall be taken.

 

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Except as otherwise provided by Certificate of Incorporation of the Corporation or the Delaware General Corporate Law, any action to be taken by stockholders shall require the affirmative vote of the stockholders holding at least a majority of the outstanding stock of the Corporation entitled to vote on such action.

Section 8. Action Without Meeting.

Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be (i) signed and dated by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and (ii) delivered to the Corporation within 60 days of the earliest dated consent by delivery to its registered office in the State of Delaware (in which case delivery shall be by hand or by certified or registered mail, return receipt requested), its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. The Secretary of the Corporation shall provide 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.

Section  9. Stock List .

A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held.

The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

ARTICLE II - BOARD OF DIRECTORS

Section 1. Number, Election, Tenure and Qualification.

Except as otherwise specified in the Certificate of Incorporation of the Corporation, the number of directors which shall constitute the whole board shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting or at any special meeting of stockholders. The directors shall be elected at the annual meeting or at any special meeting of

 

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the stockholders, except as provided in Section  2 of this Article, and each director elected shall hold office until his or her successor is elected and duly qualified or until his or her earlier death, disability, resignation or removal. Members of the Board of Directors need not be stockholders.

Section 2. Vacancies and Newly Created Directorships.

Subject to the rights of the holders of any class or series of preferred stock of the Corporation to elect directors, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, or the sole remaining director. No decrease in the number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director.

Section 3. Resignation and Removal.

Any director may resign at any time upon written notice to the Corporation at its principal place of business or to the CEO or secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless otherwise specified by law or the Certificate of Incorporation.

Section 4. Regular Meetings.

Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors.

Section 5. Special Meetings.

Special meetings of the Board of Directors may be called, orally, in writing or by means of electronic communication, by the Chairman of the Board of Directors, if any, one (1) or more members of the Board of Directors or the CEO, designating the time, date and place thereof.

Notice of the time, date and place of all special meetings of the Board of Directors shall be given to each member of the Board of Directors by the Secretary or Assistant Secretary, or in case of the death, absence, incapacity or refusal of such Persons, by the Officer or one of the members of the Board of Directors calling the meeting. Notice shall be given to each member of the Board of Directors in person or by telephone, facsimile or electronic mail sent to his business or home address at least forty-eight (48) hours in advance of the meeting, or by written notice mailed to his business or home address at least seventy-two (72) hours in advance of the meeting. Notice need not be given to any member of the Board of Directors if a written waiver of notice is executed by him before or after the meeting, or if communication with such member of the Board of Directors is unlawful. The attendance of a member of the Board of Directors at a meeting shall constitute a waiver of notice of such meeting, except where a member of the Board

 

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of Directors attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting.

Section 6. Quorum.

At any meeting of the Board of Directors, a majority of the total number of members of the Board of Directors shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a number of members of the Board of Directors less than a quorum may adjourn the meeting to another date or time, without further notice or waiver thereof.

Section 7. Action by Consent.

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 members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

Section 8. Participation in Meetings By Conference Telephone.

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 and such participation shall constitute presence in person at such meeting.

Section 9. Conduct of Business.

At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law.

Section 10. Powers.

The Board of Directors may, except as otherwise required by law and the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power:

 

  (1) To declare dividends from time to time in accordance with law;

 

  (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;

 

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  (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, to borrow funds and guarantee obligations, and to do all things necessary in connection therewith;

 

  (4) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;

 

  (5) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents;

 

  (6) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine;

 

  (7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and,

 

  (8) To adopt from time to time regulations, not inconsistent with these By-Laws, for the management of the Corporation’s business and affairs.

Section  11. Compensation of Directors .

Directors, as such, may receive, pursuant to a resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

ARTICLE III - COMMITTEES

Section 1. Committees of the Board of Directors.

The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for such committees, elect a director or directors to serve as the members of such committees. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation. Any

 

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committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide.

Section 2. Conduct of Business.

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.

ARTICLE IV - OFFICERS

Section 1. Enumeration.

The officers of the Corporation shall be the President, the Treasurer, the Secretary and such other officers as the Board of Directors may determine, including, but not limited to, the Chairman of the Board of Directors, one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries.

Section 2. Election.

The President, CEO, Treasurer, Secretary and such other officers as the Board of Directors may determine may be elected by the Board of Directors at any meeting. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

Section 3. Qualification.

No officer need be a stockholder. The Chairman of the Board, if any, and any Vice Chairman appointed to act in the absence of the Chairman, if any, shall be elected by and from the Board of Directors, but no other officer need be a director. Two or more offices may be held by any one person. If required by vote of the Board of Directors, an officer shall give bond to the Corporation for the faithful performance of his or her duties, in such form and amount and with such sureties as the Board of Directors may determine. The premiums for such bonds shall be paid by the Corporation.

Section 4. Tenure and Removal.

Each officer elected or appointed by the Board of Directors shall hold office until his successor is elected or until his earlier resignation or removal. Each officer appointed by an

 

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officer designated by the Board of Directors to elect or appoint such officer, if any, shall hold office until his successor is elected or until his earlier resignation or removal. Any officer may resign by giving written notice of his or her resignation to the Chairman of the Board, if any, the President, or the Secretary, or to the Board of Directors at a meeting of the Board, and such resignation shall become effective at the time specified therein. Any officer may be removed from office with or without cause by vote of a majority of the directors. Any officer appointed by an officer designated by the Board of Directors to elect or appoint such officer, if any, may be removed with or without cause by such officer.

Section 5. Chairman of the Board.

The Board of Directors may elect a chairman, who, unless otherwise agreed upon by a majority of the Preferred Directors shall be an independent director that is not affiliated with any stockholder and is not an employee of the Corporation or any subsidiary of the Corporation. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and stockholders at which he or she is present and shall have such authority and perform such duties as may be prescribed by these By-Laws or from time to time be determined by the Board of Directors.

Section 6. Chief Executive Officer

The CEO shall, subject to the direction of the Board of Directors, have general supervision and control of the Corporation’s business. Unless otherwise provided by the Board of Directors, he or she shall preside, when present, at all meetings of the Stockholders. Any action taken by the CEO, and the signature of the CEO on any agreement, contract, instrument or other document on behalf of the Corporation shall, with respect to any third party, be sufficient to bind the Corporation and shall conclusively evidence the authority of the CEO and the Corporation with respect thereto.

Section 7. President.

The President shall, subject to the direction of the Board of Directors and the CEO, have general supervision and control of the Corporation’s business. Any action taken by the President, and the signature of the President on any agreement, contract, instrument or other document on behalf of the Corporation shall, with respect to any third party, be sufficient to bind the Corporation and shall conclusively evidence the authority of the President and the Corporation with respect thereto.

Section 8. Vice Presidents.

The Vice Presidents, if any, in the order of their election, or in such other order as the Board of Directors may determine, shall have and perform the powers and duties of the President (or such of the powers and duties as the Board of Directors may determine) whenever the President is absent or unable to act. The Vice Presidents, if any, shall also have such other powers and duties as may from time to time be determined by the Board of Directors.

 

- 8 -


Section 9. Treasurer and Chief Financial Officer and Assistant Treasurers.

The Treasurer, Chief Financial Officer and Assistant Treasurers shall, subject to the direction of the Board of Directors, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. They shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide.

Section 10. Secretary and Assistant Secretaries.

The Secretary shall record all the proceedings of the meetings of the Board of Directors (including committees thereof) and the meetings of the stockholders in books kept for that purpose. In his absence from any such meeting an Assistant Secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors, the President or the CEO.

Section 11. Bond.

If required by the Board of Directors, any officer shall give the Corporation a bond in such sum and with such surety or sureties and upon such terms and conditions as shall be satisfactory to the Board of Directors, including without limitation a bond for the faithful performance of the duties of his office and for the restoration to the Corporation of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his control and belonging to the Corporation.

Section 12. Action with Respect to Securities of Other Corporations.

Unless otherwise directed by the Board of Directors, the President, the Treasurer or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

Section 13. Other Powers and Duties.

Each Officer shall have, in addition to the duties and powers specifically set forth in this Agreement, such duties and powers as are customarily incident to his or her office, and such duties and powers as may be designated from time to time by the Board of Directors.

 

- 9 -


ARTICLE V - STOCK

Section 1. Certificates of Stock.

Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile.

Section 2. Transfers of Stock.

Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of this Article of these By-Laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.

Section 3. Record Date.

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, 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, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto.

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.

Section 4. Lost, Stolen or Destroyed Certificates.

In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish

 

- 10 -


concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity.

Section 5. Regulations.

The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

Section 6. Interpretation.

The Board of Directors shall have the power to interpret all of the terms and provisions of these By-Laws, which interpretation shall be conclusive.

ARTICLE VI - NOTICES

Section 1. Notices.

Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mail, postage paid, or by sending such notice by courier service, prepaid telegram or mailgram, or telecopy, cable, or telex. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mail or by courier, telegram, mailgram, telecopy, cable, or telex shall be the time of the giving of the notice.

Section 2. Waiver of Notice.

A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance of a director or stockholder at a meeting without protesting prior thereto or at its commencement the lack of notice shall also constitute a waiver of notice by such director or stockholder.

ARTICLE VII - INDEMNIFICATION

Section 1. Right to Indemnification.

The Corporation (i) shall indemnify, to the fullest extent permitted by law, all Indemnified Persons (as defined below) against all Expenses (as defined below) incurred by the Indemnified Persons in connection with any Proceeding (as defined below) in which an

 

- 11 -


Indemnified Person is involved as a result of serving in the capacity by reason of which such Person is deemed to be an “Indemnified Person.” The determination of whether the Corporation is authorized to indemnify the Indemnified Persons hereunder and any award of indemnification shall be made by one of the following methods, which shall be at the election of the Board of Directors: (a) by a majority of the votes held by Directors who are not parties to the proceeding in question, even though less than a quorum, (b) by a committee of Directors designated by a majority of the Directors who are not parties to the proceeding in question, even though less than a quorum, (c) if there are no Directors who are not parties to the proceeding in question or if the Directors who are not parties to the proceeding in question so direct, by Independent Counsel (as defined below) appointed by the Directors or a Majority Preferred Interest or (d) if so directed by the Board of Directors, by a majority of the stockholders of the Corporation.

Section 2. Definitions.

“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 and any federal, state, local or foreign taxes imposed on the Indemnified Person as a result of the actual or deemed receipt of any payments hereunder, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by the Indemnified Person or the amount of judgments or fines against the Indemnified Person. “Indemnified Person” includes (i) a person serving as a Director or an officer of the Corporation or in a similar executive capacity appointed by the Board of Directors and exercising rights and duties delegated by the Board of Directors, (ii) a person serving at the request of the Corporation as a Director, manager, Officer, employee or other agent of another organization, including, without limitation, any subsidiary of the Corporation, and (iii) any person who formerly served in any of the foregoing capacities (with respect to matters relating to such services). “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 (5) years has been, retained to represent: (i) the Corporation or the Indemnified Person in any matter material to either such party (other than with respect to matters concerning the Indemnified Person hereunder, 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 Corporation or the Indemnified Person in an action to determine the Indemnified Person’s rights under this Agreement. “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 Corporation or otherwise and whether civil, criminal, administrative or investigative, in which the Indemnified Person was, is or will be

 

- 12 -


involved as a party or otherwise; 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 hereunder; including one pending on or before the date these Bylaws are adopted by the Board of Directors of this Agreement, but excluding one initiated by the Indemnified Person to enforce rights under Article VII, Section  1 hereto. “Person” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, estate, unincorporated organization, governmental or regulatory body or other entity.

Section 3. Successor Indemnification.

The indemnification provided hereunder shall inure to the benefit of the heirs and personal representatives of the Directors. If the Corporation or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Corporation assume the obligations of the Corporation with respect to indemnification of Directors as in effect immediately before such transaction.

Section 4. Specific Authorization.

Any indemnification under Section 1 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of any person described in said Sections is proper in the circumstances because he or she has met the applicable standard of conduct set forth in said Sections. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders of the Corporation.

Section 5. Advance Payment.

Expenses incurred in defending any civil, criminal, administrative, or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of any person described in said Section to repay such amount if it shall ultimately be determined that he or she is not entitled to indemnification by the Corporation as authorized in this Article.

Section 6. Non-Exclusivity.

The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article shall not be deemed exclusive of any other rights to which those provided indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.

 

- 13 -


Section 7. Insurance.

The Board of Directors may authorize, by a vote of the majority of the full board, the Corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent 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 any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Article.

Section 8. Continuation of Indemnification and Advancement of Expenses.

The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 9. Severability.

If any word, clause or provision of this Article or any award made hereunder shall for any reason be determined to be invalid, the provisions hereof shall not otherwise be affected thereby but shall remain in full force and effect.

Section 10. Intent of Article.

The intent of this Article is to provide for indemnification and advancement of expenses to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware. To the extent that such Section or any successor section may be amended or supplemented from time to time, this Article shall be amended automatically and construed so as to permit indemnification and advancement of expenses to the fullest extent from time to time permitted by law.

Section 10. Consistency with Certificate of Incorporation.

Notwithstanding the foregoing, to the extent that any word, clause or provision of this Article conflicts with the Certificate of Incorporation, the Certificate of Incorporation shall control.

ARTICLE VIII - CERTAIN TRANSACTIONS

Section 1. Transactions with Interested Parties.

Unless entered into in bad faith, no contract or transaction between the Corporation or any of its subsidiaries and one or more of its or their directors, officers, or stockholders or between the Corporation or any of its subsidiaries and any other Person in which one or more of

 

- 14 -


its or any of its subsidiaries’ directors, officers or stockholders have a financial interest or are directors, partners, members, stockholders, officers or employees, shall be void or voidable solely for this reason, or solely because such director, officer or stockholder is present at or participates in the authorization of such contract or transaction if:

(a) The material facts as to his or her 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

(b) The material facts as to his or her 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

(c) 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.

Section 2. Quorum.

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.

ARTICLE IX - MISCELLANEOUS

Section 1. Facsimile Signatures.

In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-Laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

Section  2. Corporate Seal .

The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.

Section 3. Reliance upon Books, Reports and Records.

Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in

 

- 15 -


relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

Section 4. Fiscal Year.

Except as otherwise determined by the Board of Directors from time to time, the fiscal year of the Corporation shall end on the last day of December of each year.

Section  5. Time Periods .

In applying any provision of these By-Laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.

ARTICLE X - AMENDMENTS

These By-Laws may be amended, added to, rescinded or repealed 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 meeting of the stockholders or of the Board of Directors, provided notice of the proposed change was given in the notice of the meeting or, in the case of a meeting of the Board of Directors, in a notice given not less than two (2) days prior to the meeting.

 

- 16 -

Exhibit 4.1

LOGO

THIS CERTIFIES THAT is the owner of CUSIP DATED COUNTERSIGNED AND REGISTERED: COMPUTERSHARE TRUST COMPANY, N.A. TRANSFER AGENT AND REGISTRAR, FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF Spero Therapeutics, Inc. (hereinafter called the “Company”), transferable on the books of the Company in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby, are issued and shall be held subject to all of the provisions of the Certificate of Incorporation, as amended, and the By-Laws, as amended, of the Company (copies of which are on file with the Company and with the Transfer Agent), to all of which each holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers. COMMON STOCK PAR VALUE $0.001 COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS Certificate Number Shares . SPERO THERAPEUTICS, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE Chief Executive Officer Chief Financial Officer Vice President, Finance and Operations By AUTHORIZED SIGNATURE June 30, 2017 DEL AWAR E IN C O RPORAT E SPERO THERAPEUTICS, INC. ZQ|CERT#|COY|CLS|RGSTRY|ACCT#|TRANSTYPE|RUN#|TRANS# 84833T 10 3 DD-MMM-YYYY * * 000000* * * * * * * * * * * * * * * * * * * * * 000000* * * * * * * * * * * * * * * * * * * * * 000000* * * * * * * * * * * * * * * * * * * * * 000000* * * * * * * * * * * * * * * * * * * * * 000000* * * * * * * * * * * * * * ** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Sample****Mr.Sample**000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**
Shares*** *000000**Shares****000000**Shares****000000**Shares*** *000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****0 00000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****00 0000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000 000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****0000 00**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****

000000**Shares****000000**Shares****00000 0**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000000 **Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000000* *Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000000** Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****
000000**Shares****000000**Shares****000000**S ***ZERO HUNDRED THOUSAND ZERO HUNDRED AND ZERO*** MR. SAMPLE & MRS. SAMPLE & MR. SAMPLE & MRS. SAMPLE ZQ00000000 Certificate Numbers 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 Total Transaction Num/No. 123456 Denom. 123456 Total 1234567 MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 PO BOX 43004, Providence, RI 02940-3004 CUSIP XXXXXX XX X Holder ID XXXXXXXXXX Insurance Value 1,000,000.00 Number of Shares 123456 DTC 12345678 123456789012345 THIS CERTIFICATE IS TRANSFERABLE IN CITIES DESIGNATED BY THE TRANSFER AGENT, AVAILABLE ONLINE AT www.computershare.com


LOGO

The IRS requires that the named transfer agent (“we”) report the cost basis of certain shares or units acquired after January 1, 2011. If your shares or units are covered by the legislation, and you requested to sell or transfer the shares or units using a specific cost basis calculation method, then we have processed as you requested. If you did not specify a cost basis calculation method, then we have defaulted to the first in, first out (FIFO) method. Please consult your tax advisor if you need additional information about cost basis. If you do not keep in contact with the issuer or do not have any activity in your account for the time period specified by state law, your property may become subject to state unclaimed property laws and transferred to the appropriate state. For value received, _hereby sell, assign and transfer unto Shares Attorney Dated: 20 Signature: Signature: Notice: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement, or any change whatever. PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint to transfer the said stock on the books of the within-named Incorporation with full power of substitution in the premises. . SPERO THERAPEUTICS, INC. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS, AND THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES, WHICH ARE FIXED BY THE CERTIFICATE OF INCORPORATION OF THE COMPANY, AS AMENDED, AND THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY OR TO THE TRANSFER AGENT. THE BOARD OF DIRECTORS MAY REQUIRE THE OWNER OF A LOST OR DESTROYED STOCK CERTIFICATE, OR HIS LEGAL REPRESENTATIVES, TO GIVE THE COMPANY A BOND TO INDEMNIFY IT AND ITS TRANSFER AGENTS AND REGISTRARS AGAINST ANY CLAIM THAT MAY BE MADE AGAINST THEM ON ACCOUNT OF THE ALLEGED LOSS OR DESTRUCTION OF ANY SUCH CERTIFICATE. Signature(s) Guaranteed: Medallion Guarantee Stamp THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - .Custodian (Cust) (Minor) TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act. (State) JT TEN - as joint tenants with right of survivorship UNIF TRF MIN ACT - Custodian (until age...) and not as tenants in common (Cust) ..under Uniform Transfers to Minors Act (Minor) (State) Additional abbreviations may also be used though not in the above list.

Exhibit 4.2

SPERO THERAPEUTICS, INC.

INVESTORS’ RIGHTS AGREEMENT

JUNE 30, 2017


TABLE OF CONTENTS

 

              Page  
1.  

Definitions

     1  
2.  

Registration Rights

     6  
  2.1.   

Demand Registration

     6  
  2.2.   

Company Registration

     7  
  2.3.   

Underwriting Requirements

     7  
  2.4.   

Obligations of the Company

     9  
  2.5.   

Furnish Information

     10  
  2.6.   

Expenses of Registration

     11  
  2.7.   

Delay of Registration

     11  
  2.8.   

Indemnification

     11  
  2.9.   

Reports under Exchange Act

     13  
  2.10.   

Limitations on Subsequent Registration Rights

     14  
  2.11.   

Market Stand-Off Agreement

     14  
  2.12.   

Restrictions on Transfer

     15  
  2.12.   

Termination of Registration Rights

     16  
3.  

Information Rights

     16  
  3.1.   

Delivery of Financial Statements

     16  
  3.2.   

Inspection

     18  
  3.3.   

Termination of Information Rights

     19  
  3.4.   

Confidential Information

     19  
  3.5.   

Right to Conduct Activities

     20  
  3.6.   

Spero LLC Final K-1

     20  
4.  

Participation Rights

     20  
  4.1.   

Offer of Preemptive Rights

     20  
  4.2.   

Termination

     21  
5.  

Additional Covenants

     21  
  5.1.   

Insurance

     21  
  5.2.   

Employee Agreements

     22  
  5.3.   

Employee Stock

     22  
  5.4.   

Matters Requiring Investor Director Approval

     22  
  5.5.   

Board Matters

     23  
  5.7.   

Termination of Covenants

     23  
6.  

Miscellaneous

     24  
  6.1.   

Successors and Assigns

     24  
  6.2.   

Governing Law

     24  
  6.3.   

Counterparts

     25  

 

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  6.4.   

Titles and Subtitles

     25  
  6.5.   

Notices

     25  
  6.6.   

Amendments and Waivers

     25  
  6.7.   

Severability

     26  
  6.8.   

Aggregation of Stock

     26  
  6.9.   

Entire Agreement

     26  
  6.10.   

Dispute Resolution

     26  
  6.11.   

Delays or Omissions

     26  
  6.12.   

Acknowledgment

     27  
  6.13.   

Several Obligations

     27  
  6.14.   

No Commitments

     27  

 

Schedule A

  

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   Schedule of Investors

Schedule B

  

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   Schedule of Key Holders

 

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INVESTORS’ RIGHTS AGREEMENT

THIS INVESTORS’ RIGHTS AGREEMENT (this “Agreement”) is made as of the 30 th day of June, 2017, by and among Spero Therapeutics, Inc., a Delaware corporation (the “ Company ”), and each of the investors listed on Schedule A hereto, each of which is referred to in this Agreement as an “ Investor ”, and each of the stockholders listed on Schedule B hereto, each of whom is referred to herein as a “ Key Holder .”

RECITALS

WHEREAS , the Company is the surviving corporation of a merger of a Delaware limited liability company called Spero Therapeutics, LLC (the “ Spero LLC ”) and a Delaware corporation called Spero OpCo, Inc., effected in order to reorganize Spero LLC as a Delaware corporation (the “ Reorganization ”);

WHEREAS , Spero LLC had issued Junior Preferred Units, Class A Preferred Units, Class B Preferred Units, Class C Preferred Units, Incentive Units and Common Units, as defined in the Sixth Amended and Restated Operating Agreement of Spero LLC, by and among Spero LLC and the Persons identified as Members on Schedule A thereto, dated March 7, 2017 (the “ Operating Agreement ”);

WHEREAS , the Operating Agreement, among other things, set forth certain rights and obligations of the equity holders of Spero LLC, including with respect to the rights of the investors in Spero LLC to cause Spero LLC to register certain equity issuable to the such investors, to receive certain information from Spero LLC and to participate in equity offerings by Spero LLC;

WHEREAS , as part of the Reorganization, the Junior Preferred Units, Class A Preferred Units, Class B Preferred Units, Class C Preferred Units and Common Units were exchanged into equivalent number of shares of Junior Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock; and

WHEREAS , the parties also desire to enter into this Agreement to set forth their agreements and understandings with respect to the rights of the Investors to cause the Company to register shares of Common Stock issuable to the Investors, to receive certain information from the Company, and to participate in future equity offerings by the Company, and shall govern certain other matters as set forth in this Agreement.

NOW, THEREFORE , the parties hereby agree as follows:

1. Definitions . For purposes of this Agreement:

1.1. “ Affiliate ” means, with respect to any specified Person, any other Person who or which, directly or indirectly, controls, is controlled by, or is under common control with such specified Person, including without limitation any general partner, officer, director, or manager of such Person and any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.

 

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1.2. “ Atlas ” means Atlas Venture Fund IX, L.P. and Atlas Venture Fund X, L.P.

1.3. “ Board of Directors ” means the Board of Directors of the Company.

1.4. “ Certificate of Incorporation ” means the Company’s certificate of incorporation (as amended and in effect).

1.5. “ Class  B Purchase Agreement” means that certain Class B Purchase Agreement by and among Spero LLC and the purchasers named therein, dated February 1, 2016, as amended.

1.6. “ Class  C Purchase Agreement ” means that certain Class C Purchase Agreement by and among Spero LLC and the purchasers named therein, dated March 7, 2017, as amended.

1.7. “ Common Stock ” means shares of the Company’s common stock, par value $0.001 per share.

1.8. “ Confidential Information ” means all documents and information of the Company provided to or learned by a Stockholder in connection with its rights and obligations under this Agreement.

1.9. “ Damages ” means any loss, damage, or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.

1.10. “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

1.11. “ Excluded Registration ” means: (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.

 

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1.12. “ Form S -1 ” means such registration form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.

1.13. “ Form S -3 ” means such registration form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.

1.14. “ GAAP ” means generally accepted accounting principles in the United States.

1.15. “ GV ” means GV 2015, L.P.

1.16. “ Holder ” means any holder of Registrable Securities who is a party to this Agreement.

1.17. “ Immediate Family Member ” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a natural person referred to herein.

1.18. “ Initiating Holders ” means, collectively, Holders who properly initiate a registration request under this Agreement.

1.19. “ IPO ” means the Company’s first underwritten public offering of its Common Stock under the Securities Act.

1.20. “ Key Holder Registrable Securities ” means (i) the shares of Common Stock now owned or subsequently acquired by the Key Holders, and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of such shares.

1.21. “ Junior Preferred Stock ” means shares of the Junior Preferred Stock of the Company, par value $0.001 per share.

1.22. “ Kraft ” means KPC Venture Capital LLC.

1.23. “ Lundbeckfond Ventures ” means Lundbeckfond Invest A/S.

1.24. “ Major Investor ” means each of Atlas, S.R. One, Lundbeckfond Ventures, Kraft, Osage, Merck, GV, Rock Springs and RA Capital, for so long as each such Investor, together with its Affiliates, continues to hold, as applicable, (i) at least fifty percent (50%) of the Series B Preferred Stock that converted from the Class B Preferred Units of Spero LLC issued to such Investor pursuant to the Class B Purchase Agreement, if such Investor was issued shares of Series B Preferred Stock that converted from the Class B Preferred Units of Spero LLC issued pursuant to the Class B Purchase Agreement and (ii) at least fifty percent

 

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(50%) of the Series C Preferred Stock of Spero LLC that converted from the Class C Preferred Units issued to such Investor pursuant to the Class C Purchase Agreement, if such Investor was issued shares of Series C Preferred Stock that converted from the Class C Preferred Units of Spero LLC issued pursuant to the Class C Purchase Agreement. In the event that RA Capital is a Major Investor, then Blackwell Partners LLC shall also have Major Investor status, independent of RA Capital, during such time.

1.25. “ Majority Preferred Interest ” means Investors who together hold at least sixty percent (60%) of the then-outstanding Series B Preferred Stock and Series C Preferred Stock, voting together on an as-if converted to Common Stock basis, as a single class.

1.26. “ Merck ” means MRL Ventures Fund, LLC.

1.27. “ New Securities ” means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities; provided , however , that Exempted Securities shall not constitute New Securities for any purpose hereunder.

1.28. “ Option ” means rights, options or warrants to purchase Common Stock.

1.29. “ Osage ” means Osage University Partners II, L.P., a Delaware limited partnership.

1.30. “ Person ” means any individual, corporation, partnership, trust, limited liability company, association, firm, joint venture, joint-stock company, estate, unincorporated organization, governmental or regulator body or other entity.

1.31. “ Preferred Registrable Securities ” means Registrable Securities exclusive of Key Holder Registrable Securities.

1.32. “ Preferred Stock ” means, collectively, shares of the Company’s Junior Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.

1.33. RA Capital ” means funds managed by RA Capital Management who are Investors, including RA Capital Healthcare Fund, L.P. and Blackwell Partners LLC - SERIES A.

1.34. “ Registrable Securities ” means: (i) the Common Stock issuable or issued upon conversion of the Preferred Stock; (ii) any Common Stock, or any Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, acquired by the Investors prior to or after the date hereof; (iii) the Key Holder Registrable Securities, provided , however , that such Holders shall not be deemed Holders for the purposes of Sections 2.10 and 6.6 ; and (iv) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i) and (ii) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned

 

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pursuant to Section  6.1 , and excluding for purposes of Section  2 any shares for which registration rights have terminated pursuant to Section  2.13 of this Agreement

1.35. “ Registrable Securities then outstanding ” means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.

1.36. “ Requisite Series C Interest ” means the holders of at least sixty percent (60%) of the then-outstanding Series C Preferred Stock.

1.37. “ Restricted Securities ” means the securities of the Company required to bear the legend set forth in Subsection 2.12(b) hereof.

1.38. “ Rock Springs ” means Rock Springs Capital Master Fund LP.

1.39. “ S.R. One means S.R. One, Limited.

1.40. “ Sale Event ” means a Deemed Liquidation Event, as defined in the Certificate of Incorporation.

1.41. “ SEC ” means the Securities and Exchange Commission.

1.42. “ SEC Rule 144 ” means Rule 144 promulgated by the SEC under the Securities Act.

1.43. “ SEC Rule 145 ” means Rule 145 promulgated by the SEC under the Securities Act.

1.44. “ SEC Rule 405 ” means Rule 405 promulgated by the SEC under the Securities Act.

1.45. “ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

1.46. “ Selling Expenses ” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of one counsel to the selling Holders borne and paid by the Company as provided in Subsection 2.6 .

1.47. “ Preferred Director ” means any director of the Company that the holders of record of the Preferred Stock are entitled to elect pursuant to the Certificate of Incorporation.

1.48. “ Series A Preferred Stock ” means the Series A Preferred Stock of the Company, par value $0.001 per share.

1.49. “ Series B Preferred Stock ” means the Series B Preferred Stock of the Company, par value $0.001 per share.

 

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1.50. “ Series C Preferred Stock ” means the Series C Preferred Stock of the Company, par value $0.001 per share.

1.51. “ Stockholder ” means each Investor and each Key Holder.

2. Registration Rights . The Company covenants and agrees as follows:

2.1. Demand Registration .

(a) If at any time one hundred eighty (180) days after the effective date of the registration statement for the IPO, the Company receives a request from Holders of at least sixty percent (60%) of the Preferred Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to the Registrable Securities then outstanding for which the anticipated aggregate offering price, net of Selling Expenses, would be at least $10 million, then the Company shall: (i) within ten (10) days after the date such request is given, give notice thereof (the “ Demand Notice ”) to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within ninety (90) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section  2.1(c) and Section  2.3 .

(b) If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least twenty-five percent (25%) of the Preferred Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities for which the anticipated aggregate offering price, net of Selling Expenses, would be at least $1 million, then the Company shall: (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section  2.1(c) and Section  2.3 .

(c) Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section  2.1 a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would: (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material

 

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information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing for a period of not more than sixty (60) days after the request of the Initiating Holders is given; provided , however , that the Company may not invoke this right more than once (1x) in any twelve (12) month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such sixty (60) day period other than an Excluded Registration.

(d) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section  2.1(a) : (i) during the period that is sixty (60) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration, provided, that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected two (2) registrations pursuant to Section  2.1(a) ; or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section  2.1(b) . The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section  2.1(b) : (A) during the period that is thirty (30) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration, provided, that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (B) if the Company has effected two registrations pursuant to Section  2.1(b) within the twelve (12) month period immediately preceding the date of such request. A registration shall not be counted as “effected” for purposes of this Section  2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Section  2.6 , in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Section  2.1(d) .

2.2. Company Registration . If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its securities under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Section  2.3 , cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section  2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Section  2.6 .

2.3. Underwriting Requirements .

 

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(a) If, pursuant to Section  2.1 , the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section  2.1 , and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Initiating Holders, subject only to the reasonable approval of the Company. In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section  2.4(c)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Section  2.3 , if the managing underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities held by the Holders included in such underwriting be reduced unless all other securities are first entirely excluded from the underwriting or (ii) any Registrable Securities which are not Key Holder Registrable Securities be excluded from such underwriting unless all Key Holder Registrable Securities are first excluded from such offering. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.

(b) In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Section  2.2 , the Company shall not be required to include any of the Holders’ Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other

 

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securities (other than securities to be sold by the Company) are first entirely excluded from the offering, (ii) the number of Registrable Securities included in the offering be reduced below thirty percent (30%) of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholder’s securities are included in such offering or (iii) notwithstanding (ii) above, any Registrable Securities which are not Key Holder Registrable Securities be excluded from such underwriting unless all Key Holder Registrable Securities are first excluded from such offering. For purposes of the provisions in this Section  2.3(b) and Section  2.3(a) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such “selling Holder,” as defined in this sentence.

(c) For purposes of Section  2.1, a registration shall not be counted as “effected” if, as a result of an exercise of the underwriter’s cutback provisions in Section  2.3(a) , fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.

2.4. Obligations of the Company . Whenever required under this Section  2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided , however , that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended for up to sixty (60) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;

(b) prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;

(c) furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other

 

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documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;

(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(c) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;

(f) use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;

(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;

(h) promptly make available for inspection by the selling Holders, any managing underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;

(i) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and

(j) after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.

2.5. Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section  2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holder’s Registrable Securities.

 

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2.6. Expenses of Registration . All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2 , including all registration, filing, and qualification fees; printers’ and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, not to exceed $50,000, of one counsel for the selling Holders, shall be borne and paid by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section  2.1 if the registration request is subsequently withdrawn at the request of the Holders of at least sixty percent (60%)of the Preferred Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of at least sixty percent (60%) of the Preferred Registrable Securities agree to forfeit their right to one registration pursuant to Section  2.1(a) or Section  2.1(b) , as the case may be; provided further that if, at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Section  2.1(a) or Section  2.1(b) . All Selling Expenses relating to Registrable Securities registered pursuant to this Section  2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.

2.7. Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section  2 .

2.8. Indemnification . If any Registrable Securities are included in a registration statement under this Section  2 :

(a) To the extent permitted by law, the Company will indemnify and hold harmless: each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Section  2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.

 

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(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Section  2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under this Section  2.8(b) and Section  2.8(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.

(c) Promptly after receipt by an indemnified party under this Section  2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section  2.8 , give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section  2.8 to the extent that such failure materially prejudices the indemnifying party’s ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section  2.8 .

(d) Notwithstanding anything else herein to the contrary, the foregoing indemnity agreements of the Company and the selling Holders are subject to the condition that, insofar as they relate to any Damages arising from any untrue statement or alleged untrue statement of a material fact contained in, or omission or alleged omission of a material fact from, a preliminary prospectus (or necessary to make the statements therein not misleading) that has been corrected in the form of prospectus included in the registration statement at the time it becomes effective, or any amendment or supplement thereto filed with the SEC pursuant to Rule

 

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424(b) under the Securities Act (the “ Final Prospectus ”), such indemnity agreement shall not inure to the benefit of any Person if a copy of the Final Prospectus was furnished to the indemnified party and such indemnified party failed to deliver, at or before the confirmation of the sale of the shares registered in such offering, a copy of the Final Prospectus to the Person asserting the loss, liability, claim, or damage in any case in which such delivery was required by the Securities Act.

(e) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section  2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Section  2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section  2.8 , then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided , however , that, in any such case, (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Section  2.8(e) , when combined with the amounts paid or payable by such Holder pursuant to Section  2.8(b) , exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.

(f) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section  2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section  2 , and otherwise shall survive the termination of this Agreement.

2.9. Reports Under Exchange Act . With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:

 

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(a) make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;

(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and

(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request: (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).

2.10. Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least sixty percent (60%) of the Preferred Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (i) to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of the Registrable Securities of the Holders that are included or (ii) to initiate a demand registration of any securities held by such holder or prospective holder.

2.11. “Market Stand-off” Agreement . Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the IPO, and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days, or such other period as may be reasonably requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for such offering or (ii) enter into any swap or other arrangement that transfers to another, in whole or in

 

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part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Section  2.11 shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement or the transfer of any shares to any trust for the direct or indirect benefit of the Holder or the immediate family of the Holder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, and shall be applicable to the Holders of Preferred Registrable Securities only if all officers, directors and stockholders individually owning more than one percent (1%) of the outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock) are subject to the same restrictions. The underwriters in connection with such registration are intended third party beneficiaries of this Section  2.11 and shall have the right, power, and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section  2.11 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders of Preferred Registrable Securities subject to such agreements, based on the number of shares subject to such agreements.

2.12. Restrictions on Transfer .

(a) The Preferred Stock and the Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.

(b) Each certificate or instrument representing (i) the Preferred Stock, (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Section  2.12(c)) be stamped or otherwise imprinted with 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. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

 

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The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Section  2.12 .

(c) The holder of each certificate representing Restricted Securities, by acceptance thereof, agrees to comply in all respects with the provisions of this Section  2 . Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the Holder thereof shall give notice to the Company of such Holder’s intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holder’s expense by either: (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or “no action” letter (x) in any transaction in compliance with SEC Rule 144 or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that each transferee agrees in writing to be subject to the terms of this Section  2.12 . Each certificate or instrument evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Section  2.12(b) , except that such certificate shall not bear such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.

2.13. Termination of Registration Rights . The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section  2.1 or Section  2.2 shall terminate upon the earliest to occur of:

(a) the closing of a Sale Event;

(b) solely with respect to the rights under Section 2.1 hereunder, when all of such Holder’s Registrable Securities could be sold without restriction under SEC Rule 144(b) within any ninety (90) day period; and

(c) on the fifth (5 th ) anniversary of the IPO.

3. Information Rights .

3.1. Delivery of Financial Statements . The Company shall deliver to each Major Investor:

 

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(a) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year, (A) a balance sheet as of the end of such year, (B) statements of income and of cash flows for such year, and a comparison between (x) the actual amounts as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Budget (as defined below) for such year, with an explanation of any material differences between such amounts and a schedule as to the sources and applications of funds for such fiscal year, and (C) a statement of stockholder’s equity as of the end of such fiscal year, all such financial statements prepared in accordance with GAAP and audited and certified by independent public accountants of nationally recognized standing selected by the Company;

(b) as soon as practicable, but in any event within thirty (30) days after the end of each of the four (4) quarters of each fiscal year, unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholder’s equity as of the end of such fiscal quarter, including monthly detail, and, if requested by the Board of Directors in its sole discretion, a comparison between (x) the actual amounts as of and for such quarter and (y) the comparable amounts for the prior quarter and the comparable time period one (1) year prior and as included in the Budget for such quarter, with an explanation of any material differences between such amounts and a schedule as to the sources and applications of funds for such quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);

(c) as soon as practicable, but in any event within thirty (30) days after the end of each of the four (4) quarters of each fiscal year, a statement showing (A) the number of shares of capital stock of each class and series at the end of the period, (B) the shares of capital stock issuable upon conversion or exercise of any outstanding Convertible Securities, including (x) the exchange ratio or exercise price applicable thereto or (y) with respect to convertible debt securities, pertinent details regarding such debt securities, including the face amount, issue date, maturity date, interest rate, conversion discount, change of control premium and valuation cap, if applicable, and (C) the number of issued Options and shares of Common Stock reserved for issuance pursuant to any plan, agreement or arrangement approved by the Board of Directors, if any, all in sufficient detail as to permit the Major Investors to calculate their respective percentage equity ownership in the Company, and certified by the Chief Financial Officer of the Company or the CEO as being true, complete, and correct;

(d) as soon as practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement for such month, and an unaudited balance sheet and statement of stockholder’s equity as of the end of such month, and a comparison between (x) the actual amounts as of and for such month and (y) the comparable amounts for the prior month and the comparable time period one (1) year prior and as included in the Budget for such month, with an explanation of any material differences between such amounts and a schedule as to the sources and applications of funds for such month, all prepared in accordance with GAAP (except that such financial statements may (A) be subject to normal year-end audit adjustments and (B) not contain all notes thereto that may be required in accordance with GAAP);

 

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(e) as soon as practicable, but in any event at least thirty (30) days before the end of each fiscal year, a budget and business plan for the next fiscal year (collectively, the “ Budget ”), approved by the Board of Directors (including a majority of the Preferred Directors), including balance sheets, income statements, and statements of cash flow and, promptly after prepared, any other budgets or revised budgets prepared by the Company;

(f) with respect to the financial statements called for in Section 3.1(a), Section 3.1(b) and Section 3.1(c), an instrument executed by the Chief Financial Officer of the Company and the CEO certifying that such financial statements were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (except as otherwise set forth in Section 3.1(a)(ii) and Section 3.1(a)(iv)) and fairly present the financial condition of the Company and its results of operation for the periods specified therein; and

(g) such other information relating to the financial condition, business, prospects, or corporate affairs of the Company or any of its subsidiaries or tax reporting or obligations of the Company or any of the Company’s subsidiaries as any Major Investor (which for purposes of this Section  3.1(g) shall include any Affiliate or limited partner of any Major Investor) may from time to time reasonably request; provided, however, that the Company shall not be obligated under this Section  3.1 to provide information (A) that the Company reasonably determines in good faith to be a trade secret or similar highly confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or (B) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.

Notwithstanding anything else in this Section  3.1 to the contrary, the Company may cease providing the information set forth in this Section  3.1 during the period starting with the date thirty (30) days before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided, that the Company’s covenants under this Section  3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.

3.2. Inspection . The Company shall permit each Major Investor (which for purposes of this Section  3.2 shall include any Affiliate or limited partner of any Major Investor), at such Major Investor’s expense, to: visit and inspect the Company’s properties; examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Major Investor; provided , however , that the Company shall not be obligated pursuant to this Section  3.2 to provide access to any information that it reasonably considers to be a trade secret or similar highly confidential information (unless covered by an enforceable confidentiality

 

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agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

3.3. Termination of Information Rights . The covenants set forth in Section  3.1 and Section  3.2 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, or (ii) upon a Sale Event, whichever event occurs first.

3.4. Confidential Information .

(a) Each Stockholder agrees that such Stockholder will keep confidential and will not disclose any Confidential Information (including notice of the Company’s intention to file a registration statement), unless such Confidential Information (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.4 by such Stockholder), (ii) is or has been independently developed or conceived by the Stockholder without use of the Company’s Confidential Information, (iii) is or has been made known or disclosed to the Stockholder by a third party without a breach of any obligation of confidentiality such third party may have to the Company, or (iv) is permitted to be used by such Stockholder pursuant to a license or other written agreement between the Company and such Stockholder or an Affiliate of such Stockholder; provided , however , that a Stockholder may disclose Confidential Information: (A) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (B) to any prospective purchaser of any Registrable Securities from such Stockholder, if such prospective purchaser agrees to be bound by the provisions of this Section 3.4(a) ; (C) to any Affiliate, partner, member, stockholder, officer, director, or wholly owned subsidiary of such Stockholder in the ordinary course of business, provided that such Stockholder informs such Person that such information is confidential and requires such Person to maintain the confidentiality of such information; or (D) as may otherwise be required by law, rule, regulation or listing standard, provided that , to the extent legally permitted, the Stockholder takes reasonable steps to minimize the extent of any such required disclosure.

(b) The Company and each Stockholder shall use reasonable efforts not to disclose the name of any of the Affiliates of any Investor unless such Affiliate’s relationship with such Investor (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.4 by such Stockholder) or (ii) is or has been made known or disclosed to the Stockholder by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided , however , that a Stockholder may disclose the name of any of the Affiliates of any Investor: (A) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (B) to any prospective purchaser of any Registrable Securities from such Stockholder, if such prospective purchaser agrees to be bound by the provisions of this Section 3.4(b) ; (C) to any Affiliate, partner, member, stockholder, officer, director, or wholly owned subsidiary of such Stockholder in the ordinary course of business, provided that such Stockholder informs such Person that such Affiliate’s relationship with such Investor is confidential and requires such Person to maintain the confidentiality of such Affiliate’s relationship with such Investor; (D) as may otherwise by law or order of any court or governmental authority or any arbitration order (in which case, after giving reasonable notice

 

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thereof to any such Affiliate to allow such Person the opportunity to oppose such disclosure); or (E) to the extent that such Investor consents in writing to such disclosure.

3.5. Right to Conduct Activities . The Company hereby agrees and acknowledges that certain of the Investors are professional investment funds, and as such invest in numerous portfolio companies, some of which may be deemed competitive with the Company’s business (as currently conducted or as currently proposed to be conducted). The Company hereby agrees that, to the extent permitted under applicable law, any such Investor shall not be liable to the Company for any claim arising out of, or based upon, (i) the investment by such Investor in any entity competitive with the Company or (ii) actions taken by any partner, officer or other representative of such Investor to assist any such competitive company, whether or not such action was taken as a member of the board of directors of such competitive company or otherwise, and whether or not such action has a detrimental effect on the Company; provided , however , that the foregoing shall not relieve any such Investor from liability associated with (A) the unauthorized disclosure of the Confidential Information or (B) bad faith or willful misconduct on the part of such Investor.

3.6. Spero LLC Final K-1 . The Company shall deliver to the Stockholders who were members of Spero LLC the final Schedule K-1 for such members’ interest in Spero LLC within              days of the consummation of the Reorganization.

4. Participation Rights.

4.1. Offer of Preemptive Rights . Subject to the terms and conditions of this Section  4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Investor holding shares of Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock (a “ Senior Preferred Investor ”). A Senior Preferred Investor shall be entitled to apportion the right of first offer hereby granted to it among itself and its Affiliates in such proportions as it deems appropriate.

(a) The Company shall give notice (the “ Offer Notice ”) to each such Senior Preferred Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities, including a summary of the rights and privileges of such New Securities.

(b) By notification to the Company within twenty (20) days after the Offer Notice is given, each such Senior Preferred Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Registrable Securities then held, by such Senior Preferred Investor bears to the total number of Registrable Securities then held, by all Senior Preferred Investors. At the expiration of such twenty (20) day period, the Company shall promptly notify each Senior Preferred Investor that elects to purchase or acquire all the New Securities available to it (each, a “ Fully Exercising Senior Preferred Investor ”) of any other Senior Preferred Investor’s failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Senior Preferred Investor may,

 

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by giving notice to the Company, elect to purchase or acquire, in addition to the number of New Securities specified above, up to that portion of the New Securities for which Senior Preferred Investors were entitled to subscribe but that were not subscribed for by the Senior Preferred Investors which is equal to the proportion that the Registrable Securities then held, by such Fully Exercising Senior Preferred Investor bears to the Registrable Securities then held, by all Fully Exercising Senior Preferred Investors who wish to purchase such unsubscribed New Securities. The closing of any sale pursuant to this Section  4.1(b) shall occur within the later of one hundred twenty (120) days of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Section  4.1(c) .

(c) If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Section  4.1(b) , the Company may, during the sixty (60) day period following the expiration of the periods provided in Section  4.1(b) , offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Senior Preferred Investors in accordance with this Section  4.1 .

(d) The right of first offer in this Subsection 4.1 shall not be applicable to (i) Exempted Securities (as defined in the Certificate of Incorporation); and (ii) shares of Common Stock issued in the IPO.

4.2. Termination . The covenants set forth in Section  4 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO or (ii) upon a Sale Event, whichever event occurs first.

5. Additional Covenants .

5.1. Insurance .

(a) The Company shall use its commercially reasonable efforts to obtain from financially sound and reputable insurers Directors and Officers liability insurance in an amount of coverage equal to at least $3,000,000 (which, subject to further approval of the Board of Directors, coverage amount shall be increased immediately prior to the IPO to a level commensurate with that of similarly situated companies) and otherwise on terms and conditions satisfactory to a majority of the Preferred Directors. The Company will use commercially reasonable efforts to cause such insurance policy to be maintained until such time as a majority of the Preferred Directors determines that such insurance should be discontinued.

(b) The Company shall use its commercially reasonable efforts to obtain, prior to July 4, 2017, from financially sound and reputable insurer term “key-person” life insurance on Ankit Mahadevia, in an amount and on terms and conditions satisfactory to the Requisite Series C Interest, and will use commercially reasonable efforts to cause such insurance

 

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policies to be maintained until such time as the Requisite Series C Interest determines that such insurance should be discontinued. The key-person policy shall name the Company as loss payee.

5.2. Employee Agreements . The Company will cause each Person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to Confidential Information and/or trade secrets or who develops intellectual property for the Company to enter into a non-disclosure and invention assignment agreement and each employee (other than those performing solely administrative duties) to enter into a one (1) year noncompetition and nonsolicitation agreement, substantially in the form approved by a majority of the Preferred Directors. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any of the above-referenced agreements or, subject to Section  5.3 , any restricted stock security agreement between the Company and any employee, without the consent of a majority of the Preferred Directors.

5.3. Employee Stock . Unless otherwise approved by the Board of Directors (including a majority of the Preferred Directors), all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (i) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months. Unless otherwise approved by the Requisite Series C Interest, all capital stock and options to purchase capital stock issued to or held by Ankit Mahadevia and Tom Parr shall be subject to vesting and/or Company repurchase rights acceptable to the Requisite Series C Interest.

5.4. Matters Requiring Investor Director Approval . The Company hereby covenants and agrees with each of the Investors that it shall not, without approval of the Board of Directors, which approval must include the affirmative vote of a majority of the Preferred Directors:

(a) make, or permit any subsidiary to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company;

(b) make, or permit any subsidiary to make, any loan or advance to any Person, including, without limitation, any employee of the Company or Director or any subsidiary, except advances and similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board of Directors;

(c) guarantee, directly or indirectly, or permit any subsidiary to guarantee, directly or indirectly, any indebtedness except for trade accounts of the Company or any subsidiary arising in the ordinary course of business;

(d) make any investment inconsistent with any investment policy approved by the Board of Directors;

 

22


(e) otherwise enter into or be a party to any transaction with any Director, Officer, or employee of the Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such Person, except for transactions contemplated by this Agreement; or transactions made in the ordinary course of business and pursuant to reasonable requirements of the Company’s business and upon fair and reasonable terms that are approved by a majority of the Board of Directors;

(f) hire, terminate, or change the compensation of the executive officers, including approving any option grants or stock awards to executive officers;

(g) change the principal business of the Company;

(h) sell, assign, license, pledge, or encumber material technology or intellectual property, other than licenses granted in the ordinary course of business; or

(i) enter into any corporate strategic relationship involving the payment, contribution, or assignment by the Company or to the Company of money or assets greater than $100,000.

5.5. Board Matters . Unless otherwise determined by the vote of a majority of the Directors then in office, the Board of Directors shall meet at least eight (8) times per calendar year, of which at least four (4) shall be in person, in accordance with an agreed-upon schedule. The Company shall promptly reimburse in full each member of the Board of Director who is not an employee of the Company or any of its direct or indirect subsidiaries for all such Director’s reasonable out-of-pocket travel expenses incurred (consistent with the Company’s travel policy) in connection with attending any meeting of the Board of Directors or a committee thereof or any board of directors or committee thereof of a subsidiary of the Company or any events attended on behalf of the Company or a subsidiary thereof. The Board of Directors may establish an audit committee, compensation committee or other committees from time to time and any such committee shall carry out such functions as may from time to time be delegated to it by the Board of Directors. Each Preferred Director shall be entitled to be a member of any committee established by the Board of Directors.

5.6. FCPA . The Company represents that it shall not (and shall not permit any of its subsidiaries or affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to) promise, authorize or make any payment to, or otherwise contribute any item of value to, directly or indirectly, to any third party, including any Non-U.S. Official (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “ FCPA ”)), in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further represents that it shall (and shall cause each of its subsidiaries and affiliates to) cease all of its or their respective activities, as well as remediate any actions taken by the Company, its subsidiaries or affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further represents that it shall (and shall cause each of its subsidiaries and affiliates to) maintain systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing

 

23


systems) to ensure compliance with the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. Upon request, the Company agrees to provide responsive information and/or certifications concerning its compliance with applicable anti-corruption laws. The Company shall promptly notify each Investor if the Company becomes aware of any allegation, voluntary disclosure, investigation, prosecution or other enforcement action related to the FCPA or any other anti-corruption law. The Company shall, and shall cause any direct or indirect subsidiary or entity controlled by it, whether now in existence or formed in the future, to comply with the FCPA. The Company shall use its best efforts to cause any direct or indirect subsidiary, whether now in existence or formed in the future, to comply in all material respects with all applicable laws

5.7. Termination of Covenants . The covenants set forth in this Section  5 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO; or (ii) upon a Sale Event, whichever event occurs first.

6. Miscellaneous .

6.1. Successors and Assigns . The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that: (i) is an Affiliate, partner, member, limited partner, retired partner, retired member, or stockholder of a Holder; (ii) is a Holder’s Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holder’s Immediate Family Members; or (iii) after such transfer, holds at least 100,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations); provided, however , that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Section  2.11 . For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee: (1) that is an Affiliate, limited partner, retired partner, member, retired member, or stockholder of a Holder; (2) who is a Holder’s Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.

6.2. Governing Law . This Agreement is governed by and shall be construed in accordance with the law of the State of Delaware, exclusive of its conflict-of-laws principles.

6.3. 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

 

24


one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with U.S. federal ESIGN Act of 2000, e.g. , www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

6.4. Titles and Subtitles . Titles or captions of Sections contained in this Agreement are inserted as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof.

6.5. 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) 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) business day after deposit with a nationally recognized overnight courier, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on Schedule A hereto, Schedule B hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Section  6.5 . If notice is given to the Company, a copy shall also be sent to Mintz Levin, One Financial Center, Boston, MA 02111, Attention: Lewis J. Geffen, Esq.

6.6. Amendments and Waivers . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the holders of at least sixty percent (60%) of the Preferred Registrable Securities then outstanding; provided that the Company may in its sole discretion waive compliance with Section  2.12(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Section  2.12(c) shall be deemed to be a waiver); provided further that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party; and provided further that with respect to a waiver of the provisions of Section  4.1 , such waiver shall only be effective if all Senior Preferred Investors that have rights under Section  4.1 are provided the opportunity to participate in such offering of New Securities on similar terms and in proportionally similar amounts as the other Senior Preferred Investors who are participating in such offering. Notwithstanding the foregoing to the contrary, no amendment or waiver that by its terms alters or changes the powers, preferences, or special rights of any stockholder of the Company that by its terms is disproportionate to the effect on other stockholders of the Company holding the same class or series of capital stock may be made without the affirmative vote or written consent of the disproportionately affected stockholder or stockholders. Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion. Further, this Agreement may not be amended, and no provision hereof may be waived, in each case, in any way which would adversely affect the rights of the Key Holders hereunder in a manner disproportionate to any adverse effect such amendment or waiver would have on the rights of the

 

25


Investors hereunder, without also the written consent of the holders of at least a majority of the Key Holder Registrable Securities which shall not be unreasonable withheld, conditioned or delayed. The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected in accordance with this Section  6.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. 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. For avoidance of doubt, any consent or waiver provided by an Investor pursuant to this Section  6.6 shall be made solely with respect to such Investor and its securities and no other Investor or their respective securities.

6.7. Severability . In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.

6.8. Aggregation of Stock . All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

6.9. Entire Agreement . This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.

6.10. Dispute Resolution . The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of the Commonwealth of Massachusetts and to the jurisdiction of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of the Commonwealth of Massachusetts or the United States District Court for the District of Massachusetts, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.

6.11. Delays or Omissions . Except as set forth in Section  6.6 with respect to the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Section  2.12(c) , no delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such

 

26


breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

6.12. Acknowledgment . Company acknowledges that the Investors are in the business of venture capital investing and therefore review the business plans and related proprietary information of many enterprises, including enterprises which may have products or services which compete directly or indirectly with those of the Company. Nothing in this Agreement shall preclude or in any way restrict the Investors from investing or participating in any particular enterprise whether or not such enterprise has products or services which compete with those of the Company.

6.13. Several Obligations . All representations, warranties, covenants and agreements of the Investors hereunder are several and not joint. No Investor shall be liable for any other Investor’s breach of this Agreement.

6.14. No Commitments . The Company acknowledges and agrees that (i) no Investor has made any representation, undertaking, commitment or agreement to provide or assist the Company in obtaining any financing, investment or other assistance, (ii) no statements, whether written or oral, made by any Investor or its representatives on or after the date of this Agreement shall create an obligation, commitment or agreement to provide or assist the Company in obtaining any financing or investment, (iii) the Company shall not rely on any such statement by any Investor or its representatives and (iv) an obligation, commitment or agreement to provide or assist the Company in obtaining any financing or investment may only be created by a written agreement, signed by such Investor and the Company, setting forth the terms and conditions of such financing or investment and stating that the parties intend for such writing to be a binding obligation or agreement. Each Investor shall have the right, in its sole and absolute discretion, to refuse or decline to participate in any other financing of or investment in the Company, and shall have no obligation to assist or cooperate with the Company in obtaining any financing, investment or other assistance.

[Remainder of Page Intentionally Left Blank]

 

27


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

SPERO THERAPEUTICS, INC.
By:  

/s/ Ankit Mahadevia

Name:   Ankit Mahadevia
Title:   Chief Executive Officer
  KEY HOLDERS:
 

/s/ Laurence Rahme

  Laurence Rahme
  MAHADEVIA-MEHTA FAMILY TRUST
  By:  

/s/ Ankit Mahadevia

  Name:   Ankit Mahadevia
  Title:   Trustee
 

/s/ Michael Pucci

  Michael Pucci
 

/s/ Andrew Marks

  Andrew Marks
 

/s/ Robert Zahler

  Robert Zahler
 

/s/ Milind Deshpande

  Milind Deshpande

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :
GV 2015, L.P.
By:   GV 2015 GP, L.L.C., its General Partner
By:  

/s/ Jennifer L. Kercher

Name:   Jennifer L. Kercher
Title:   Authorized Signatory

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :
ROCK SPRINGS CAPITAL MASTER FUND LP
By: Rock Springs General Partner LLC
By:  

/s/ Mark Bussard

Name:   Mark Bussard
Title:   Managing Member

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :
RA CAPITAL HEALTHCARE FUND, L.P.
By:   RA Capital Management, LLC
Its:   General Partner
  By:  

/s/ Nicholas McGrath

  Name:   Nicholas McGrath
  Title:   Authorized Signatory

 

Notice Address
RA Capital Management, LLC
20 Park Plaza
Suite 1200
Boston, MA 02116
Attn: Nicholas McGrath

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

INVESTORS :

 

BLACKWELL PARTNERS LLC – SERIES A

 

By:  

/s/ Jannine M. Lall

  Jannine M. Lall
  Controller
  DUMAC, Inc.
  Authorized Agent
By:  

/s/ Neal F. Triplett

  Neal F. Triplett
  President
  DUMAC, Inc.
  Authorized Agent

 

Notice Address

Blackwell Partners LLC – Series A

280 S. Mangum Street

Suite 210
Durham, NC 27701
Attn: Jannine Lall

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :

ATLAS VENTURE FUND IX, L.P.

By:

 

Atlas Venture Associates IX, L.P.

Its General Partner

By:

 

Atlas Venture Associates IX, LLC

Its General Partner

By:

 

/s/ Frank Castellucci

Name: Frank Castellucci

Title: Secretary

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :
ATLAS VENTURE FUND X, L.P.
By:   Atlas Venture Associates X, L.P.
Its General Partner
By:   Atlas Venture Associates X, LLC
Its General Partner
By:  

/s/ Ommer Chohan

Name:   Ommer Chohan
Title:   CFO

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :

S. R. ONE, LIMITED

By:  

/s/ Brian M. Gallagher

Name: Brian M. Gallagher, Jr., Ph.D.

Title: Vice President & Partner

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :

PARTNERS INNOVATION FUND, LLC

By:  

/s/ Meredith Fisher

Name: Meredith Fisher

Title: Partner

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :
LUNDBECKFOND INVEST A/S
acting by:

/s/ Mette Kirstine Agger

Name: Mette Kirstine Agger
Title: Managing Partner, Lundbeckfond Ventures

/s/ Lene Skole

Name: Lene Skole
Title: CEO, Lundbeckfond Invest A/S

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :
MRL VENTURES FUND, LLC
By:  

/s/ Reza Halse

Name:   Reza Halse
Title:   President

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :
KPC VENTURE CAPITAL LLC
By:  

/s/ Jonathan A. Kraft

Name: Jonathan A. Kraft
Title: Assistant Secretary of its Manager

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTORS :
OSAGE UNIVERSITY PARTNERS II, L.P.
By:   Osage University GP II, LP, its general partner
By:   Osage Partners, LLC, its general partner
By:  

/s/ William Harrington

Name: William Harrington
Title: Member

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

KEY HOLDER :
THE GENERAL HOSPITAL CORPORATION
By:  

/s/ Emy Chen

Name: Emy Chen
Title: Associate Director

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

KEY HOLDER :
ASCENION GMBH
By:  

/s/ Christian Stein

Name: Dr. Christian Stein
Title: CEO

 

SIGNATURE PAGE TO INVESTORS’ RIGHTS AGREEMENT


SCHEDULE A

Investors

Name and Address

GV 2015, L.P.

1600 Amphitheatre Parkway

Mountain View, CA 94043

Attention: Jennifer L. Kercher

Email: notice@gv.com

Rock Springs Capital Master Fund LP

650 South Exeter Street

Suite 1070

Baltimore, MD 21202

RA CAPITAL HEALTHCARE FUND, L.P.

20 Park Plaza

Suite 1200

Boston, MA 02116

Attention: Nicholas McGrath

BLACKWELL PARTNERS LLC - SERIES A

280 S. Mangum Street

Suite 210

Durham, NC 27701

Attn: Jannine Lall

Atlas Venture Fund IX, L.P.

25 First St.

Suite 303

Cambridge, MA 02131

Atlas Venture Fund X, L.P.

400 Technology Square, 10th Floor

Cambridge, MA 02139

S.R. One, Limited

161 Washington St.

Suite 500

Conshohocken, PA 19428

MRL Ventures Fund, LLC

320 Bent Street

Cambridge, MA 02141

Lundbeckfond Invest A/S


Scherfigvej 7

DK-2011 Copenhagen

Demark

KPC Venture Capital LLC

c/o The Kraft Group

One Patriot Place

Foxborough, MA 02035

Osage University Partners II, L.P.

c/o Osage Partners

Attn: Fund Controller

50 Monument Road, Suite 201

Bala Cynwyd, PA 19004

Partners Innovation Fund, LLC

Partners Healthcare

215 First Street, 5 th floor, Elevator A

Cambridge MA 02142


SCHEDULE B

Key Holders

Name and Address

Aileen Rubio

Akash Jain

Amanda McIntyre

Andrew Marks

Ankit Mahadevia

Ankit Mahadevia, Trustee of Mahadevia-Mehta Family Trust

Ascenion GmbH

Christina Larkin

Eric Gordon

Evan Hecker

Heather Smotrich

Jacques Dumas

Jeff Stein

John Tomayko

Katherine Heang

Katie Peterson

Krista Farrington

Laurence Rahme

Lena Grosser

Lisa Henrici

Luke Utley

Mary Fudeman

Melissa Stundick

Michael Pucci

Milind Deshpande

Nicole Cotroneo

Patrick Vink


Paul Ambrose

Robert Zahler

Scott Coleman

Sheila Finan

Stephanie Almeida

Steve Garbacz

The General Hospital Corporation

Theresa Farrell

Thomas Parr

Thomas Zabawa

Tim Keutzer

Troy Lister

Exhibit 10.1

SPERO THERAPEUTICS, INC.

2017 STOCK INCENTIVE PLAN

 

  1. DEFINITIONS.

Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Spero Therapeutics, Inc. 2017 Stock Incentive Plan, have the following meanings:

Administrator means the Board of Directors, unless it has delegated power to act on its behalf to the Committee, in which case the Administrator means the Committee.

Affiliate means a corporation or other entity which, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect.

Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan and pertaining to a Stock Right, in such form as the Administrator shall approve.

Board of Directors means the Board of Directors of the Company.

California Participant means a Participant who resides in the State of California.

Cause means, with respect to a Participant (a) dishonesty with respect to the Company or any Affiliate, (b) insubordination, substantial malfeasance or non-feasance of duty, (c) unauthorized disclosure of confidential information, (d) breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or similar agreement between the Participant and the Company or any Affiliate, and (e) conduct substantially prejudicial to the business of the Company or any Affiliate; provided, however, that any provision in an agreement between the Participant and the Company or an Affiliate, which contains a conflicting definition of Cause for termination and which is in effect at the time of such termination, shall supersede this definition with respect to that Participant. The determination of the Administrator as to the existence of Cause will be conclusive on the Participant and the Company.

Code means the United States Internal Revenue Code of 1986, as amended including any successor statute, regulation and guidance thereto.

Committee means the committee of the Board of Directors to which the Board of Directors has delegated power to act under or pursuant to the provisions of the Plan.

Common Stock means shares of the Company’s common stock, $0.001 par value per share.


Company means Spero Therapeutics, Inc., a Delaware corporation.

Consultant means any natural person who is an advisor or consultant who provides bona fide services to the Company or its Affiliates, provided that such services are not in connection with the offer or sale of securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market for the Company’s or its Affiliates’ securities.

Disability or Disabled means permanent and total disability as defined in Section 22(e)(3) of the Code.

Employee means any employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or of an Affiliate), designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan.

Exchange Act means the United States Securities Exchange Act of 1934, as amended.

Fair Market Value of a Share of Common Stock means:

(1) If the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the closing or, if not applicable, the last price of the Common Stock on the composite tape or other comparable reporting system for the trading day on the applicable date and if such applicable date is not a trading day, the last market trading day prior to such date;

(2) If the Common Stock is not traded on a national securities exchange but is traded on the over-the-counter market, if sales prices are not regularly reported for the Common Stock for the trading day referred to in clause (1), and if bid and asked prices for the Common Stock are regularly reported, the mean between the bid and the asked price for the Common Stock at the close of trading in the over-the-counter market for the most recent trading day on which Common Stock was traded on the applicable date and if such applicable date is not a trading day, the last market trading day prior to such date; and

(3) If the Common Stock is neither listed on a national securities exchange nor traded in the over-the-counter market, such value as the Administrator, in good faith, shall determine in compliance with applicable laws.

ISO means an option intended to qualify as an incentive stock option under Section 422 of the Code.

Non-Qualified Option means an option which is not intended to qualify as an ISO.

Option means an ISO or Non-Qualified Option granted under the Plan.

 

2


Participant means an Employee, director or Consultant of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan. As used herein, “Participant” shall include “Participant’s Survivors” where the context requires.

Plan means this Spero Therapeutics, Inc. 201 7 Stock Incentive Plan.

Securities Act means the Securities Act of 1933, as amended.

Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of Paragraph 3 of the Plan. The Shares issued under the Plan may be authorized and unissued shares or shares held by the Company in its treasury, or both.

Stock-Based Award means a grant by the Company under the Plan of an equity award or an equity based award which is not an Option or a Stock Grant.

Stock Grant means a grant by the Company of Shares under the Plan.

Stock Right means a right to Shares or the value of Shares of the Company granted pursuant to the Plan – an ISO, a Non-Qualified Option, a Stock Grant or a Stock-Based Award.

Survivor means a deceased Participant’s legal representatives and/or any person or persons who acquired the Participant’s rights to a Stock Right by will or by the laws of descent and distribution.

 

  2. PURPOSES OF THE PLAN.

The Plan is intended to encourage ownership of Shares by Employees and directors of and certain Consultants to the Company and its Affiliates in order to attract and retain such people, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate. The Plan provides for the granting of ISOs, Non-Qualified Options, Stock Grants and Stock-Based Awards.

 

  3. SHARES SUBJECT TO THE PLAN.

(a) The number of Shares which may be issued from time to time pursuant to this Plan shall be 10,850,693 of shares of Common Stock, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 24 of the Plan.

(b) If an Option ceases to be “outstanding”, in whole or in part (other than by exercise), or if the Company shall reacquire at not more than its original issuance price any Shares issued pursuant to a Stock Grant or Stock-Based Award, or if any Stock Right expires or

 

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is forfeited, cancelled, or otherwise terminated or results in any Shares not being issued, the unissued or reacquired Shares which were subject to such Stock Right shall again be available for issuance from time to time pursuant to this Plan. Notwithstanding the foregoing, if a Stock Right is exercised, in whole or in part, by tender of Shares or if the Company or an Affiliate’s tax withholding obligation is satisfied by withholding Shares, the number of Shares deemed to have been issued under the Plan for purposes of the limitation set forth in Paragraph 3(a) above shall be the number of Shares that were subject to the Stock Right or portion thereof, and not the net number of Shares actually issued. However, in the case of ISOs, the foregoing provisions shall be subject to any limitations under the Code.

 

  4. ADMINISTRATION OF THE PLAN.

The Administrator of the Plan will be the Board of Directors, except to the extent the Board of Directors delegates its authority to the Committee, in which case the Committee shall be the Administrator. Subject to the provisions of the Plan, the Administrator is authorized to:

(a) Interpret the provisions of the Plan and all Stock Rights and to make all rules and determinations which it deems necessary or advisable for the administration of the Plan;

(b) Determine which Employees, directors and Consultants shall be granted Stock Rights;

(c) Determine the number of Shares for which a Stock Right or Stock Rights shall be granted;

(d) Specify the terms and conditions upon which a Stock Right or Stock Rights may be granted;

(e) Amend any term or condition of any outstanding Stock Right, including, without limitation, to reduce or increase the exercise price or purchase price , accelerate the vesting schedule or extend the expiration date, provided that (i) such term or condition as amended is permitted by the Plan; (ii) any such amendment shall not impair the rights of a Participant under any Stock Right previously granted without such Participant’s consent or in the event of death of the Participant the Participant’s Survivors; and (iii) any such amendment shall be made only after the Administrator determines whether such amendment would cause any adverse tax consequences to the Participant, including, but not limited to, the annual vesting limitation contained in Section 422(d) of the Code and described in Paragraph 6(b)(iv) below with respect to ISOs and pursuant to Section 409A of the Code;

(f) Buy out for a payment in cash or Shares, a Stock Right previously granted and/or cancel any such Stock Right and grant in substitution therefor other Stock Rights, covering the same or a different number of Shares and having an exercise price or purchase price per share which may be lower or higher than the exercise price or purchase price of the cancelled Stock Right, based on such terms and conditions as the Administrator shall establish and the Participant shall accept; and

(g) Adopt any sub-plans applicable to residents of any specified jurisdiction as it deems necessary or appropriate in order to comply with or take advantage of any tax or other

 

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laws applicable to the Company, any Affiliate or to Participants or to otherwise facilitate the administration of the Plan, which sub-plans may include additional restrictions or conditions applicable to Stock Rights or Shares issuable pursuant to a Stock Right;

provided, however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context of not causing any adverse tax consequences under Section 409A of the Code and preserving the tax status under Section 422 of the Code of those Options which are designated as ISOs. Subject to the foregoing, the interpretation and construction by the Administrator of any provisions of the Plan or of any Stock Right granted under it shall be final, unless otherwise determined by the Board of Directors, if the Administrator is the Committee. In addition, if the Administrator is the Committee, the Board of Directors may take any action under the Plan that would otherwise be the responsibility of the Committee.

To the extent permitted under applicable law, the Board of Directors or the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any portion of its responsibilities and powers to any other person selected by it. The Board of Directors or the Committee may revoke any such allocation or delegation at any time. Notwithstanding the foregoing, only the Board of Directors or the Committee shall be authorized to grant a Stock Right to any director of the Company or to any “officer” of the Company as defined by Rule 16a-1 under the Exchange Act.

 

  5. ELIGIBILITY FOR PARTICIPATION.

The Administrator will, in its sole discretion, name the Participants in the Plan; provided, however, that each Participant must be an Employee, director or Consultant of the Company or of an Affiliate at the time a Stock Right is granted. Notwithstanding the foregoing, the Administrator may authorize the grant of a Stock Right to a person not then an Employee, director or Consultant of the Company or of an Affiliate; provided, however, that the actual grant of such Stock Right shall be conditioned upon such person becoming eligible to become a Participant at or prior to the time of the execution of the Agreement evidencing such Stock Right. ISOs may be granted only to Employees who are deemed to be residents of the United States for tax purposes. Non-Qualified Options, Stock Grants and Stock-Based Awards may be granted to any Employee, director or Consultant of the Company or an Affiliate. The granting of any Stock Right to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in any other grant of Stock Rights or any grant under any other benefit plan established by the Company or any Affiliate for Employees, directors or Consultants.

 

  6. TERMS AND CONDITIONS OF OPTIONS.

Each Option shall be set forth in writing in an Option Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Administrator may provide that Options be granted subject to such terms and conditions, consistent with the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including, without limitation, subsequent approval by the shareholders of the Company of this Plan or any amendments thereto. The Option Agreements shall be subject to at least the following terms and conditions:

 

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(a) Non -Qualified Options : Each Option intended to be a Non-Qualified Option shall be subject to the terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards for any such Non-Qualified Option:

 

  (i) Exercise Price : Each Option Agreement shall state the exercise price (per share) of the Shares covered by each Option, which exercise price shall be determined by the Administrator and shall be at least equal to the Fair Market Value per share of the Common Stock on the date of grant of the Option.

 

  (ii) Number of Shares : Each Option Agreement shall state the number of Shares to which it pertains.

 

  (iii) Option Vesting Periods : Each Option Agreement shall state the date or dates on which it first is exercisable and the date after which it may no longer be exercised, and may provide that the Option rights accrue or become exercisable in installments over a period of months or years, or upon the occurrence of certain conditions or the attainment of stated goals or events. For California Participants, the exercise period of the Option set forth in the Option Agreement shall not be more than 120 months from the date of grant.

 

  (iv) Option Conditions : Exercise of any Option may be conditioned upon the Participant’s execution of a Share purchase agreement in a form satisfactory to the Administrator providing for certain protections for the Company and its other shareholders, including requirements that:

 

  A. The Participant’s or the Participant’s Survivors’ right to sell or transfer the Shares may be restricted; and

 

  B. The Participant or the Participant’s Survivors may be required to execute letters of investment intent and must also acknowledge that the Shares will bear legends noting any applicable restrictions.

 

  (v) Term of Option : Each Option shall terminate not more than ten years from the date of the grant or at such earlier time as the Option Agreement may provide.

(b) ISOs : Each Option intended to be an ISO shall be issued only to an Employee who is deemed to be a resident of the United States for tax purposes, and shall be subject to the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service:

 

  (i) Minimum standards : The ISO shall meet the minimum standards required of Non-Qualified Options, as described in Paragraph 6(a) above, except subsections (i) and (v) thereunder.

 

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  (ii) Exercise Price : Immediately before the ISO is granted, if the Participant owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code:

 

  A. Ten percent (10%) or less of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price per share of the Shares covered by each ISO shall not be less than one hundred percent (100%) of the Fair Market Value per share of the Common Stock on the date of grant of the Option; or

 

  B. More than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price per share of the Shares covered by each ISO shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of the Common Stock on the date of grant of the Option.

 

  (iii) Term of Option : For Participants who own:

 

  A. Ten percent (10%) or less of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than ten years from the date of the grant or at such earlier time as the Option Agreement may provide; or

 

  B. More than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than five (5) years from the date of the grant or at such earlier time as the Option Agreement may provide.

 

  (iv) Limitation on Yearly Exercise : The Option Agreements shall restrict the amount of ISOs which may become exercisable in any calendar year (under this or any other ISO plan of the Company or an Affiliate) so that the aggregate Fair Market Value (determined on the date each ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by the Participant in any calendar year does not exceed one hundred thousand dollars ($100,000).

 

  7. TERMS AND CONDITIONS OF STOCK GRANTS.

Each Stock Grant to a Participant shall state the principal terms in an Agreement duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. For California Participants, each Stock Grant shall be issued within ten (10) years from the earlier of the date the Plan is adopted or approved by the Company’s shareholders. The Agreement shall be in a form approved by the Administrator and shall contain terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards:

(a) Each Agreement shall state the purchase price per share, if any, of the Shares covered by each Stock Grant, which purchase price shall be determined by the Administrator but

 

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shall not be less than the minimum consideration required by the Delaware General Corporation Law, if any, on the date of the grant of the Stock Grant;

(b) Each Agreement shall state the number of Shares to which the Stock Grant pertains; and

(c) Each Agreement shall include the terms of any right of the Company to restrict or reacquire the Shares subject to the Stock Grant, including the time and events upon which such rights shall accrue and the purchase price therefor, if any.

(d) Dividends (other than stock dividends to be issued pursuant to Section 24 of the Plan) may accrue but shall not be paid prior to the time, and only to the extent that, the restrictions or rights to reacquire the Shares subject to the Stock Grant lapse.

 

  8. TERMS AND CONDITIONS OF OTHER STOCK-BASED AWARDS.

The Administrator shall have the right to grant other Stock-Based Awards based upon the Common Stock having such terms and conditions as the Administrator may determine, including, without limitation, the grant of Shares based upon certain conditions, the grant of securities convertible into Shares and the grant of stock appreciation rights, phantom stock awards or stock units. The principal terms of each Stock-Based Award shall be set forth in an Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Agreement shall be in a form approved by the Administrator and shall contain terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company. Each Agreement shall include the terms of any right of the Company including the right to terminate the Stock-Based Award without the issuance of Shares, the terms of any vesting conditions or events upon which Shares shall be issued; provided that dividends (other than stock dividends to be issued pursuant to Section 24 of the Plan) or dividend equivalents may accrue but shall not be paid prior to and only to the extent that, the Shares subject to the Stock-Based Award vest. Under no circumstances may the Agreement covering stock appreciation rights (a) have an exercise price (per share) that is less than the Fair Market Value per share of Common Stock on the date of grant or (b) expire more than ten years following the date of grant.

The Company intends that the Plan and any Stock-Based Awards granted hereunder be exempt from the application of Section 409A of the Code or meet the requirements of paragraphs (2), (3) and (4) of subsection (a) of Section 409A of the Code, to the extent applicable, and be operated in accordance with Section 409A so that any compensation deferred under any Stock-Based Award (and applicable investment earnings) shall not be included in income under Section 409A of the Code. Any ambiguities in the Plan shall be construed to effect the intent as described in this Paragraph 8.

 

  9. EXERCISE OF OPTIONS AND ISSUE OF SHARES.

An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company or its designee (in a form acceptable to the Administrator, which may include electronic notice), together with provision for payment of the aggregate exercise price in

 

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accordance with this Paragraph for the Shares as to which the Option is being exercised, and upon compliance with any other condition(s) set forth in the Option Agreement. Such notice shall be signed by the person exercising the Option (which signature may be provided electronically in a form acceptable to the Administrator), shall state the number of Shares with respect to which the Option is being exercised and shall contain any representation required by the Plan or the Option Agreement. Payment of the exercise price for the Shares as to which such Option is being exercised shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock held for at least six months (if required to avoid negative accounting treatment) having a Fair Market Value equal as of the date of the exercise to the aggregate cash exercise price for the number of Shares as to which the Option is being exercised, or (c) at the discretion of the Administrator, by having the Company retain from the Shares otherwise issuable upon exercise of the Option, a number of Shares having a Fair Market Value equal as of the date of exercise to the aggregate exercise price for the number of Shares as to which the Option is being exercised, or (d) at the discretion of the Administrator (after consideration of applicable securities, tax and accounting implications), by delivery of the grantee’s personal recourse note bearing interest payable not less than annually at no less than one hundred percent (100%) of the applicable Federal rate, as defined in Section 1274(d) of the Code, or (e) at the discretion of the Administrator, in accordance with a cashless exercise program established with a securities brokerage firm, and approved by the Administrator, or (f) at the discretion of the Administrator, by any combination of (a), (b), (c), (d) and (e) above or (g) at the discretion of the Administrator, by payment of such other lawful consideration as the Administrator may determine. Notwithstanding the foregoing, the Administrator shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code.

The Company shall then reasonably promptly deliver the Shares as to which such Option was exercised to the Participant (or to the Participant’s Survivors, as the case may be). In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance. The Shares shall, upon delivery, be fully paid, non-assessable Shares.

 

  10. PAYMENT IN CONNECTION WITH THE ISSUANCE OF STOCK GRANTS AND STOCK-BASED AWARDS AND ISSUE OF SHARES.

Any Stock Grant or Stock-Based Award requiring payment of a purchase price for the Shares as to which such Stock Grant or Stock-Based Award is being granted shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock held for at least six months (if required to avoid negative accounting treatment) and having a Fair Market Value equal as of the date of payment to the purchase price of the Stock Grant or Stock-Based Award, or (c) at the discretion of the Administrator (after consideration of applicable securities, tax and accounting implications), by delivery of the grantee’s personal recourse note bearing interest payable not less than annually at no less than one hundred percent (100%) of the applicable Federal rate, as defined in Section 1274(d) of the Code, or (d) at the discretion of the Administrator, by any combination of (a), (b)

 

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and (c) above; or (e) at the discretion of the Administrator, by payment of such other lawful consideration as the Administrator may determine.

The Company shall, when required by the applicable Agreement, reasonably promptly deliver the Shares as to which such Stock Grant or Stock-Based Award was made to the Participant (or to the Participant’s Survivors, as the case may be), subject to any escrow provision set forth in the applicable Agreement. In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance.

 

  11. RIGHTS AS A SHAREHOLDER.

No Participant to whom a Stock Right has been granted shall have rights as a shareholder with respect to any Shares covered by such Stock Right except after due exercise of an Option or issuance of Shares as set forth in any Agreement, tender of the aggregate exercise or purchase price, if any, for the Shares being purchased and registration of the Shares in the Company’s share register in the name of the Participant.

 

  12. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.

By its terms, a Stock Right granted to a Participant shall not be transferable by the Participant other than (i) by will or by the laws of descent and distribution, or (ii) as approved by the Administrator in its discretion and set forth in the applicable Agreement provided that no Stock Right may be transferred by a Participant for value. For California Participants, Stock Rights shall not be transferable by the Participant other than by will or by the laws of descent and distribution, to a revocable trust, or as permitted by Rule 701 of the Securities Act. Notwithstanding the foregoing, an ISO transferred except in compliance with clause (i) above shall no longer qualify as an ISO. The designation of a beneficiary of a Stock Right by a Participant, with the prior approval of the Administrator and in such form as the Administrator shall prescribe, shall not be deemed a transfer prohibited by this Paragraph. Except as provided above during the Participant’s lifetime a Stock Right shall only be exercisable by or issued to such Participant (or his or her legal representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be null and void.

 

  13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN FOR CAUSE OR DEATH OR DISABILITY.

Except as otherwise provided in a Participant’s Option Agreement, in the event of a termination of service (whether as an Employee, director or Consultant) with the Company or an Affiliate before the Participant has exercised an Option, the following rules apply:

 

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(a) A Participant who ceases to be an Employee, director or Consultant of the Company or of an Affiliate (for any reason other than termination for Cause, Disability, or death for which events there are special rules in Paragraphs 14, 15, and 16, respectively), may exercise any Option granted to him or her to the extent that the Option is exercisable on the date of such termination of service, but only within such term as the Administrator has designated in a Participant’s Option Agreement. For Options granted to California Participants, notwithstanding the terms of any Option Agreement, such Option shall be exercisable for at least thirty (30) days from the date of a Participant’s termination of employment other than for Cause, but in no event later than the originally prescribed term of the Option.

(b) Except as provided in Subparagraph (c) below, or Paragraph 15 or 16, in no event may an Option intended to be an ISO be exercised later than three months after the Participant’s termination of employment.

(c) The provisions of this Paragraph, and not the provisions of Paragraph 15 or 16, shall apply to a Participant who subsequently becomes Disabled or dies after the termination of employment, director status or consultancy; provided, however, in the case of a Participant’s Disability or death within three months after the termination of employment, director status or consultancy, the Participant or the Participant’s Survivors may exercise the Option within one year after the date of the Participant’s termination of service, but in no event after the date of expiration of the term of the Option.

(d) Notwithstanding anything herein to the contrary, if subsequent to a Participant’s termination of employment, termination of director status or termination of consultancy, but prior to the exercise of an Option, the Administrator or the Board of Directors determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute Cause, then such Participant shall forthwith cease to have any right to exercise any Option.

(e) A Participant to whom an Option has been granted under the Plan who is absent from the Company or an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide; provided, however, that, for ISOs, any leave of absence granted by the Administrator of greater than ninety days, unless pursuant to a contract or statute that guarantees the right to reemployment, shall cause such ISO to become a Non-Qualified Option on the 181 st day following such leave of absence.

(f) Except as required by law or as set forth in a Participant’s Option Agreement, Options granted under the Plan shall not be affected by any change of a Participant’s status within or among the Company and any Affiliates, so long as the Participant continues to be an Employee, director or Consultant of the Company or any Affiliate.

 

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  14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR CAUSE.

Except as otherwise provided in a Participant’s Option Agreement, the following rules apply if the Participant’s service (whether as an Employee, director or Consultant) with the Company or an Affiliate is terminated for Cause prior to the time that all of his or her outstanding Options have been exercised:

(a) All outstanding and unexercised Options as of the time the Participant is notified his or her service is terminated for Cause will immediately be forfeited.

(b) Cause is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of Cause occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service but prior to the exercise of an Option, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute Cause, then the right to exercise any Option is forfeited.

 

  15. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.

Except as otherwise provided in a Participant’s Option Agreement,

(a) A Participant who ceases to be an Employee, director or Consultant of the Company or of an Affiliate by reason of Disability may exercise any Option granted to such Participant:

 

  (i) To the extent that the Option has become exercisable but has not been exercised on the date of the Participant’s termination of service due to Disability; and

 

  (ii) In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of the Participant’s termination of service due to Disability of any additional vesting rights that would have accrued on the next vesting date had the Participant not become Disabled. The proration shall be based upon the number of days accrued in the current vesting period prior to the date of the Participant’s termination of service due to Disability.

(b) A Disabled Participant may exercise the Option only within the period ending one year after the date of the Participant’s termination of service due to Disability, notwithstanding that the Participant might have been able to exercise the Option as to some or all of the Shares on a later date if the Participant had not been terminated due to Disability and had continued to be an Employee, director or Consultant or, if earlier, within the originally prescribed term of the Option. Notwithstanding the terms of any Option Agreement, for Options granted to California Participants, a Participant may exercise such rights for at least six (6) months from the date of termination of service due to Disability but in no event later than the originally prescribed term of the Option.

 

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(c) The Administrator shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.

 

  16. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.

Except as otherwise provided in a Participant’s Option Agreement,

(a) In the event of the death of a Participant while the Participant is an Employee, director or Consultant of the Company or of an Affiliate, such Option may be exercised by the Participant’s Survivors:

 

  (i) To the extent that the Option has become exercisable but has not been exercised on the date of death; and

 

  (ii) In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of death of any additional vesting rights that would have accrued on the next vesting date had the Participant not died. The proration shall be based upon the number of days accrued in the current vesting period prior to the Participant’s date of death.

(b) If the Participant’s Survivors wish to exercise the Option, they must take all necessary steps to exercise the Option within one year after the date of death of such Participant, notwithstanding that the decedent might have been able to exercise the Option as to some or all of the Shares on a later date if he or she had not died and had continued to be an Employee, director or Consultant or, if earlier, within the originally prescribed term of the Option. For Options granted to California Participants, notwithstanding the terms of any Option Agreement, the Participant’s Survivors shall be allowed to take all necessary steps to exercise the Option for at least six (6) months from the date of death of such Participant but in no event later than the originally prescribed term of the Option.

 

  17. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS AND STOCK-BASED AWARDS.

In the event of a termination of service (whether as an Employee, director or Consultant) with the Company or an Affiliate for any reason before the Participant has accepted a Stock Grant or a Stock-Based Award and paid the purchase price, if required at the time, such grant shall terminate.

For purposes of this Paragraph 17 and Paragraph 18 below, a Participant to whom a Stock Grant or a Stock-Based Award has been issued under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have

 

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terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide.

In addition, for purposes of this Paragraph 17 and Paragraph 18 below, any change of employment or other service within or among the Company and any Affiliates shall not be treated as a termination of employment, director status or consultancy so long as the Participant continues to be an Employee, director or Consultant of the Company or any Affiliate.

 

  18. EFFECT ON STOCK GRANTS AND STOCK-BASED AWARDS OF TERMINATION OF SERVICE OTHER THAN FOR CAUSE OR DEATH OR DISABILITY.

Except as otherwise provided in a Participant’s Agreement, in the event of a termination of service (whether as an Employee, director or Consultant), other than termination for Cause, death or Disability for which events there are special rules in Paragraphs 19, 20, and 21, respectively, before all forfeiture provisions or Company rights of repurchase (other than rights to repurchase at then fair market value following termination of service as an Employee, director or Consultant) shall have lapsed, then the Company shall have the right to cancel or repurchase that number of Shares subject to a Stock Grant or Stock-Based Award as to which the Company’s forfeiture or repurchase rights have not lapsed.

 

  19. EFFECT ON STOCK GRANTS AND STOCK-BASED AWARDS OF TERMINATION OF SERVICE FOR CAUSE.

Except as otherwise provided in a Participant’s Agreement, the following rules apply if the Participant’s service (whether as an Employee, director or Consultant) with the Company or an Affiliate is terminated for Cause:

(a) All Shares subject to any Stock Grant or Stock-Based Award that remain subject to forfeiture provisions or as to which the Company shall have a repurchase right shall be immediately forfeited to the Company as of the time the Participant is notified his or her service is terminated for Cause.

(b) Cause is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of Cause occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute Cause, then all Shares subject to any Stock Grant or Stock-Based Award that remained subject to forfeiture provisions or as to which the Company had a repurchase right on the date of termination shall be immediately forfeited to the Company.

 

  20. EFFECT ON STOCK GRANTS AND STOCK-BASED AWARDS OF TERMINATION OF SERVICE FOR DISABILITY.

Except as otherwise provided in a Participant’s Agreement, the following rules apply if a Participant ceases to be an Employee, director or Consultant of the Company or of an Affiliate by reason of Disability: to the extent the forfeiture provisions or the Company’s rights of repurchase have not lapsed on the date of Disability, they shall be exercisable; provided,

 

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however, that in the event such forfeiture provisions or rights of repurchase lapse periodically, such provisions or rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant or Stock-Based Award through the date of Disability as would have lapsed had the Participant not become Disabled. The proration shall be based upon the number of days accrued prior to the date of Disability.

The Administrator shall make the determination both as to whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.

 

  21. EFFECT ON STOCK GRANTS AND STOCK-BASED AWARDS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.

Except as otherwise provided in a Participant’s Agreement, the following rules apply in the event of the death of a Participant while the Participant is an Employee, director or Consultant of the Company or of an Affiliate: to the extent the forfeiture provisions or the Company’s rights of repurchase have not lapsed on the date of death, they shall be exercisable; provided, however, that in the event such forfeiture provisions or rights of repurchase lapse periodically, such provisions or rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant or Stock-Based Award through the date of death as would have lapsed had the Participant not died. The proration shall be based upon the number of days accrued prior to the Participant’s date of death.

 

  22. PURCHASE FOR INVESTMENT.

Unless the offering and sale of the Shares shall have been effectively registered under the Securities Act, the Company shall be under no obligation to issue Shares under the Plan unless and until the following conditions have been fulfilled:

(a) The person who receives a Stock Right shall warrant to the Company, prior to the receipt of Shares, that such person is acquiring such Shares for his or her own account, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person acquiring such Shares shall be bound by the provisions of the following legend (or a legend in substantially similar form) which shall be endorsed upon the certificate evidencing the Shares issued pursuant to such exercise or such grant:

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws.”

 

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(b) At the discretion of the Administrator, the Company shall have received an opinion of its counsel that the Shares may be issued in compliance with the Securities Act without registration thereunder.

 

  23. DISSOLUTION OR LIQUIDATION OF THE COMPANY.

Upon the dissolution or liquidation of the Company, all Options granted under this Plan which as of such date shall not have been exercised and all Stock Grants and Stock-Based Awards which have not been accepted, to the extent required under the applicable Agreement, will terminate and become null and void; provided, however, that if the rights of a Participant or a Participant’s Survivors have not otherwise terminated and expired, the Participant or the Participant’s Survivors will have the right immediately prior to such dissolution or liquidation to exercise or accept any Stock Right to the extent that the Stock Right is exercisable or subject to acceptance as of the date immediately prior to such dissolution or liquidation. Upon the dissolution or liquidation of the Company, any outstanding Stock-Based Awards shall immediately terminate unless otherwise determined by the Administrator or specifically provided in the applicable Agreement.

 

  24. ADJUSTMENTS.

Upon the occurrence of any of the following events, a Participant’s rights with respect to any Stock Right granted to him or her hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in a Participant’s Agreement:

(a) Stock Dividends and Stock Splits . If (i) the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, 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, each Stock Right and the number of shares of Common Stock deliverable thereunder shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made including, in the exercise or purchase price per share, to reflect such events. The number of Shares subject to the limitations in Paragraph 3(a) shall also be proportionately adjusted upon the occurrence of such events.

(b) Corporate Transactions . If the Company is to be consolidated with or acquired by another entity in a merger, consolidation, sale of all or substantially all of the Company’s assets or the acquisition of all of the outstanding voting stock of the Company in a single transaction or a series of related transactions other than a transaction to merely change the state of incorporation (a “Corporate Transaction”), the Administrator or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the Shares then subject to such Options either the consideration payable with respect to the outstanding shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity; or (ii) upon written notice to the Participants, provide that such Options must be exercised (either (A) to the extent then exercisable or, (B) at the discretion of the Administrator, any such Options being

 

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made partially or fully exercisable for purposes of this Subparagraph), within a specified number of days of the date of such notice, at the end of which period such Options which have not been exercised shall terminate; or (iii) terminate such Options in exchange for payment of an amount equal to the consideration payable upon consummation of such Corporate Transaction to a holder of the number of shares of Common Stock into which such Option would have been exercisable (either (A) to the extent then exercisable or, (B) at the discretion of the Administrator, any such Options being made partially or fully exercisable for purposes of this Subparagraph) less the aggregate exercise price thereof. For purposes of determining the payments to be made pursuant to Subclause (iii) above, in the case of a Corporate Transaction the consideration for which, in whole or in part, is other than cash, the consideration other than cash shall be valued at the fair value thereof as determined in good faith by the Board of Directors.

With respect to outstanding Stock Grants, the Administrator or the Successor Board, shall make appropriate provision for the continuation of such Stock Grants on the same terms and conditions by substituting on an equitable basis for the Shares then subject to such Stock Grants either the consideration payable with respect to the outstanding Shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity. In lieu of the foregoing, in connection with any Corporate Transaction, the Administrator may provide that, upon consummation of the Corporate Transaction, each outstanding Stock Grant shall be terminated in exchange for payment of an amount equal to the consideration payable upon consummation of such Corporate Transaction to a holder of the number of shares of Common Stock comprising such Stock Grant (to the extent such Stock Grant is no longer subject to any forfeiture or repurchase rights then in effect or, at the discretion of the Administrator, all forfeiture and repurchase rights being waived upon such Corporate Transaction). For purposes of determining such payments, in the case of a Corporate Transaction the consideration for which, in whole or in part, is other than cash, the consideration other than cash shall be valued at the fair value thereof as determined in good faith by the Board of Directors.

In taking any of the actions permitted under this Paragraph 24(b), the Administrator shall not be obligated by the Plan to treat all Stock Rights, all Stock Rights held by a Participant, or all Stock Rights of the same type, identically.

(c) Recapitalization or Reorganization . In the event of a recapitalization or reorganization of the Company other than a Corporate Transaction pursuant to which securities of the Company or of another corporation, limited liability company or other entity are issued with respect to the outstanding shares of Common Stock, a Participant upon exercising an Option or accepting a Stock Grant after the recapitalization or reorganization shall be entitled to receive for the price paid upon such exercise or acceptance if any, the number of replacement securities which would have been received if such Option had been exercised or Stock Grant accepted prior to such recapitalization or reorganization.

(d) Adjustments to Stock-Based Awards . Upon the happening of any of the events described in Subparagraphs (a), (b) or (c) above, any outstanding Stock-Based Award shall be appropriately adjusted to reflect the events described in such Subparagraphs. The Administrator or the Successor board shall determine the specific adjustments to be made under Paragraph 24, including, but not limited to, the effect of any Corporate Transaction and, subject to Paragraph 4, its determination shall be conclusive.

 

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(e) Modification of Options . Notwithstanding the foregoing, any adjustments made pursuant to Subparagraph (a), (b) or (c) above with respect to Options shall be made only after the Administrator determines whether such adjustments would (i) constitute a “modification” of any ISOs (as that term is defined in Section 424(h) of the Code) or (ii) cause any adverse tax consequences for the holders of Options, including, but not limited to, pursuant to Section 409A of the Code. If the Administrator determines that such adjustments made with respect to Options would constitute a modification or other adverse tax consequence, it may in its discretion refrain from making such adjustments, unless the holder of an Option specifically agrees in writing that such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such “modification” on his or her income tax treatment with respect to the Option. This paragraph shall not apply to the acceleration of the vesting of any ISO that would cause any portion of the ISO to violate the annual vesting limitation contained in Section 422(d) of the Code, as described in Paragraph 6(b)(iv).

 

  25. ISSUANCES OF SECURITIES.

Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Stock Rights. Except as expressly provided herein, no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company prior to any issuance of Shares pursuant to a Stock Right.

 

  26. FRACTIONAL SHARES.

No fractional shares shall be issued under the Plan and the person exercising a Stock Right shall receive from the Company cash in lieu of such fractional shares equal to the Fair Market Value thereof.

 

  27. CONVERSION OF ISO s INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISO s .

The Administrator, at the written request of any Participant, may in its discretion take such actions as may be necessary to convert such Participant’s ISOs (or any portions thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the Participant is an Employee of the Company or an Affiliate at the time of such conversion. At the time of such conversion, the Administrator (with the consent of the Participant) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Administrator in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any Participant the right to have such Participant’s ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Administrator takes appropriate action. The Administrator, with the consent of the Participant, may also terminate any portion of any ISO that has not been exercised at the time of such conversion.

 

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  28. WITHHOLDING.

In the event that any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act (“F.I.C.A.”) withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Participant’s salary, wages or other remuneration in connection with the issuance of a Stock Right or Shares under the Plan or upon the lapsing of any forfeiture provision or right of repurchase or for any other reason required by law, the Company may withhold from the Participant’s compensation, if any, or may require that the Participant advance in cash to the Company, or to any Affiliate of the Company which employs or employed the Participant, the statutory minimum amount of such withholdings unless a different withholding arrangement, including the use of shares of the Company’s Common Stock or a promissory note, is authorized by the Administrator (and permitted by law). For purposes hereof, the fair market value of the shares withheld for purposes of payroll withholding shall be determined in the manner set forth under the definition of Fair Market Value provided in Paragraph 1 above, as of the most recent practicable date prior to the date of exercise. If the Fair Market Value of the shares withheld is less than the amount of payroll withholdings required, the Participant may be required to advance the difference in cash to the Company or the Affiliate employer. The Administrator in its discretion may condition the exercise of an Option for less than the then Fair Market Value on the Participant’s payment of such additional withholding.

 

  29. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.

Each Employee who receives an ISO shall notify the Company in writing immediately after the Employee makes a Disqualifying Disposition of any Shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any disposition (including any sale or gift) of such Shares before the later of (a) two years after the date the Employee was granted the ISO, or (b) one year after the date the Employee acquired Shares by exercising the ISO, except as otherwise provided in Section 424(c) of the Code. If the Employee has died before such Shares are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.

 

  30. TERMINATION OF THE PLAN.

The Plan will terminate on June 30, 2027, the date which is ten years from the earlier of the date of its adoption by the Board of Directors and the date of its approval by the shareholders of the Company. The Plan may be terminated at an earlier date by vote of the shareholders or the Board of Directors of the Company; provided, however, that any such earlier termination shall not affect any Agreements executed prior to the effective date of such termination. Termination of the Plan shall not affect any Stock Rights theretofore granted.

 

  31. AMENDMENT OF THE PLAN AND AGREEMENTS.

The Plan may be amended by the shareholders of the Company. The Plan may also be amended by the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan or Stock Rights to be granted under the Plan for favorable federal income tax treatment as may be afforded incentive stock options

 

19


under Section 422 of the Code (including deferral of taxation upon exercise), and to the extent necessary to qualify the Shares issuable under the Plan for listing on any national securities exchange or quotation in any national automated quotation system of securities dealers. Any amendment approved by the Administrator which the Administrator determines is of a scope that requires shareholder approval shall be subject to obtaining such shareholder approval. Any modification or amendment of the Plan shall not, without the consent of a Participant, adversely affect his or her rights under a Stock Right previously granted to him or her. With the consent of the Participant affected, the Administrator may amend outstanding Agreements in a manner which may be adverse to the Participant but which is not inconsistent with the Plan. In the discretion of the Administrator, outstanding Agreements may be amended by the Administrator in a manner which is not adverse to the Participant. Nothing in this Paragraph 31 shall limit the Administrator’s authority to take any action permitted pursuant to Paragraph 24.

 

  32. EMPLOYMENT OR OTHER RELATIONSHIP.

Nothing in this Plan or any Agreement shall be deemed to prevent the Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, nor to prevent a Participant from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any Affiliate for any period of time.

 

  33. GOVERNING LAW.

This Plan shall be construed and enforced in accordance with the law of the State of Delaware.

 

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Exhibit 10.2

Option No.            

SPERO THERAPEUTICS, INC.

Stock Option Grant Notice

Stock Option Grant under the Company’s 2017 Stock Incentive Plan

 

1.      Name and Address of Participant:

 

 

 

 

 

 

2.      Grant Date:

 

 

3.      Type of Grant:

 

 

4.      Maximum Number of Shares for

 

which this Option is exercisable:

 

 

5.      Exercise (purchase) price per share:

 

 

6.      Option Expiration Date:

 

 

7.      Vesting Start Date:

 

 

 

8. Vesting Schedule: This Option shall become exercisable (and the Shares issued upon exercise shall be vested) as follows provided the Participant is an Employee, director or Consultant of the Company or of an Affiliate on the applicable vesting date: 1

[25% of the Shares shall be vested on the first anniversary of the Vesting Start Date, and thereafter the remainder of the Shares not yet vested shall vest in equal monthly installments for 36 months beginning on the first anniversary of the Vesting Start Date.]

OR

[100% of the Shares shall be vested as of the Grant Date.]

OR

[25% of the Shares shall be vested on the six-month anniversary of the Vesting Start Date, and thereafter the remainder of the Shares not yet vested shall vest in equal

 

1 Vesting Schedules to be customized for each optionholder.

 


monthly installments for 42 months beginning on the six-month anniversary of the Vesting Start Date.]

[Notwithstanding the foregoing, i n the event the Participant’s employment is terminated by the Company without Cause (as defined below) within the 30-day period prior to a Change of Control (as defined below) or within the twelve (12)  month period following a Change of Control, (i)  if the Participant’s employment with the Company commenced at least 24 months prior to the Change of Control, then 100% of the Option shall accelerate and become vested and exercisable on the date of termination of employment, (ii)  if the Participant’s employment with the Company commenced less than 24 months but at least 12 months prior to the Change of Control, then 50% of the then unvested portion of the Option shall accelerate and become vested on the date of termination of employment, and (iii)  if the Participant’s employment with the Company commenced less than 12 months prior to the Change of Control, then 25% of the then unvested portion of the Option shall accelerate and become vested on the date of termination of employment.

Cause” shall mean (i) dishonest statements or acts by the Participant with respect to the Company or any Affiliate of the Company, or any of the Company’s current or prospective customers, suppliers vendors or other third parties with which such entity does business; (ii) the Participant’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (iii) the Participant’s failure to perform to the reasonable satisfaction of the Board of Directors the duties and responsibilities assigned by the Board of Directors which failure continues, in the reasonable judgment of the Board of Directors, after written notice given to the Participant by the Board of Directors; (iv) gross negligence, willful misconduct or insubordination by the Participant with respect to the Company or any Affiliate of the Company; or (v) a violation of any provision of any agreement(s) between the Participant and the Company relating to noncompetition, nondisclosure and/or assignment of inventions.

“Change of Control” means the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation involving the Company in which the shares of Company voting equity outstanding immediately prior to such transaction represent or are converted into or exchanged for securities of the surviving or resulting entity immediately upon completion of such transaction which represent less than fifty percent (50%) of the outstanding voting power of such surviving or resulting entity, (iv) the acquisition of all or a majority of the outstanding voting equity of the Company in a single transaction or a series of related transactions by a person or group of persons, or (v) any other acquisition of the business of the Company, as determined by the Board of Directors; provided, however, that the Company’s initial public offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Change of Control.”] 2

 

 

2 Note: Double Trigger acceleration clause applicable only to certain executives of the Company.

 

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The foregoing rights are cumulative and are subject to the other terms and conditions of this Agreement, the ROFR Agreement (as defined in the Stock Option Agreement attached hereto), the Voting Agreement (as defined in the Stock Option Agreement attached hereto) and the Company’s 2017 Stock Incentive Plan.

[Remainder of page intentionally left blank]

 

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The Company and the Participant acknowledge receipt of this Stock Option Grant Notice and agree to the terms of the Stock Option Agreement attached hereto and incorporated by reference herein, the Company’s 2017 Stock Incentive Plan and the terms of this Option Grant as set forth above.

 

SPERO THERAPEUTICS, INC.
By:  

 

  Name:                                                                      
  Title:                                                                        

 

Participant

 


SPERO THERAPEUTICS INC.

STOCK OPTION AGREEMENT- INCORPORATED TERMS AND CONDITIONS

AGREEMENT made as of the date of grant set forth in the Stock Option Grant Notice by and between Spero Therapeutics, Inc. (the “Company”), a Delaware corporation, and the individual whose name appears on the Stock Option Grant Notice (the “Participant”).

WHEREAS, the Company desires to grant to the Participant an Option to purchase shares of its common stock, $0.001 par value per share (the “Shares”), under and for the purposes set forth in the Company’s 2017 Stock Incentive Plan (the “Plan”);

WHEREAS, the Company and the Participant understand and agree that any terms used and not defined herein have the same meanings as in the Plan; and

WHEREAS, the Company and the Participant each intend that the Option granted herein shall be of the type set forth in the Stock Option Grant Notice.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows:

 

  1. GRANT OF OPTION .

The Company hereby grants to the Participant the right and option to purchase all or any part of an aggregate of the number of Shares set forth in the Stock Option Grant Notice, on the terms and conditions and subject to all the limitations set forth herein, under United States securities and tax laws, and in the Plan, which is incorporated herein by reference. The Participant acknowledges receipt of a copy of the Plan.

 

  2. EXERCISE PRICE .

The exercise price of the Shares covered by the Option shall be the amount per Share set forth in the Stock Option Grant Notice, subject to adjustment, as provided in the Plan, in the event of a stock split, reverse stock split or other events affecting the holders of Shares after the date hereof (the “Exercise Price”). Payment shall be made in accordance with Paragraph 9 of the Plan.

 

  3. EXERCISABILITY OF OPTION .

Subject to the terms and conditions set forth in this Agreement and the Plan, the Option granted hereby shall become vested and exercisable as set forth in the Stock Option Grant Notice and is subject to the other terms and conditions of this Agreement and the Plan.


  4. TERM OF OPTION .

This Option shall terminate on the Option Expiration Date as specified in the Stock Option Grant Notice and, if this Option is designated in the Stock Option Grant Notice as an ISO and the Participant owns as of the date hereof more than 10% of the total combined voting power of all classes of capital stock of the Company or an Affiliate, such date may not be more than five years from the date of this Agreement, but shall be subject to earlier termination as provided herein or in the Plan.

If the Participant ceases to be an Employee, director or Consultant of the Company or of an Affiliate for any reason other than the death or Disability of the Participant, or termination of the Participant for Cause (the “Termination Date”), the Option to the extent then vested and exercisable pursuant to Section 3 hereof as of the Termination Date, and not previously terminated in accordance with this Agreement, may be exercised within three (3) months after the Termination Date, or on or prior to the Option Expiration Date as specified in the Stock Option Grant Notice, whichever is earlier, but may not be exercised thereafter except as set forth below. In such event, the unvested portion of the Option shall not be exercisable and shall expire and be cancelled on the Termination Date.

If this Option is designated in the Stock Option Grant Notice as an ISO and the Participant ceases to be an Employee of the Company or of an Affiliate but continues after termination of employment to provide service to the Company or an Affiliate as a director or Consultant, this Option shall continue to vest in accordance with Section 3 above as if this Option had not terminated until the Participant is no longer providing services to the Company. In such case, this Option shall automatically convert and be deemed a Non-Qualified Option as of the date that is three (3) months from termination of the Participant’s employment and this Option shall continue on the same terms and conditions set forth herein until such Participant is no longer providing service to the Company or an Affiliate.

Notwithstanding the foregoing, in the event of the Participant’s Disability or death within three (3) months after the Termination Date, the Participant or the Participant’s Survivors may exercise the Option within one (1) year after the Termination Date, but in no event after the Option Expiration Date as specified in the Stock Option Grant Notice, and this Option shall thereupon terminate.

In the event the Participant’s service is terminated by the Company or an Affiliate for Cause, the Participant’s right to exercise any unexercised portion of this Option even if vested shall cease immediately as of the time the Participant is notified his or her service is terminated for Cause, and this Option shall thereupon terminate. Notwithstanding anything herein to the contrary, if subsequent to the Participant’s termination, but prior to the exercise of the Option, the Administrator determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute Cause, then the Participant shall immediately cease to have any right to exercise the Option and this Option shall thereupon terminate.

 

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In the event of the Disability of the Participant while an Employee, director or Consultant of the Company or of an Affiliate, as determined in accordance with the Plan, the Option shall be exercisable within one (1) year after the Participant’s termination of service due to Disability or, if earlier, on or prior to the Option Expiration Date as specified in the Stock Option Grant Notice. In such event, the Option shall be exercisable:

 

  (a) to the extent that the Option has become exercisable but has not been exercised as of the date of the Participant’s termination of service due to Disability; and

 

  (b) in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of the Participant’s termination of service due to Disability of any additional vesting rights that would have accrued on the next vesting date had the Participant not become Disabled. The proration shall be based upon the number of days accrued in the current vesting period prior to the date of the Participant’s termination of service due to Disability.

In the event of the death of the Participant while an Employee, director or Consultant of the Company or of an Affiliate, the Option shall be exercisable by the Participant’s Survivors within one year after the date of death of the Participant or, if earlier, on or prior to the Option Expiration Date as specified in the Stock Option Grant Notice. In such event, the Option shall be exercisable:

 

  (x) to the extent that the Option has become exercisable but has not been exercised as of the date of death; and

 

  (y) in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of death of any additional vesting rights that would have accrued on the next vesting date had the Participant not died. The proration shall be based upon the number of days accrued in the current vesting period prior to the Participant’s date of death.

 

  5. METHOD OF EXERCISING OPTION.

Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company or its designee, in substantially the form of Exhibit  A attached hereto (or in such other form acceptable to the Company, which may include electronic notice). Such notice shall state the number of Shares with respect to which the Option is being exercised and shall be signed by the person exercising the Option (which signature may be provided electronically in a form acceptable to the Company). Payment of the Exercise Price for such Shares shall be made in accordance with Paragraph 9 of the Plan. The Company shall deliver such Shares as soon as practicable after the notice shall be received, provided, however, that the Company may delay issuance of such Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including, without limitation, state securities or “blue sky” laws). The Shares as to which the Option shall

 

3


have been so exercised shall be registered in the Company’s share register in the name of the person so exercising the Option (or, if the Option shall be exercised by the Participant and if the Participant shall so request in the notice exercising the Option, shall be registered in the Company’s share register in the name of the Participant and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person exercising the Option. In the event the Option shall be exercised, pursuant to Section 4 hereof, by any person other than the Participant, such notice shall be accompanied by appropriate proof of the right of such person to exercise the Option. All Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable.

 

  6. PARTIAL EXERCISE .

Exercise of this Option to the extent above stated may be made in part at any time and from time to time within the above limits, except that no fractional share shall be issued pursuant to this Option.

 

  7. NON -ASSIGNABILITY .

The Option shall not be transferable by the Participant otherwise than by will or by the laws of descent and distribution. If this Option is a Non-Qualified Option then it may also be transferred (i) pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder or (ii) for no consideration to or for the benefit of the Participant’s Immediate Family (including, without limitation, to a trust for the benefit of the Participant’s Immediate Family or to a partnership or limited liability company for one or more members of the Participant’s Immediate Family), and the transferee shall remain subject to all the terms and conditions applicable to the Option prior to such transfer and each such transferee shall so acknowledge in writing as a condition precedent to the effectiveness of such transfer. The term “Immediate Family” shall mean the Participant’s spouse, former spouse, parents, children, stepchildren, adoptive relationships, sisters, brothers, nieces, nephews and grandchildren (and, for this purpose, shall also include the Participant.). Except as provided above in this paragraph, the Option shall be exercisable, during the Participant’s lifetime, only by the Participant (or, in the event of legal incapacity or incompetency, by the Participant’s guardian or representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 7, or the levy of any attachment or similar process upon the Option shall be null and void.

 

  8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE .

The Participant shall have no rights as a stockholder with respect to Shares subject to this Agreement until registration of the Shares in the Company’s share register in the name of the Participant. Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date of such registration.

 

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  9. ADJUSTMENTS .

The Plan contains provisions covering the treatment of Options in a number of contingencies such as stock splits and mergers. Provisions in the Plan for adjustment with respect to stock subject to Options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference.

 

  10. TAXES .

The Participant acknowledges and agrees that (i) any income or other taxes due from the Participant with respect to this Option or the Shares issuable upon exercise of this Option shall be the Participant’s responsibility; (ii) the Participant was free to use professional advisors of his or her choice in connection with this Agreement, has received advice from his or her professional advisors in connection with this Agreement, understands its meaning and import, and is entering into this Agreement freely and without coercion or duress; (iii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any Employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of the Option, the Shares or other matters contemplated by this Agreement and (iv) neither the Administrator, the Company, its Affiliates, nor any of its officers or directors, shall be held liable for any applicable costs, taxes, or penalties associated with the Option if, in fact, the Internal Revenue Service were to determine that the Option constitutes deferred compensation under Section 409A of the Code.

If this Option is designated in the Stock Option Grant Notice as a Non-Qualified Option or if the Option is an ISO and is converted into a Non-Qualified Option and such Non-Qualified Option is exercised, the Participant agrees that the Company may withhold from the Participant’s remuneration, if any, the minimum statutory amount of federal, state and local withholding taxes attributable to such amount that is considered compensation includable in such person’s gross income. At the Company’s discretion, the amount required to be withheld may be withheld in cash from such remuneration, or in kind from the Shares otherwise deliverable to the Participant on exercise of the Option. The Participant further agrees that, if the Company does not withhold an amount from the Participant’s remuneration sufficient to satisfy the Company’s income tax withholding obligation, the Participant will reimburse the Company on demand, in cash, for the amount under-withheld.

 

  11. PURCHASE FOR INVESTMENT .

Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended (the “1933 Act”), the Company shall be under no obligation to issue the Shares covered by such exercise unless the Company has determined that such exercise and issuance would be exempt from the registration requirements of the 1933 Act and until the following conditions have been fulfilled:

 

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  (a) The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon any certificate(s) evidencing the Shares issued pursuant to such exercise:

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws;” and

 

  (b) If the Company so requires, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in compliance with the 1933 Act without registration thereunder. Without limiting the generality of the foregoing, the Company may delay issuance of the Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation state securities or “blue sky” laws).

 

  12. RESTRICTIONS ON TRANSFER OF SHARES .

12.1 The Shares acquired by the Participant pursuant to the exercise of the Option granted hereby shall not be transferred by the Participant except as permitted herein and in the Right of First Refusal and Co-Sale Agreement dated June [      ], 2017, as amended, between the Company and its stockholders, as may be amended from time to time (the “ROFR Agreement”), and in the Voting Agreement dated June [      ], 2017, between the Company and its stockholders, as may be amended from time to time (the “Voting Agreement”), both agreements to which the Participant agrees to become a party by executing signature pages thereto. If the terms of this Agreement and the ROFR Agreement conflict, the terms contained in the ROFR Agreement shall govern and supersede any conflicting provision contained in this Agreement. If the terms of this Agreement and the Voting Agreement conflict, the terms contained in the Voting Agreement shall govern and supersede any conflicting provision contained in this Agreement.

12.2 [Intentionally Omitted]

12.3 It shall be a condition precedent to the validity of any sale or other transfer of any Shares by the Participant that the following restrictions be complied with (except as otherwise provided in this Section 12):

 

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  (i) No Shares owned by the Participant may be sold, pledged or otherwise transferred (including by gift or devise) to any person or entity, voluntarily, or by operation of law, except in accordance with the terms and conditions hereinafter set forth.

 

  (ii) Before selling or otherwise transferring all or part of the Shares, the Participant shall give written notice of such intention to the Company in accordance with Section 2.1(b) of the ROFR Agreement. Such notice shall constitute a binding offer by the Participant to sell to the Company such number of the Shares as if such Shares were Key Holder Transfer Stock (as defined in the ROFR Agreement). If the Company shall fail to accept any such offer, such Shares shall be subject to a Secondary Refusal Right, as defined in Section 1.24 of the ROFR Agreement.

 

  (iii) If the Company and any Senior Preferred Investor (as defined in the ROFR Agreement), as the case may be, shall fail to accept any such offer, the Participant shall be free to sell all, but not less than all, of the Shares set forth in his or her notice to the designated transferee at the price and terms designated in the Participant’s notice, provided that (i) such sale is consummated within six (6) months after the giving of notice by the Participant to the Company as aforesaid, and (ii) the transferee first agrees in writing to be bound by the provisions of this Section 12 so that such transferee (and all subsequent transferees) shall thereafter only be permitted to sell or transfer the Shares in accordance with the terms hereof. After the expiration of such six (6) months, the provisions of this Section 12.3 shall again apply with respect to any proposed voluntary transfer of the Participant’s Shares.

 

  (iv) The restrictions on transfer contained in this Section 12.3 shall not apply to (a) transfers by the Participant to his or her spouse or children or to a trust for the benefit of his or her spouse or children, (b) transfers by the Participant to his or her guardian or conservator, and (c) transfers by the Participant, in the event of his or her death, to his or her executor(s) or administrator(s) or to trustee(s) under his or her will (collectively, “Permitted Transferees”); provided however, that in any such event the Shares so transferred in the hands of each such Permitted Transferee shall remain subject to this Agreement, and each such Permitted Transferee shall so acknowledge in writing as a condition precedent to the effectiveness of such transfer.

 

  (v) The provisions of this Section 12.3 may be waived by the Company. Any such waiver may be unconditional or based upon such conditions as the Company may impose.

12.4 In the event that the Participant or his or her successor in interest fails to deliver the Shares to be repurchased by the Company under this Agreement, the Company may elect (a) to establish a segregated account in the amount of the repurchase price, such account to be turned over to the Participant or his or her successor in interest upon delivery of such Shares, and (b) immediately to take such action as is appropriate to transfer record title of such Shares from

 

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the Participant to the Company and to treat the Participant and such Shares in all respects as if delivery of such Shares had been made as required by this Agreement. The Participant hereby irrevocably grants the Company a power of attorney which shall be coupled with an interest for the purpose of effectuating the preceding sentence.

12.5 If the Company shall pay a stock dividend or declare a stock split on or with respect to any of its Common Stock, or otherwise distribute securities of the Company to the holders of its Common Stock, the number of shares of stock or other securities of the Company issued with respect to the shares then subject to the restrictions contained in this Agreement shall be added to the Shares subject to the Company’s rights to repurchase pursuant to this Agreement. If the Company shall distribute to its stockholders shares of stock of another corporation or equity in another entity, the shares of stock of such other corporation or equity in such other entity, distributed with respect to the Shares then subject to the restrictions contained in this Agreement, shall be added to the Shares subject to the Company’s rights to repurchase pursuant to this Agreement.

12.6 If the outstanding shares of Common Stock of the Company shall be subdivided into a greater number of shares or combined into a smaller number of shares, or in the event of a reclassification of the outstanding shares of Common Stock of the Company, or if the Company shall be a party to a merger, consolidation or capital reorganization, there shall be substituted for the Shares then subject to the restrictions contained in this Agreement such amount and kind of securities as are issued in such subdivision, combination, reclassification, merger, consolidation or capital reorganization in respect of the Shares subject immediately prior thereto to the Company’s rights to repurchase pursuant to this Agreement.

12.7 The Company shall not be required to transfer any Shares on its books which shall have been sold, assigned or otherwise transferred in violation of this Agreement, or to treat as owner of such Shares, or to accord the right to vote as such owner or to pay dividends to, any person or organization to which any such Shares shall have been so sold, assigned or otherwise transferred, in violation of this Agreement.

12.8 The provisions of Sections 12.1 and 12.3 shall terminate upon the effective date of the registration of the Shares pursuant to the Securities Exchange Act of 1934.

12.9 The Participant agrees that in the event the Company proposes to offer for sale to the public any of its equity securities and such Participant is requested by the Company and any underwriter engaged by the Company in connection with such offering to sign an agreement restricting the sale or other transfer of Shares, then it will promptly sign such agreement and will not transfer, whether in privately negotiated transactions or to the public in open market transactions or otherwise, any Shares or other securities of the Company held by him or her during such period as is determined by the Company and the underwriters, not to exceed 180 days following the closing of the offering, plus such additional period of time as may be required to comply with FINRA Rules or similar rules promulgated by another regulatory authority (such period, the “Lock-Up Period”). Such agreement shall be in writing and in form and substance reasonably satisfactory to the Company and such underwriter and pursuant to customary and prevailing terms and conditions. Notwithstanding whether the Participant has signed such an

 

8


agreement, the Company may impose stop-transfer instructions with respect to the Shares or other securities of the Company subject to the foregoing restrictions until the end of the Lock-Up Period.

12.10 The Participant acknowledges and agrees that neither the Company, its shareholders nor its directors and officers, has any duty or obligation to disclose to the Participant any material information regarding the business of the Company or affecting the value of the Shares before, at the time of, or following a termination of the service of the Participant by the Company, including, without limitation, any information concerning plans for the Company to make a public offering of its securities or to be acquired by or merged with or into another firm or entity.

12.11 All certificates representing the Shares to be issued to the Participant pursuant to this Agreement shall have endorsed thereon a legend substantially as follows: “The shares represented by this certificate are subject to restrictions set forth in a Stock Option Agreement dated as of                          , a copy of which Agreement is available for inspection at the offices of the Company or will be made available upon request.”

 

  13. NO OBLIGATION TO MAINTAIN RELATIONSHIP .

The Participant acknowledges that: (i) the Company is not by the Plan or this Option Agreement obligated to continue the Participant as an Employee, director or Consultant of the Company or an Affiliate; (ii) the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (iii) the grant of the Option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options; (iv) all determinations with respect to any such future grants, including, but not limited to, the times when options shall be granted, the number of shares subject to each option, the option price, and the time or times when each option shall be exercisable, will be at the sole discretion of the Company; (v) the Participant’s participation in the Plan is voluntary; (vi) the value of the Option is an extraordinary item of compensation which is outside the scope of the Participant’s employment or consulting contract, if any; and (vii) the Option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

 

  14. IF OPTION IS INTENDED TO BE AN ISO .

If this Option is designated in the Stock Option Grant Notice as an ISO so that the Participant (or the Participant’s Survivors) may qualify for the favorable tax treatment provided to holders of Options that meet the standards of Section 422 of the Code then any provision of this Agreement or the Plan which conflicts with the Code so that this Option would not be deemed an ISO is null and void and any ambiguities shall be resolved so that the Option qualifies as an ISO. The Participant should consult with the Participant’s own tax advisors regarding the tax effects of the Option and the requirements necessary to obtain favorable tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.

 

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Notwithstanding the foregoing, to the extent that the Option is designated in the Stock Option Grant Notice as an ISO and is not deemed to be an ISO pursuant to Section 422(d) of the Code because the aggregate Fair Market Value (determined as of the Date of Option Grant) of any of the Shares with respect to which this ISO is granted becomes exercisable for the first time during any calendar year in excess of $100,000, the portion of the Option representing such excess value shall be treated as a Non-Qualified Option and the Participant shall be deemed to have taxable income measured by the difference between the then Fair Market Value of the Shares received upon exercise and the price paid for such Shares pursuant to this Agreement.

Neither the Company nor any Affiliate shall have any liability to the Participant, or any other party, if the Option (or any part thereof) that is intended to be an ISO is not an ISO or for any action taken by the Administrator, including without limitation the conversion of an ISO to a Non-Qualified Option.

 

  15. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION OF AN ISO .

If this Option is designated in the Stock Option Grant Notice as an ISO then the Participant agrees to notify the Company in writing immediately after the Participant makes a Disqualifying Disposition of any of the Shares acquired pursuant to the exercise of the ISO. A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any disposition (including any sale) of such Shares before the later of (a) two years after the date the Participant was granted the ISO or (b) one year after the date the Participant acquired Shares by exercising the ISO, except as otherwise provided in Section 424(c) of the Code. If the Participant has died before the Shares are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.

 

  16. NOTICES .

Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, facsimile, registered or certified mail, return receipt requested, or by email addressed as follows:

If to the Company:

Spero Therapeutics, Inc.

675 Massachusetts Avenue

Cambridge, MA 02139

Attention: Chief Financial Officer

If to the Participant at the address set forth on the Stock Option Grant Notice or such address as the Company may then have in its records for the Participant or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given upon the earlier of receipt, one business day following delivery to a recognized courier service or three business days following mailing by registered or certified mail.

 

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  17. GOVERNING LAW .

This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its internal principles governing the conflict of law. For the purpose of litigating any dispute that arises under this Agreement, the parties hereby consent to exclusive jurisdiction in the Commonwealth of Massachusetts and agree that such litigation shall be conducted in the state courts of Suffolk County, Massachusetts or the federal courts of the United States for the District of Massachusetts.

 

  18. BENEFIT OF AGREEMENT .

Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

 

  19. ENTIRE AGREEMENT .

This Agreement, together with the Plan, the Voting Agreement, and the ROFR Agreement, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. [In furtherance of the foregoing, you acknowledge that you no longer have any rights or interests in the Company’s former parent entity Spero Therapeutics, LLC.] 3 No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict, the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

 

  20. MODIFICATIONS AND AMENDMENTS .

The terms and provisions of this Agreement may be modified or amended as provided in the Plan.

 

  21. WAIVERS AND CONSENTS .

Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

  22. DATA PRIVACY .

 

 

3 NTD: Include for replacement option grants only.

 

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By entering into this Agreement, the Participant: (i) authorizes the Company and each Affiliate, and any agent of the Company or any Affiliate administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its Affiliates such information and data as the Company or any such Affiliate shall request in order to facilitate the grant of options and the administration of the Plan; (ii) to the extent permitted by law waives any data privacy rights he or she may have with respect to such information; and (iii) authorizes the Company and each Affiliate to store and transmit such information in electronic form for the purposes set forth in this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

12


Exhibit A

NOTICE OF EXERCISE OF STOCK OPTION

[Form for Unregistered Shares]

To:        Spero Therapeutics, Inc.

Ladies and Gentlemen:

I hereby exercise my Stock Option to purchase                      shares (the “Shares”) of the common stock, $0.001 par value, of Spero Therapeutics, Inc. (the “Company”), at the exercise price of $[                  ] per share, pursuant to and subject to the terms of that certain Stock Option Agreement between the undersigned and the Company dated [                  ], 201[      ].

I am aware that the Shares have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), or any state securities laws. I understand that the reliance by the Company on exemptions under the 1933 Act is predicated in part upon the truth and accuracy of the statements by me in this Notice of Exercise.

I hereby represent and warrant that (1) I have been furnished with all information which I deem necessary to evaluate the merits and risks of the purchase of the Shares; (2) I have had the opportunity to ask questions concerning the Shares and the Company and all questions posed have been answered to my satisfaction; (3) I have been given the opportunity to obtain any additional information I deem necessary to verify the accuracy of any information obtained concerning the Shares and the Company; and (4) I have such knowledge and experience in financial and business matters that I am able to evaluate the merits and risks of purchasing the Shares and to make an informed investment decision relating thereto.

I hereby represent and warrant that I am purchasing the Shares for my own personal account for investment and not with a view to the sale or distribution of all or any part of the Shares.

I understand that because the Shares have not been registered under the 1933 Act, I must continue to bear the economic risk of the investment for an indefinite time and the Shares cannot be sold unless the Shares are subsequently registered under applicable federal and state securities laws or an exemption from such registration requirements is available.

I agree that I will in no event sell or distribute or otherwise dispose of all or any part of the Shares unless (1) there is an effective registration statement under the 1933 Act and applicable state securities laws covering any such transaction involving the Shares or (2) the Company receives an opinion of my legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration.

 

Exhibit A-1


I consent to the placing of a legend on my certificate for the Shares stating that the Shares have not been registered and setting forth the restrictions on transfer contemplated hereby and to the placing of a stop transfer order on the books of the Company and with any transfer agents against the Shares until the Shares may be legally resold or distributed without restriction.

I understand that at the present time Rule 144 of the Securities and Exchange Commission (the “SEC”) may not be relied on for the resale or distribution of the Shares by me. I understand that the Company has no obligation to me to register the sale of the Shares with the SEC and has not represented to me that it will register the sale of the Shares.

I understand the terms and restrictions on the right to dispose of the Shares set forth in the 2017 Stock Incentive Plan and the Stock Option Agreement, both of which I have carefully reviewed. I consent to the placing of a legend on my certificate for the Shares referring to such restriction and the placing of stop transfer orders until the Shares may be transferred in accordance with the terms of such restrictions.

I understand and agree that the Shares are subject to the Right of First Refusal and Co-Sale Agreement dated June [      ], between the Company and its stockholders (the “ROFR Agreement”) and the Voting Agreement dated June [      ], 2017 between the Company and its stockholders (the “Voting Agreement”). I acknowledge that I have read and understand the ROFR Agreement and the Voting Agreement which sets forth certain restrictions and limitations on the Shares, including the ability to transfer or sell them in the future. I further acknowledge and agree that to the extent the terms of Section 12 of the Stock Option Agreement conflict with either the ROFR Agreement or the Voting Agreement, the terms contained in the ROFR Agreement and Voting Agreement shall govern.

I have considered the Federal, state and local income tax implications of the exercise of my Option and the purchase and subsequent sale of the Shares.

I am paying the option exercise price for the Shares as follows:

 

 

Please issue the Shares (check one):

☐ to me; or

☐ to me and                                      , as joint tenants with right of survivorship

and mail the certificate to me at the following address:

 

 

 

 

 

Exhibit A-2


My mailing address for shareholder communications, if different from the address listed above is:

 

 

 

 

 

Very truly yours,

 

Participant (signature)

 

Print Name

 

Date

 

Social Security Number

 

Exhibit A-3


Exhibit B

NOTICE OF EXERCISE OF STOCK OPTION

[Form for Shares Registered in the United States]

To:        Spero Therapeutics, Inc.

IMPORTANT NOTICE : This form of Notice of Exercise may only be used at such time as the Company has filed a Registration Statement with the Securities and Exchange Commission under which the issuance of the Shares for which this exercise is being made is registered and such Registration Statement remains effective.

Ladies and Gentlemen:

I hereby exercise my Stock Option to purchase                      shares (the “Shares”) of the common stock, $0.001 par value, of Spero Therapeutics, Inc. (the “Company”), at the exercise price of $                      per share, pursuant to and subject to the terms of that Stock Option Grant Notice dated                              , 2017.

I understand the nature of the investment I am making and the financial risks thereof. I am aware that it is my responsibility to have consulted with competent tax and legal advisors about the relevant national, state and local income tax and securities laws affecting the exercise of the Option and the purchase and subsequent sale of the Shares.

I am paying the option exercise price for the Shares as follows:

 

 

Please issue the Shares (check one):

☐ to me; or

☐ to me and                                               , as joint tenants with right of survivorship,

at the following address:

 

 

 

 

 

 

 

Exhibit B-1


My mailing address for shareholder communications, if different from the address listed above, is:

 

 

 

 

 

Very truly yours,

 

Participant (signature)

 

Print Name

 

Date

 

Social Security Number

 

 

Exhibit B-2

Exhibit 10.3

RESTRICTED STOCK AGREEMENT

SPERO THERAPEUTICS, INC.

AGREEMENT made as of the [              ] day of [                          ], 2017 (the “ Grant Date ”), between Spero Therapeutics, Inc. (the “ Company ”), a Delaware corporation, and [                              ] (the “ Participant ”).

WHEREAS, the Company has adopted the 2017 Stock Incentive Plan (the “ Plan ”) to promote the interests of the Company by providing an incentive for Employees, Directors and Consultants of the Company or its Affiliates;

WHEREAS, pursuant to the provisions of the Plan, the Company desires to offer to the Participant shares of the Company’s common stock, $0.001 par value per share (“ Common Stock ”), in accordance with the provisions of the Plan, all on the terms and conditions hereinafter set forth;

WHEREAS, the Participant wishes to accept said offer; and

WHEREAS, the parties hereto understand and agree that any terms used and not defined herein have the meanings ascribed to such terms in the Plan.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Terms of Grant . The Participant hereby accepts the offer of the Company to issue to the Participant, in accordance with the terms of the Plan and this Agreement, [                              (                      )] shares of the Company’s Common Stock (such shares, subject to adjustment pursuant to Section 24 of the Plan and Subsection 2.1(h) hereof, the “ Granted Shares ”) at a per share purchase price of $0.001 (the “ Purchase Price ”), receipt of which is hereby acknowledged by the Company [by the Participant’s prior service to the Company and which amount will be reported as income on the Participant’s W-2 [or 1099] for this calendar year] .

2. Restrictions on Granted Stock .

2.1. Lapsing Forfeiture Right .

(a) Lapsing Forfeiture Right . Except as set forth in Subsections 2.1(b), (c), and (d) hereof, in the event that for any reason the Participant is no longer an Employee, Director or Consultant of the Company or an Affiliate (the “ Termination ”) prior to [INSERT THE DATE OF THE END OF THE VESTING PERIOD], the Participant (or the Participant’s Survivor) shall, on the date of Termination, immediately forfeit to the Company (or its designee) all of the Granted Shares that are then unvested in accordance with the schedule set forth below (the “ Lapsing Forfeiture Right ”):


[Insert Lapsing Forfeiture Right (vesting schedule) – sample below.]

(i) If the Participant’s Termination is prior to the one-year anniversary of the Grant Date, all of the Granted Shares shall be forfeited to the Company.

(ii) If the Participant’s Termination is on or after the one-year anniversary of the Grant Date, but prior to [                                  , 20          ], [          ]% of the Granted Shares shall be forfeited to the Company (rounded up to the next highest whole number of shares).

(b) Effect of Termination for Disability or upon Death . The following rules apply to the Company’s Lapsing Forfeiture Right if the Participant’s Termination is by reason of Disability or death: to the extent the Company’s Lapsing Forfeiture Right has not lapsed as of the date of Termination due to Disability or death, as the case may be, the Participant shall forfeit to the Company any or all of the Granted Shares subject to such Lapsing Forfeiture Right; provided, however, that the Company’s Lapsing Forfeiture Right shall be deemed to have lapsed to the extent of a pro rata portion of the Granted Shares through the date of Termination due to Disability or death, as would have lapsed had the Participant not been terminated due to Disability or death, as the case may be. The proration shall be based upon the number of days accrued in such current vesting period prior to the Participant’s date of Termination due to Disability or death, as the case may be. In the case of death all Granted Shares which are no longer subject to the Company’s Lapsing Forfeiture Right shall be issued to the Participant’s Survivor.

(c) Effect of a For Cause Termination . Notwithstanding anything to the contrary contained in this Agreement, in the event of the Participant’s Termination for Cause or in the event the Administrator determines, within one year after the Participant’s Termination, that either prior or subsequent to the Participant’s Termination the Participant engaged in conduct that would constitute Cause, all of the unvested Shares then held by the Participant shall be forfeited to the Company immediately as of the time the Participant is notified that he or she has been terminated for Cause or that he or she engaged in conduct which would constitute Cause.

[(d) Effect of Change of Control . In the event the Participant’s employment is terminated by the Company without Cause within the 30-day period prior to a Change of Control (as defined below) or within the twelve (12) month period following a Change of Control, (i) if the Participant’s employment with the Company commenced at least 24 months prior to the Change of Control, then the Participant’s ownership of 100% of the Granted Shares then owned by the Participant shall be deemed vested and the Company’s Lapsing Forfeiture Right shall terminate with respect to all of the Granted Shares; (ii) if the Participant’s employment with the Company commenced less than 24 months but at least 12 months prior to the Change of Control, then the Participant’s ownership of 50% of the Granted Shares then subject to the Company’s Lapsing Forfeiture Right shall become vested and the Company’s Lapsing Forfeiture Right shall terminate with respect to such Granted Shares on the date of Termination and the Participant shall forfeit to the Company the remaining Granted Shares then subject to the Lapsing Forfeiture Right on the Termination; and (iii) if the Participant’s employment with the Company commenced less 12 months prior to the Change of Control, then the Participant’s ownership of 25% of

 

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the Granted Shares then subject to the Company’s Lapsing Forfeiture Right shall become vested and the Company’s Lapsing Forfeiture Right shall terminate with respect to such Granted Shares on the date of Termination and the Participant shall forfeit to the Company the remaining Granted Shares then subject to the Lapsing Forfeiture Right on the Termination.

Cause” shall mean (i) dishonest statements or acts by the Participant with respect to the Company or any Affiliate of the Company, or any of the Company’s current or prospective customers, suppliers vendors or other third parties with which such entity does business; (ii) the Participant’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (iii) the Participant’s failure to perform to the reasonable satisfaction of the Board of Directors the duties and responsibilities assigned by the Board of Directors which failure continues, in the reasonable judgment of the Board of Directors, after written notice given to the Participant by the Board of Directors; (iv) gross negligence, willful misconduct or insubordination by the Participant with respect to the Company or any Affiliate of the Company; or (v) a violation of any provision of any agreement(s) between the Participant and the Company relating to noncompetition, nondisclosure and/or assignment of inventions.

For purposes of this subsection 2.1(d), “Change of Control” means the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation involving the Company in which the shares of Company voting equity outstanding immediately prior to such transaction represent or are converted into or exchanged for securities of the surviving or resulting entity immediately upon completion of such transaction which represent less than fifty percent (50%) of the outstanding voting power of such surviving or resulting entity, (iv) the acquisition of all or a majority of the outstanding voting equity of the Company in a single transaction or a series of related transactions by a person or group of persons, or (v) any other acquisition of the business of the Company, as determined by the Board of Directors; provided, however, that the Company’s initial public offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Change of Control.”] 1

(e) Escrow . The Granted Shares issued to the Participant hereunder which from time to time are subject to the Lapsing Forfeiture Right shall be held in escrow by the Company as provided in this Subsection 2.1(e). Promptly following receipt by the Company of a written request from the Participant, the Company shall release from escrow and deliver to the Participant the Granted Shares, if any, as to which the Company’s Lapsing Forfeiture Right has lapsed. In the event of forfeiture to the Company of Granted Shares subject to the Lapsing Forfeiture Right, the Company shall release from escrow and cancel the number of Granted Shares so forfeited. Any cash or securities distributed in respect of the Granted Shares held in escrow, including, without limitation, ordinary cash dividends or shares issued as a result of stock splits, stock dividends or other recapitalizations (“ Retained Distributions ”), shall also be

 

1  

Note: Double Trigger acceleration clause applicable only to certain executives of the Company.

 

3


held in escrow in the same manner as the Granted Shares and all Retained Distributions shall be forfeited to the Company or released from escrow and delivered to the Participant, as the case may be, at such time and in such manner as the Granted Shares to which such Retained Distributions so relate. All ordinary cash dividends retained hereunder shall, during the period in which such dividends are retained by the Company, be deposited into an account at a financial institution selected by the Company, which shall not be required to bear interest or be segregated in a separate account.

(f) Prohibition on Transfer . The Participant recognizes and agrees that all Granted Shares and Retained Distributions which are subject to the Lapsing Forfeiture Right may not be sold, transferred, assigned, hypothecated, pledged, encumbered or otherwise disposed of, whether voluntarily or by operation of law, other than to the Company (or its designee). However, the Participant, with the approval of the Administrator, may transfer the Granted Shares and Retained Distributions for no consideration to or for the benefit of the Participant’s Immediate Family (including, without limitation, to a trust for the benefit of the Participant’s Immediate Family or to a partnership or limited liability company for one or more members of the Participant’s Immediate Family), subject to such limits as the Administrator may establish, and the transferee shall remain subject to all the terms and conditions applicable to this Agreement prior to such transfer and each such transferee shall so acknowledge in writing as a condition precedent to the effectiveness of such transfer. The term “ Immediate Family ” shall mean the Participant’s spouse, former spouse, parents, children, stepchildren, adoptive relationships, sisters, brothers, nieces and nephews and grandchildren (and, for this purpose, shall also include the Participant). The Company shall not be required to transfer any Granted Shares or Retained Distributions on its books which shall have been sold, assigned or otherwise transferred in violation of this Subsection 2.1(f), or to treat as the owner of such Granted Shares or Retained Distributions, or to accord the right to vote as such owner or to pay dividends to, any person or organization to which any such Granted Shares or Retained Distributions shall have been so sold, assigned or otherwise transferred, in violation of this Subsection 2.1(f).

(g) Failure to Deliver Granted Shares to be Forfeited . In the event that the Granted Shares to be forfeited to the Company under this Agreement are not in the Company’s possession pursuant to Subsection 2.1(e) above or otherwise and the Participant or the Participant’s Survivor fails to deliver such Granted Shares to the Company (or its designee), the Company may immediately take such action as is appropriate to transfer record title of such Granted Shares from the Participant to the Company (or its designee) and to treat the Participant and such Granted Shares in all respects as if delivery of such Granted Shares had been made as required by this Agreement. The Participant hereby irrevocably grants the Company a power of attorney which shall be coupled with an interest for the purpose of effectuating the preceding sentence.

(h) Adjustments . The Plan contains provisions covering the treatment of Shares in a number of contingencies such as stock splits and mergers. Provisions in the Plan for adjustment with respect to the Shares and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference.

 

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2.2 General Restrictions on Transfer of Granted Shares; Requirements for Vested Shares .

(a) Limitations on Transfer and Requirements . In addition to the restrictions set forth above in Section 2.1, the Granted Shares issued to the Participant hereunder and no longer subject to the Lapsing Forfeiture Right described in Section 2.1 (the “ Vested Shares ”) shall not be transferred by the Participant except as permitted herein, shall be subject to the provisions of Sections 2.1(e), (f) and (g) above, and shall be subject to the repurchase rights and obligations described in this Section 2.2. With respect to the Vested Shares, Participant hereby agrees to the following:

(i) Participant shall no later than the date hereof become a party to the Right of First Refusal and Co-Sale Agreement dated June [      ], 2017 between the Company and its stockholders, as may be amended from time to time (the “ ROFR Agreement ”), by execution of a signature page thereto. If the terms of this Agreement and the ROFR Agreement conflict, the terms contained in the ROFR Agreement shall govern and supersede any conflicting provision contained in this Section 2.2.

(ii) Participant shall no later than the date hereof become a party to a Voting Agreement dated June [      ], 2017, between the Company and its stockholders, as may be amended from time to time (the “ Voting Agreement ”), by executing a signature page thereto. If the terms of this Agreement and the Voting Agreement conflict, the terms contained in the Voting Agreement shall govern and supersede any conflicting provision contained in this Section 2.2.

(b) Right to Repurchase following Termination of Service . In the event of the Participant’s Termination for any reason, including due to death or Disability, then the Company shall have the option to repurchase the Vested Shares not previously forfeited to the Company in accordance with the provisions of Section 2.1 of this Agreement as follows:

(i) The Company’s option to repurchase the Vested Shares in the event of Termination under this Section 2.2(b) shall be valid for a period of one year commencing with the date of such Termination.

(ii) In the event the Company shall be entitled to and shall elect to exercise its option to repurchase the Vested Shares under this Section 2.2(b), the Company shall notify the Participant, or in case of death, the Participant’s Survivor, in writing of its intent to repurchase the Vested Shares. Such written notice may be mailed by the Company up to and including the last day of the time period provided for in Section 2.2(b)(i) for exercise of the Company’s option to repurchase.

(iii) The written notice to the Participant shall specify the address at, and the time and date on, which payment of the Repurchase Price (as hereinafter defined) is to be made (the “ Post-Termination Repurchase Closing ”). The date specified shall not be less than ten days nor more than 60 days from the date of the mailing of the notice, and the Participant or the Participant’s Survivor with respect to the Vested Shares shall

 

5


have no further rights as the owner thereof from and after the date specified in the notice. At the Post-Termination Repurchase Closing, the Repurchase Price shall be delivered to the Participant or the Participant’s Survivor and the Vested Shares being purchased, duly endorsed for transfer, shall, to the extent that they are not then in the possession of the Company, be delivered to the Company by the Participant or the Participant’s Survivor.

(iv) The price paid per share for any Vested Shares repurchased hereunder (the “ Repurchase Price ”) shall equal the Fair Market Value of such Vested Shares determined in accordance with the Plan as of the date of Termination.

(c) Right to Repurchase on Proposed Transfer . It shall be a condition precedent to the validity of any sale or other transfer of any Vested Shares by the Participant that the following restrictions be complied with (except as hereinafter otherwise provided):

(i) No Vested Shares owned by the Participant may be sold, pledged or otherwise transferred (including by gift or devise) to any person or entity, voluntarily, or by operation of law, except in accordance with the terms and conditions hereinafter set forth.

(ii) Before selling or otherwise transferring all or part of the Vested Shares, the Participant shall give written notice of such intention to the Company in accordance with Section 2.1(b) of the ROFR Agreement. Such notice shall constitute a binding offer by the Participant to sell to the Company such number of the Vested Shares as if such Vested Shares were Key Holder Transfer Stock (as defined in the ROFR Agreement). If the Company shall fail to accept any such offer, such Vested Shares shall be subject to a Secondary Refusal Right, as defined in Section 1.24 of the ROFR Agreement.

(iv) If the Company and any Senior Preferred Investor (as defined in the ROFR Agreement), as the case may be, shall fail to accept any such offer, the Participant shall be free to sell all, but not less than all, of the Vested Shares set forth in his or her notice to the designated transferee at the price and terms designated in the Participant’s notice, provided that (a) such sale is consummated within six months after the giving of notice by the Participant to the Company as aforesaid, and (b) the transferee first agrees in writing to be bound by the provisions of this Agreement so that he or she (and all subsequent transferees) shall thereafter only be permitted to sell or transfer the Vested Shares in accordance with the terms of this Agreement. After the expiration of such six months, the provisions of this Section 2.2(c) shall again apply with respect to any proposed voluntary transfer of the Vested Shares.

(iv) The provisions of this Section 2.2(c) may be waived by the Company. Any such waiver may be unconditional or based upon such conditions as the Company may impose.

(v) The restrictions on transfer contained in this Section 2.2(c) shall not apply to (a) transfers by the Participant to his or her spouse or children or to a trust

 

6


for the benefit of his or her spouse or children, (b) transfers by the Participant to his or her guardian or conservator, or (c) transfers by the Participant, in the event of his or her death, to his or her executor(s) or administrator(s) or to trustee(s) under his or her will (collectively, “ Permitted Transferees ”); provided however, that in any such event the Vested Shares so transferred in the hands of each such Permitted Transferee shall remain subject to this Agreement, and each such Permitted Transferee shall so acknowledge in writing as a condition precedent to the effectiveness of such transfer.

(d) The provisions of Sections 2.2(a) through (c) shall terminate upon the effective date of the registration of the Common Stock pursuant to the Securities and Exchange Act of 1934, as amended.

(e) The Participant agrees that in the event the Company proposes to offer for sale to the public any of its equity securities and such Participant is requested by the Company and any underwriter engaged by the Company in connection with such offering to sign an agreement restricting the sale or other transfer of Shares, then it will promptly sign such agreement and will not transfer, whether in privately negotiated transactions or to the public in open market transactions or otherwise, any Shares or other securities of the Company held by him or her during such period as is determined by the Company and the underwriters, not to exceed 180 days following the closing of the offering, plus such additional period of time as may be required to comply FINRA rules or similar rules thereto promulgated by another regulatory authority (such period, the “ Lock-Up Period ”). Such agreement shall be in writing and in form and substance reasonably satisfactory to the Company and such underwriter and pursuant to customary and prevailing terms and conditions. Notwithstanding whether the Participant has signed such an agreement, the Company may impose stop-transfer instructions with respect to the Shares or other securities of the Company subject to the foregoing restrictions until the end of the Lock-Up Period.

(f) The Participant acknowledges and agrees that neither the Company, its shareholders nor its directors and officers, has any duty or obligation to disclose to the Participant any material information regarding the business of the Company or affecting the value of the Shares before, at the time of, or following the Participant’s Termination, including, without limitation, any information concerning plans for the Company to make a public offering of its securities or to be acquired by or merged with or into another firm or entity.

3. Purchase for Investment; Securities Law Compliance . The Participant hereby represents and warrants that he or she is acquiring the Granted Shares for his or her own account, for investment, and not with a view to, or for sale in connection with, the distribution of any such Granted Shares. The Participant specifically acknowledges and agrees that any sales of Granted Shares shall be made in accordance with the requirements of the Securities Act, in a transaction as to which the Company shall have received an opinion of counsel satisfactory to it confirming such compliance. The Participant shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s) evidencing the Granted Shares:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN FOR INVESTMENT AND THEY MAY NOT BE SOLD OR OTHERWISE

 

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TRANSFERRED BY ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER (A) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SHARES SHALL BE EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS THEN AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES LAWS.”

4. Legend . In addition to any legend required pursuant to the Plan, all certificates representing the Granted Shares issued to the Participant pursuant to this Agreement shall have endorsed thereon a legend substantially as follows:

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS SET FORTH IN A RESTRICTED STOCK AGREEMENT DATED AS OF [                            ] , 201 7 WITH THIS COMPANY, A COPY OF WHICH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY OR WILL BE MADE AVAILABLE UPON REQUEST.”

5. Rights as a Stockholder . The Participant shall have all the rights of a stockholder with respect to the Granted Shares, including voting and dividend rights, subject to the transfer and other restrictions set forth herein, including pursuant to Section 2.1(f) hereof and in the Plan.

6. Incorporation of the Plan . The Participant specifically understands and agrees that the Granted Shares issued under the Plan are being sold to the Participant pursuant to the Plan, a copy of which Plan the Participant acknowledges he or she has read and understands and by which Plan he or she agrees to be bound. The provisions of the Plan are incorporated herein by reference.

7. Tax Liability of the Participant and Payment of Taxes . The Participant acknowledges and agrees that any income or other taxes due from the Participant with respect to the Granted Shares issued pursuant to this Agreement, including, without limitation, the Lapsing Forfeiture Right, shall be the Participant’s responsibility. Without limiting the foregoing, the Participant agrees that, to the extent that the lapsing of restrictions on disposition of any of the Granted Shares or the declaration of dividends on any such shares before the lapse of such restrictions on disposition results in the Participant’s being deemed to be in receipt of earned income under the provisions of the Code, the Company shall be entitled to immediate payment from the Participant of the amount of any tax required to be withheld by the Company.

Upon execution of this Agreement, the Participant may file an election under Section 83 of the Code in substantially the form attached as Exhibit A . The Participant acknowledges that if he or she does not file such an election, as the Granted Shares are released from the Lapsing Forfeiture Right in accordance with Section 2.1, the Participant will have income for tax purposes equal to the Fair Market Value of the Granted Shares at such date, less the price paid for the Granted Shares by the Participant. The Participant has been given the opportunity to

 

8


obtain the advice of his or her tax advisors with respect to the tax consequences of the purchase of the Granted Shares and the provisions of this Agreement.

If the Participant has not filed an election under Section 83 of the Code, the Participant shall be required to deposit with the Company an amount of cash equal to the amount determined by the Company to be required with respect to the statutory minimum of the Participant’s estimated total federal, state and local tax obligations associated with the Granted Shares.

8. Equitable Relief . The Participant specifically acknowledges and agrees that in the event of a breach or threatened breach of the provisions of this Agreement or the Plan, including the attempted transfer of the Granted Shares by the Participant in violation of this Agreement, monetary damages may not be adequate to compensate the Company, and, therefore, in the event of such a breach or threatened breach, in addition to any right to damages, the Company shall be entitled to equitable relief in any court having competent jurisdiction. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for any such breach or threatened breach.

9. No Obligation to Maintain Relationship . The Participant acknowledges that: (i) the Company is not by the Plan or this Agreement obligated to continue the Participant as an Employee, Director or Consultant of the Company or an Affiliate; (ii) the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (iii) the grant of the Granted Shares is a one-time benefit which does not create any contractual or other right to receive future grants of Shares, or benefits in lieu of Shares; (iv) all determinations with respect to any such future grants, including, but not limited to, the times when Shares shall be granted, the number of Shares to be granted, the purchase price, and the time or times when each Share shall be free from a lapsing repurchase or forfeiture right, will be at the sole discretion of the Company; (v) the Participant’s participation in the Plan is voluntary; (vi) the value of the Granted Shares is an extraordinary item of compensation which is outside the scope of the Participant’s employment contract, if any; and (vii) the Granted Shares are not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

10. Notices . Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, facsimile, registered or certified mail, return receipt requested, addressed as follows:

If to the Company:

Spero Therapeutics, Inc.

675 Massachusetts Avenue

Cambridge, MA 02139

Attn: [                        ]

 

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If to the Participant:

[                                     ]

[                                     ]

[                                     ]

Attn: [                            ]

or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given on the earliest of receipt, one business day following delivery by the sender to a recognized courier service, or three business days following mailing by registered or certified mail.

11. Benefit of Agreement . Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

12. Governing Law . This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof. For the purpose of litigating any dispute that arises under this Agreement, whether at law or in equity, the parties hereby consent to exclusive jurisdiction in the Commonwealth of Massachusetts and agree that such litigation shall be conducted in the state courts of Suffolk County, Massachusetts, or the federal courts of the United States for the District of Massachusetts.

13. Severability . If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such provision or provisions shall be modified to the extent necessary to make such provision valid and enforceable, and to the extent that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability of the rest of this Agreement shall not be affected thereby.

14. Entire Agreement . This Agreement, together with the Plan, the ROFR Agreement and the Voting Agreement, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this Agreement provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

15. Modifications and Amendments; Waivers and Consents . The terms and provisions of this Agreement may be modified or amended as provided in the Plan. Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement,

 

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whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

16. Counterparts . This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

17. Data Privacy . By entering into this Agreement, the Participant: (i) authorizes the Company and each Affiliate, and any agent of the Company or any Affiliate administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its Affiliates such information and data as the Company or any such Affiliate shall request in order to facilitate the grant of Shares and the administration of the Plan; and (ii) authorizes the Company and each Affiliate to store and transmit such information in electronic form for the purposes set forth in this Agreement.

[THE NEXT PAGE IS THE SIGNATURE PAGE]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

 

SPERO THERAPEUTICS, INC.
By:                                                                                     
Name:
Title:
PARTICIPANT:

 

Print name:


IF YOU WISH TO MAKE A SECTION  83(B) ELECTION , THE FILING OF SUCH ELECTION IS YOUR RESPONSIBILITY.

THE FORM FOR MAKING THIS SECTION  83(B) ELECTION IS ATTACHED TO THIS AGREEMENT AS EXHIBIT  A .

YOU MUST FILE THIS FORM WITHIN 30 DAYS OF PURCHASING THE SHARES.

IT IS YOUR RESPONSIBILITY TO FILE THIS FORM WITH THE IRS, REGARDLESS OF WHETHER YOU ASK THE COMPANY OR ITS AGENTS TO MAKE THIS FILING ON YOUR BEHALF, EVEN IF THE COMPANY OR ITS AGENTS HAVE PREVIOUSLY MADE THIS FILING ON YOUR BEHALF.

The election should be filed by mailing a signed election form by certified mail, return receipt requested to the IRS Service Center where you file your tax returns. See https://www.irs.gov/uac/where-to-file-your-tax-returns-with-or-without-a-payment

 

B-1


EXHIBIT A

Election to Include Gross Income in Year

of Transfer Pursuant to Section 83(b)

of the Internal Revenue Code of 1986, as amended

In accordance with Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), the undersigned hereby elects to include in his gross income as compensation for services the excess, if any, of the fair market value of the property (described below) at the time of transfer over the amount paid for such property.

The following sets forth the information required in accordance with the Code and the regulations promulgated thereunder:

 

1. The name, address and social security number of the undersigned and the taxable year for this this election is being made are:

 

  Name:  

 

      
  Address:  

 

      
   

 

      
  Social Security No.:  

 

      
  Taxable Year:  

 

      

 

2. The description of the property with respect to which the election is being made is as follows:

                     (              ) shares (the “Shares”) of Common Stock, $0.001 par value per share, of Spero Therapeutics, Inc., a Delaware corporation (the “Company”).

 

3. The property was transferred to the taxpayer on                      , 2017.

 

4. The property is subject to the following restrictions:

In the event the taxpayer’s service with the Company or an Affiliate is terminated (the “Termination”), the taxpayer shall forfeit all or a portion of the Shares.

 

5. The fair market value of the property at the time of transfer (determined without regard to any restrictions other than a non-lapse restriction as defined in § 1.83-3(h) of the Income Tax Regulations) is $                      ($[                      ] per Share multiplied by [                      ] Shares).

 

6. The amount paid by taxpayer for said property was $                      ($[                      ] per Share multiplied by [                      ] Shares).

 

7. The amount to include in gross income is $[                      ] [The amount reported in Item 5 minus the amount reported in Item 6].

The undersigned taxpayer will file this election with the Internal Revenue Service office with which taxpayer files his or her annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election also will be furnished to the person for whom the services were performed. The undersigned is the person performing the services in connection with which the property was transferred.

Signed this                      day of                      , 2017.

 

 

Print Name:

 

Exhibit 10.4

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (“ Agreement ”) is made as of [●], 2017 by and between SPERO THERAPEUTICS, INC., a Delaware corporation (the “ Company ”), and [●] (the “ Indemnitee ”). This Agreement supersedes and replaces any and all previous Agreements between the Company and Indemnitee covering the subject matter of this Agreement.

RECITALS

WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors, officers 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, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The certificate of incorporation of the Company (as the same may be amended from time to time, the “ Certificate of Incorporation ”) requires indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “ 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 of directors, 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 and its 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 Certificate of Incorporation and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; [and]

WHEREAS, Indemnitee does not regard the protection available under the Certificate of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve as an officer or 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 is a representative of [●] [and its affiliated investment funds] (the “ Fund ”), and has certain rights to indemnification and/or insurance provided by the Fund which Indemnitee and the Fund intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Company’s acknowledgement and agreement to the foregoing being a material condition to Indemnitee’s willingness to serve on the Board;] 1

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1. Services to the Company . Indemnitee agrees to serve as a[n] [director] [and] [officer] of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee’s employment with the Company (or of its subsidiaries or any Enterprise), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or of its subsidiaries or any Enterprise), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or officer of the Company, by the Certificate of Incorporation, the Company’s Bylaws, and the DGCL. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as a[n] [director] [or] [officer] of the Company, as provided in Section 16 hereof.

Section 2. Definitions . As used in this Agreement:

(a) References to “ agent ” shall mean any person who is or was a director, officer, or employee of the Company or a subsidiary of the Company or other person authorized by the Company to act for the Company, to include such person serving in such capacity as a director, officer, employee, fiduciary or other official of another corporation, partnership, limited liability company, joint venture, trust or other enterprise at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company.

 

1   Include this recital and the other bracketed provisions where indicated throughout if the Indemnitee is affiliated with a venture capital fund or other entity that provides indemnification to the Indemnitee.

 

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(b) A “ Change in Control ” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

i. Acquisition of Stock by Third Party . Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing forty percent (40%) or more of the combined voting power of the Company’s then outstanding securities unless the change in relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors;

ii. Change in Board of Directors . During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;

iii. Corporate Transactions . The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its ultimate parent, as applicable) more than 51% of the combined voting power of the voting securities of the surviving entity or its ultimate parent, as applicable, outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity or its ultimate parent, as applicable;

iv. Liquidation or Sale of Assets . The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and

v. Other Events . There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

For purposes of this Section 2(b), the following terms shall have the following meanings:

(A) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

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(B) “ Person ” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(C) “ Beneficial Owner ” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

(D) “ Corporate Status ” describes the status of a person as a current or former director or officer of the Company or as a current or former director, manager, partner, officer, employee, agent, or trustee of any other entity or enterprise that such person is or was serving at the request of the Company.

(E) “ Disinterested Director ” shall mean 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.

(F) “ Enterprise ” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, employee, agent or fiduciary.

(G) “ Expenses ” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include (i) 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, supersedeas bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 14(d) only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise. The parties agree that for the purposes of any advancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

 

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(H) “ Independent Counsel ” shall mean 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 the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “ Independent Counsel ” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses 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.

(I) The term “ Proceeding ” shall include any threatened, pending or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, legislative, or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by him (or a failure to take action by him) or of any action (or failure to act) on his part while acting pursuant to his Corporate Status, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this Agreement. If the Indemnitee believes in good faith that a given situation may lead to or culminate in the institution of a Proceeding, this shall be considered a Proceeding under this paragraph.

(J) Reference to “ other enterprise ” shall include employee benefit plans; references to “ fines ” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in manner “not opposed to the best interests of the Company” as referred to in this Agreement.

Section 3. Indemnity in Third-Party Proceedings . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in

 

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good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that his conduct was unlawful. The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Certificate of Incorporation, the Bylaws, vote of its stockholders or disinterested directors or applicable law.

Section 4. Indemnity in Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the “Delaware Court”) or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such Expenses as the Delaware Court or other court shall deem proper.

Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provisions of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him 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 or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law. 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.

Section 6. Indemnification For Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of his Corporate Status, a witness or otherwise asked to participate 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.

Section 7. Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

 

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Section 8. Additional Indemnification.

(a) Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding.

(b) For purposes of Section 8(a), the meaning of the phrase “to the fullest extent permitted by applicable law” shall include, but not be limited to:

i. to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL, and

ii. to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

Section 9. Exclusions . Notwithstanding any provision in this Agreement [but subject to Section 15(e), however], the Company shall not be obligated under this Agreement to make any indemnification payment 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

(b) for (i) 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 Exchange Act (as defined in Section 2(b) hereof) or similar provisions of state statutory law or common law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); or

(c) except as provided in Section 14(d) of this Agreement, 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, 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.

 

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Section 10. Advances of Expenses . Notwithstanding any provision of this Agreement to the contrary (other than Section 14(d)), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding (or any part of any Proceeding) not initiated by Indemnitee, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. In accordance with Section 14(d), advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that the Indemnitee undertakes to repay the amounts advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. No other form of undertaking shall be required other than the execution of this Agreement. This Section 10 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 9.

Section 11. Procedure for Notification and Defense of Claim .

(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof. The written notification to the Company shall include a description of the nature of the Proceeding and the facts underlying the Proceeding. 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 following the final disposition of such Proceeding. The omission by Indemnitee to notify the Company hereunder will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

Section 12. Procedure Upon Application for Indemnification .

(a) Upon written request by Indemnitee for indemnification pursuant to Section 11(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (B) by a

 

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committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. 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 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. The Company promptly will advise Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied.

(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) hereof, the Independent Counsel shall be selected as provided in this Section 12(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “ Independent Counsel ” as defined in Section 2 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 such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereof and the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Delaware Court for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by such court or by such other person as such 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 12(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

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Section 13. Presumptions and Effect of Certain Proceedings .

(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 11(a) of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(b) Subject to Section 14(e), if the person, persons or entity empowered or selected under Section 12 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, 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 the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 13(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 12(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) of this Agreement.

(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the

 

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right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

(d) For purposes of any determination of good faith, 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, including financial statements, or on information supplied to Indemnitee by the directors or 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 the reasonable care by the Enterprise. The provisions of this Section 13(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

(e) The knowledge and/or actions, or failure to act, of any director, officer, trustee, partner, managing member, fiduciary, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

Section 14. Remedies of Indemnitee .

(a) Subject to Section 14(e), in the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 10 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6 or 7 or the last sentence of Section 12(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) payment of indemnification pursuant to Section 3, 4 or 8 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 14(a); provided , however , that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

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(b) In the event that a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14, the Company shall have the burden of proving Indemnitee is not

(c) If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14, 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.

(d) The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. It is the intent of the Company that, to the fullest extent permitted by law, the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. The Company shall, to the fullest extent permitted by law, indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefor) advance, 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 if, in the case of indemnification, Indemnitee is wholly successful on the underlying claims; if Indemnitee is not wholly successful on the underlying claims, then such indemnification shall be only to the extent Indemnitee is successful on such underlying claims or otherwise as permitted by law, whichever is greater.

(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

Section 15. Non-exclusivity; Survival of Rights; Insurance; Subrogation .

(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the

 

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extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Certificate of Incorporation and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. 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 such claim or of the commencement of a Proceeding, as the case may be, 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 [(other than any rights of recovery of Indemnitee from a Fund Indemnitor (as defined in Section 15(e) hereof) or under any insurance provided by the Fund or its affiliates)], 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) [Except as provided for under Section 15(e) of this Agreement, the] The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) 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 hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by the Fund and certain of its affiliates (collectively, the “ Fund 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 Fund 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 Certificate of Incorporation or Bylaws (or any agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and, (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution,

 

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subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms hereof.]

(f) 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, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, limited liability company, 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, limited liability company, partnership, joint venture, trust or other enterprise.

Section 16. Duration of Agreement . This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a [director] [or] [officer] of the Company or (b) one (1) year after the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 14 of this Agreement [or by a Fund Indemnitor pursuant to Section 15(e) of this Agreement, in either case,] relating thereto. The indemnification and advancement of expenses rights provided by or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (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), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

Section 17. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

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Section 18. Enforcement.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof, including without limitation any previous indemnification agreements, which are hereby terminated in full; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

Section 19. Modification and Waiver . No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by 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 of this Agreement nor shall any waiver constitute a continuing waiver.

Section 20. Notice by Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.

Section 21. Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (d) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the Company.

(b) If to the Company to:

Spero Therapeutics, Inc.

675 Massachusetts Avenue, 14th Floor

Cambridge, MA 02139

Attention: Chief Financial Officer

or to any other address as may have been furnished to Indemnitee by the Company.

 

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Section 22. Contribution . 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, on the one hand, and Indemnitee, on the other hand, 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 other directors, officers, employees and agents), on the one hand, and Indemnitee, on the other hand, in connection with such event(s) and/or transaction(s).

Section 23. Applicable 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. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably the Corporation Trust Center as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

Section 24. Identical Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

Section 25. Miscellaneous . Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings 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.

[ The remainder of this page is intentionally left blank. ]

 

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The parties executed this Agreement as of the day and year first set forth above.

 

SPERO THERAPEUTICS, INC.
By:    
Name:    
Title:    
INDEMNITEE
 
Name:
Address:
 
 

[ Signature Page to Indemnification Agreement ]

 

Exhibit 10.9

 

LOGO

June 24, 2015

John F. Tomayko

502 Raspberry LN

West Chester, PA 19382

Dear John:

On behalf of Spero OpCo, Inc. (the “ Company ”), I am pleased to offer you the employment with the Company. The terms and conditions of your employment are set forth below.

1. Position . Your initial position with the Company will be Chief Medical Officer. This is a full-time position. The Company expects you to work 40 hours per week.

2. Start Date . Your employment will begin on August 5, 2015 (the “ Start Date ”).

3. Salary . The Company will pay you a salary at the rate of $325,000 per year, payable in accordance with the Company’s standard payroll schedule, prorated in accordance with time spent working and subject to applicable deductions and withholdings. This salary will be subject to periodic review and adjustments at the Company’s discretion.

4. Bonuses . During the term of your employment with the Company, you will be considered for an annual incentive bonus with respect to each fiscal year of your employment with the Company, the amount, terms and conditions of such bonus (if any) to be determined at the discretion of the Board of Directors (the “ Board ”) of Spero Therapeutics, LLC (“ Spero LLC ”). Your target annual incentive bonus shall be up to 20% of your base salary, prorated in accordance with time spent working, with any bonus payable in respect of 2015 prorated from the Start Date, and payment of such incentive bonus shall be contingent upon you being employed by the Company as of the payment date of such incentive bonus.

5. Equity Grant . In connection with the commencement of your employment and subject to the approval of the Board, you will be granted 83,187 Incentive Units of Spero LLC, such issuance to be submitted to the Board for approval within thirty (30) days of the Company’s receipt of a third-party valuation report. After the Company completes its current hiring plan,


John F. Tomayko

502 Raspberry LN

West Chester, PA 19382

June 24, 2015

Page 2

 

and subject to approval of the Board, the Company will recommend that you be issued additional Incentive Units of Spero LLC such that your ownership of Spero LLC, on a fully diluted basis, will be equal to 1.56%. Subject to the terms and conditions of Spero LLC’s operating agreement and subject to your continued employment with the Company, twenty-five percent (25%) of your initial equity grant will vest on the first anniversary of the Start Date and the remainder shall vest in thirty-six (36) equal monthly installments thereafter.

6. Benefits . You will be eligible to participate in benefits programs that are adopted by the Company to the same extent as, and subject to the same terms, conditions and limitations applicable to, other employees of the Company of similar rank and tenure, which include health, life, disability and dental insurance and a 401k plan (the “ Benefits Programs ”). Details of the Benefits Programs, including mandatory employee contributions, will be made available to you shortly after your receipt of this Offer Letter. You will also be eligible for up to 20 days of paid vacation per year which shall accrue on a prorated basis, in accordance with the Company’s vacation policy as in effect from time to time. Upon your execution of this Offer Letter, you will be eligible for a one-time signing bonus of $20,000. Additionally, the Company will reimburse you for (i) reasonable and documented expenses you incur in connection with relocating to the Boston area, up to a maximum of $20,000, and (ii) four months of housing costs, up to a maximum of $12,000.

7. Severance. In the event that the Company terminates your employment without Cause, as defined below, and provided you enter into, do not revoke and comply with the terms of a usual and customary separation agreement in a form provided by the Company (the “ Release ”), the Company will provide you with the following “ Termination Benefits ”: (a) an amount equal to (X) the sum of three (3) months of your base salary described in Section  3 or (Y) in the event that the Company terminates your employment without Cause following the six-month anniversary of the Start Date, the sum of six (6) months of your base salary described in Section  3 , in each case subject to payroll withholding and deduction (the “ Salary Continuation Payments ”): and (b) if elected, continuation of group health plan benefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and you as in effect on your last day of employment (the “ Date of Termination ”) until the earlier of: (i) (A) three (3) months from the Date of Termination or (B) in the event that the Company terminates your employment without Cause following the six-month anniversary of the Start Date, six (6) months from the Date of Termination, and (ii) the date you and your dependents become eligible for health benefits through another employer or otherwise become ineligible for COBRA. The Salary Continuation Payments shall commence upon the Company’s first regular payroll date after the Release has become fully effective. In the event you miss a regular payroll period between the Date of Termination and first Salary Continuation Payment date, the first Salary Continuation Payment shall include a “catch up” payment. Solely for purposes of Section 409A of the internal Revenue Code of 1986, as amended (the “ Code ”), each Salary

 

2


John F. Tomayko

502 Raspberry LN

West Chester, PA 19382

June 24, 2015

Page 3

 

Continuation Payment is considered a separate payment. For the avoidance of doubt, in the event your employment is terminated for any reason other than a termination by the Company without Cause you will be entitled to (i) your earned salary plus any accrued but unused vacation through the Date of Termination, and (ii) the amount of any documented expenses properly incurred by you on behalf of the Company prior to the Date of Termination and not yet reimbursed, but you will not be entitled to any of the Termination Benefits.

For purposes of this Agreement, “ Cause ” means: (i) conduct by you in connection with your service to the Company that is fraudulent, unlawful or grossly negligent; (ii) your failure or refusal to comply with lawful directives of the Board; (iii) breach by you of a written Company policy or your representations, warranties, covenants and/or obligations under this Offer Letter (including the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement (referred to in Section  8 ), which, if curable, is not cured by you within thirty (30) days following your receipt of written notice from the Company detailing the nature of such breach; and/or (iv) material misconduct by you which seriously discredits or damages the Company or any of its affiliates.

8. Representation Regarding Other Obligations . You also will be required to sign, as a condition of your employment, an Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement, a copy of which is enclosed. This offer is conditioned on your representation that you are not subject to any confidentiality, non-competition or other agreements that restrict your employment activities or that may affect your ability to devote full time and attention to your work at the Company. If you have entered into any agreement that may restrict your activities on behalf of the Company, please provide me with a copy of the agreement as soon as possible. You further represent that you have not used and will not use or disclose any trade secret or other proprietary right of any previous employer or any other party.

9. Taxes . All forms of compensation referred to in this Offer Letter arc subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law. You hereby acknowledge that the Company does not have a duty to design its compensation policies in a manner that minimizes your tax liabilities, and you will not make any claim against the Company or its board of directors related to tax liabilities arising from your compensation.

10. Interpretation, Amendment and Enforcement. This Offer Letter and the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement constitute the complete agreement between you and the Company, contain all of the terms of your employment and supersede any prior agreements, representations or understandings (whether written, oral or implied) between you, the Company and/or Spero LLC. The terms of this Offer Letter and the resolution of any disputes as to the meaning, effect, performance or validity of this Offer Letter or arising out of, related to, or in any way connected with, this Offer Letter, your employment with the Company or any other relationship between you, the Company and/or Spero LLC (the “ Disputes ”) will be governed by Massachusetts law, excluding laws relating to conflicts or

 

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John F. Tomayko

502 Raspberry LN

West Chester, PA 19382

June 24, 2015

Page 4

 

11. Other Terms . Your employment with the Company will be on an “at will” basis. In other words, you or the Company may terminate your employment for any reason and at any time, with or without cause. Although your job duties, title, compensation and benefits, as well as the Company’s benefit plans and personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company.

In addition, this offer is subject satisfactory background and reference checks. As with all employees, our offer to you is also contingent on your submission of satisfactory proof of your identity and your legal authorization to work in the United States.

We are excited about the prospect of having you join the Company. We look forward to receiving a response from you within one week acknowledging, by signing below, that you have accepted this offer of employment.

 

Very truly yours,
S PERO O P C O , I NC .
By:  

/s/ Ankit Mahadevia

  Name: Ankit Mahadevia
  Title: CEO

I have read and accept this employment offer:

 

/s/ John F. Tomayko, M.D.

Signature
Dated: /s/ 06/25/2015

 

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Exhibit 10.10

Spero OpCo, Inc.

675 Massachusetts Avenue, 14 th Floor

Cambridge, MA 02139

April 14, 2017

PERSONAL AND CONFIDENTIAL

John F. Tomayko

8 Mansfield Rd.

Wellesley, MA 02481

Dear John,

The purpose of this letter agreement (the “ Agreement ”) is to confirm the terms regarding your separation of employment with Spero OpCo, Inc. (the “ Company ”) as set forth herein and in that certain employment agreement dated June 24, 2015 (the “ Employment Agreement ”) between you and the Company. You understand and agree that wherever the term “Company” is used in this Agreement it shall refer to Company, its divisions, parent, affiliates, subsidiaries and related entities, and its and their respective officers, directors, employees, agents, representatives, successors and assigns. As more fully set forth below, Company desires to provide you with severance pay as outlined in the Employment Agreement in exchange for certain agreements by you.

(1) Separation Date; Severance .

(a) Subject to the provisions herein, your termination from employment with the Company will be effective as of May 14, 2017 (the “ Separation Date ”). As of the Separation Date, your salary will cease (subject to the severance described below), and any entitlement you have or might have under a Company-provided benefit plan, program, contract or practice will terminate, except as required by federal or state law, or as otherwise described below. From the date hereof until the Separation Date, you agree to continue to carry out the duties and responsibilities of your present position to the extent the Company shall request, and you agree to cooperate with the Company’s efforts to transfer such duties and responsibilities to others to ensure an orderly transition.

(b) In accordance with the Employment Agreement, upon the non-revocable effectiveness of this Agreement, the Company agrees to (i) continue your current base salary, payable in accordance with the Company’s regular payroll cycle and less all required withholdings, until the end of six (6) months following the Separation Date (the “ Severance Payments ”) and (ii) provided that you are eligible for and timely elect to continue receiving group medical insurance pursuant to the “COBRA” law, continue to pay the share of the premium for health coverage that was paid by the Company as of the Separation Date until the earlier of (A) the last day of the Severance Period or (B) the date on which you become eligible for healthcare insurance with a subsequent employer, unless the Company’s provision of such

 

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COBRA payments will violate the nondiscrimination requirements of applicable law, in which case this benefit will not apply. To the extent applicable, the Severance Payments and “COBRA” payments and lump-sum payment will commence within sixty (60) days after the Separation Date, and once they commence, will include any unpaid amounts accrued prior to the Separation Date. You also agree to promptly notify us as to any change in your employment status. In the event of your death after the expiration of the seven-day revocation period referenced in paragraph 7 and before all of the severance payments referenced in paragraph 1(b)(1) have been made, the company agrees to make any remaining payments to your surviving spouse or estate if there is no surviving spouse.

(2) Benefits . Except as set forth above, any entitlement you have or might have under a Company-provided benefit plan, program, policy or otherwise will terminate as of the Separation Date, provided that you will continue to receive health insurance benefits under the Company’s health insurance plan through the Separation Date, to the same extent that you received such benefits during your active employment with the Company. From and after the Separation Date, you may be eligible for benefits continuation under the Consolidated Omnibus Budget and Reconciliation Act of 1985 (“COBRA”). The Separation Date shall be the date of the “qualifying event” under COBRA and you will be provided with information on COBRA under separate cover.

(4) Equity . You were awarded 24,827 incentive units on July 29, 2016 with a $0.21 Strike Price from Spero Therapeutics, LLC (“LLC”), the Company’s parent, formerly vesting as to 25% on April 28, 2017 and then monthly thereafter and, as of the Separation Date, 25% (or 6,206) of the 24,827 incentive units will have vested. Also, you were awarded 165,000 incentive units on August 24, 2015 with a $0.96 Strike Price from the LLC, vesting as to 25% on August 5, 2016 and then monthly thereafter and, as of the Separation Date, an aggregate of 68,750 of such incentive units will have vested. Accordingly, as of the Separation Date, you will have vested in an aggregate of 74,956 incentive units, but you do not own and are not entitled to receive or vest in any other units, stock options or any other equity award or incentive in the Company or LLC.

(5) Continuing Obligations . You hereby expressly agree to and acknowledge the following:

 

  (a) you will abide by and honor the terms of the Proprietary Information and Inventions Assignment Agreement that you previously executed and which are attached hereto as Exhibit A (the “PIIA Agreement ,” the terms of which are hereby incorporated by reference and shall survive the signing of this Agreement), and that you otherwise shall abide by any and all common law and/or statutory obligations relating to protection and non-disclosure of Company’s trade secrets and/or confidential and proprietary documents and information;

 

  (b)

that all information relating in any way to the subject matter of this Agreement, including the terms and amounts, shall be held confidential by you and shall not be publicized or disclosed to any person (other than an immediate family member, legal counsel or financial advisor, provided that any such individual to whom disclosure is made agrees to be bound by these confidentiality obligations),

 

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  business entity or government agency (except as mandated by state or federal law);

 

  (c) that you shall not make any statements that are professionally or personally disparaging about or adverse to the interests of Company (including its officers, directors and employees) including, but not limited to, any statements that disparage any person, product, service, finances, financial condition, capability or any other aspect of the business of Company, and that you shall not engage in any conduct that is intended to harm professionally or personally the reputation of Company (including its officers, directors and employees); and

 

  (d) that the breach by you of any of the foregoing covenants or those contained in the PITA Agreement shall constitute a material breach of this Agreement and shall relieve the Company of any further obligations hereunder and, in addition to any other legal or equitable remedy available to Company, shall entitle Company to recover any monies already paid to you pursuant to the “severance” provisions of your Employment Agreement; provided that if such breach is curable without damage or harm to the Company, the Company will provide you written notice of such breach and ten (10) days to cure such breach,

(6) Property . In addition, on or prior to the Separation Date, you must return all Company property in your possession, custody or control, including, but not limited to, building and office access cards, corporate credit cards, Company-provided laptop computer and accessories, mobile phone, any software, hardware, equipment, documents, electronic data or files, or any copies thereof, and any documents (and copies thereof) that are the property of Company clients or partners.

(7) Your Release of Claims . You hereby agree and acknowledge that by signing this Agreement and accepting the severance payments to be provided to you, and other good and valuable consideration provided for in this Agreement, you are waiving your right to assert any form of legal claim against Company (as it is defined above) of any kind whatsoever from the beginning of time through the date you execute this Agreement. Your waiver and release herein is intended to bar any form of legal claim, charge, complaint or any other form of action (jointly referred to as “ Claims ”) against the Company seeking any form . of relief including, without limitation, equitable relief (whether declaratory, injunctive or otherwise), the recovery of any damages or any other form of monetary recovery whatsoever (including, without limitation, back pay, front pay, compensatory damages, emotional distress damages, punitive damages, attorneys’ fees and any other costs) against the Company, up through the date you sign this Agreement.

Without limiting the foregoing general waiver and release of claims, you specifically waive and release the Company from any Claim arising from or related to your employment relationship with the Company or the termination thereof, including, without limitation:

(i) Claims under any state or federal discrimination, fair employment practices or other employment related statute, regulation or executive order (as they may have been amended through the execution date of this Agreement) prohibiting

 

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discrimination or harassment based upon any protected status including, without limitation, race, national origin, age, gender, marital status, disability, veteran status or sexual orientation. Without limitation, specifically included in this paragraph are any Claims arising under the federal Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Civil Rights Acts of 1866 and 1871, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Equal Pay Act, the Americans With Disabilities Act and any similar Massachusetts or other state statute.

(ii) Claims under any other state or federal employment related statute, regulation or executive order (as they may have been amended through the execution date of this Agreement) relating to wages, hours or any other terms and conditions of employment. Without limitation, specifically included in this paragraph are any Claims arising under the Fair Labor Standards Act, the Family and Medical Leave Act of 1993, the National Labor Relations Act, the Employee Retirement Income Security Act of 1974, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and any similar Massachusetts or other state statute.

(iii) Claims under’ any state or federal common law theory including, without limitation, wrongful discharge, breach of express or implied contract, promissory estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing, violation of public policy, defamation, interference with contractual relations, intentional or negligent infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or negligence.

(iv) Any other Claim arising under state or federal law.

Notwithstanding the foregoing, this Section shall not release the Company from any obligation expressly set forth in this Agreement, nor are you releasing any claims to vested benefits (e.g., your vested 401(k) balance) or to any rights to indemnification that you may have pursuant to insurance policy, Company by-law, charter or operating agreement, and/or applicable law.

You explicitly acknowledge that because you are over forty (40) years of age, you have specific rights under the Age Discrimination in Employment Act and the Older Workers Benefits Protection Act (“ OWBPA ”), which prohibit discrimination on the basis of age, and that the releases set forth in this section are intended to release any right that you may have to file a claim against the Company alleging discrimination on the basis of age.

Consistent with the provisions of OWBPA, the Company is providing you with twenty-one (21) days or more in which to consider and accept the terms of this Agreement by signing below and returning it to the Company at the address above. Of course, you may choose to sign and return this Agreement sooner than such date if you wish, In addition, you may rescind your assent to this Agreement if, within seven (7) days after you sign this Agreement, you deliver a notice of rescission to the Company at the address above. To be effective, such rescission must be hand delivered or postmarked within the seven (7) day period and sent by certified mail, return receipt requested, to the Company at the address above.

 

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Also, consistent with the provisions of the ADEA and other Federal Discrimination Laws, nothing in this release shall be deemed to prohibit you from challenging the validity of this release under the federal age or other discrimination laws (the “ Federal Discrimination Laws ”) or from filing a charge or complaint of age or other employment related discrimination with the Equal Employment Opportunity Commission (“ EEOC ”), or from participating in any investigation or proceeding conducted by the EEOC. Further, nothing in this release or Agreement shall be deemed to limit the Company’s right to seek immediate dismissal of such charge or complaint on the basis that your signing of this Agreement constitutes a full release of any individual rights under the Federal Discrimination Laws, or to seek restitution to the extent permitted by law of the economic benefits provided to you under this Agreement in the event that you successfully challenge the validity of this release and prevail in any claim under the Federal Discrimination Laws.

You acknowledge and agree that, but for providing this waiver and release of claims, you would not be receiving the severance being provided to you under the terms of the Employment Agreement and this Agreement,

(8) Inurement; Assignment . You may not assign this Agreement. The Company may assign this Agreement. The benefits of this Agreement shall insure to the successors and assigns of the Company and to your successors (including your estate).

If the foregoing correctly sets forth our understanding, please sign, date and return the enclosed copy of this Agreement to the Company.

 

Sincerely,
SPERO OPCO, INC.
By:  

/s/ Ankit Mahadevia

  Name: Ankit Mahadevia
  Title: Chief Executive Officer

 

Accepted and Agreed:
By:  

/s/ John F. Tomayko

Name:   John F. Tomayko
Date:   April 30, 2017

Enclosures

 

5

Exhibit 10.11

LEASE AGREEMENT

by and between

U.S. REIF CENTRAL PLAZA MASSACHUSETTS, LLC

as Landlord

and

SPERO OPCO INC.

as Tenant

With respect to the property known as

675 Massachusetts Avenue, Cambridge, Massachusetts

Dated as of

8/24, 2015

 


TABLE OF CONTENTS

 

SECTION    PAGE  

1.

  

PREMISES

     1  

2.

  

LEASE TERM

     1  

3.

  

FIXED RENT

     2  

4.

  

ADDITIONAL RENT

     2  

5.

  

SECURITY DEPOSIT

     2  

6.

  

USE OF PREMISES

     3  

7.

  

CONDITION OF PREMISES

     3  

8.

  

HAZARDOUS MATERIALS

     4  

9.

  

INDEMNIFICATION

     6  

10.

  

ALTERATIONS, ADDITIONS OR IMPROVEMENTS BY TENANT

     6  

11.

  

COVENANTS OF LANDLORD

     8  

12.

  

COVENANTS OF TENANT

     9  

13.

  

ASSIGNMENT AND SUBLETTING

     10  

14.

  

EMINENT DOMAIN

     12  

15.

  

FIRE OR OTHER CASUALTY

     12  

16.

  

INSURANCE; WAIVER OF SUBROGATION

     13  

17.

  

INSPECTION; ACCESS; CHANGES IN BUILDING FACILITIES

     15  

18.

  

DEFAULT

     16  

19.

  

LANDLORD’S RIGHTS AND REMEDIES

     17  

20.

  

LANDLORD’S RIGHT TO CURE TENANT’S DEFAULT

     18  

21.

  

TENANT ESTOPPEL CERTIFICATE

     18  

22.

  

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

     19  

23.

  

FINANCIAL STATEMENTS

     19  

24.

  

HOLDING OVER

     20  

25.

  

SURRENDER OF PREMISES

     20  

26.

  

BROKERS

     20  

27.

  

NOTICES

     21  

28.

  

SIGNAGE

     21  

29.

  

PARKING

     21  

30.

  

MISCELLANEOUS

     21  

31.

  

EXHIBITS AND ADDENDA

     23  
  

EXHIBIT “A” THE PREMISES

     A-1  

 

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   EXHIBIT “B” FIXED RENT      B-2  
   EXHIBIT “C” LEASE COMMENCEMENT DATE CERTIFICATE      C-1  
   EXHIBIT “D” PROVISIONS REGARDING ADDITIONAL RENT      D-1  
   EXHIBIT “E” BUILDING RULES AND REGULATIONS      E-1  
   EXHIBIT “F” LANDLORD’S WORK      F-1  
   EXHIBIT “G” EXTENSION OPTION      G-1  
   EXHIBIT “H” RIGHT OF OFFER      H-1  

 

 

ii


LEASE AGREEMENT

THIS LEASE AGREEMENT (the “ Lease ”) is made and entered into as of this 24 th day of August, 2015, by and between U.S. REIF CENTRAL PLAZA MASSACHUSETTS, LLC , a Delaware limited liability company (the “ Landlord ”), and SPERO OPCO INC. , a Delaware corporation (the “Tenant”).

Intending to be legally bound, Landlord and Tenant agree as set forth below.

1. PREMISES . Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, for the term and subject to and with the benefit of the terms, covenants, conditions, agreements and provisions hereof premises consisting of approximately 7,791 rentable square feet on the fourteenth (14 th ) and fifteenth (15 th ) floors as more particularly shown on Exhibit A attached hereto and made part hereof (the “ Premises ”) in the building commonly known as Central Plaza I (the “ Building ”), located on Land (the “ Land ”) located at 675 Massachusetts Avenue, Cambridge, Massachusetts, together with rights of ingress and egress thereto, and with the right in common with others to use the elevators and common passageways, stairways and vestibules, and to pass over on that portion of land owned by Landlord. For purposes of this Lease, the Premises shall be deemed to consist of approximately 7,791 rentable square feet and the Building shall be deemed to be 123,810 rentable square feet. Landlord hereby reserves the right to re-measure the Building from time to time and Tenant’s Proportionate Share (as defined in Exhibit D ) shall be adjusted accordingly but shall not increase from the amount set forth herein. Landlord represents and warrants that upon Substantial Completion of Landlord’s Work, access to the fifteenth (15 th ) floor portion of the Premises via the stairwell connecting the same to the fourteenth (14 th Floor) floor portion of the Premises will be in compliance with, and sufficient for compliance with, all applicable Legal Requirements and that notwithstanding the performance of Landlord’s Work, no upgrades or improvements are necessary for Tenant to legally access, use and occupy the fifteenth floor portion of the Premises throughout the Lease Term.

2. LEASE TERM . Subject to any Tenant Delay (as defined on Exhibit F ) the term of this lease (the “ Lease Term ”) shall commence on the date of Substantial Completion of Landlord’s Work (as defined on Exhibit F ) and Landlord’s delivery of possession of the Premises to Tenant in “broom clean” condition, free of all occupants (the “ Lease Commencement Date ”) and expire on the last day of the full sixtieth (60 th ) month thereafter (the “ Expiration Date ”). If the Lease Term commences on a day other than the first day of a month, then the first year of the Lease Term shall expire on the last day of the full twelve (12 th ) calendar month following the Lease Commencement Date. Notwithstanding the foregoing, and subject to the execution of this Lease, Tenant shall have access to the Premises for thirty (30) days prior to the date on which the Lease Commencement Date is expected to occur solely for the purposes of installing its telecommunications equipment and wiring, furniture and fixtures (the “ Tenant s Early Access Work ”) and provided that Tenant complies with all terms and conditions of the Lease, including but not limited to its insurance and indemnification obligations set forth in the Lease but Tenant shall have no obligation to pay Rent during such period of access. Notwithstanding the foregoing, in the event of any conflict between the performance of Landlord’s Work and Tenant’s Early Access Work, Landlord’s Work shall have priority. Upon the Lease Commencement Date, Landlord and Tenant shall execute a Lease Commencement Date Certificate in the form attached hereto as Exhibit C . If Tenant fails to object to, or execute and return, the Lease Commencement Date Certificate within ten (10) Business Days of delivery from Landlord, the terms set forth on such Commencement Date Certificate shall be deemed to be agreed to by Tenant.

3. FIXED RENT .

 

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3.1 Fixed Rent .Tenant shall pay fixed rent (the “ Fixed Rent ”) with respect to the Premises in monthly installments in accordance with the schedule set forth on Exhibit “B” attached hereto and made a part hereof, without prior notice or demand, and without any setoff or deduction whatsoever (except as expressly set forth herein), in advance, on the first day of each month at such place as Landlord may direct. If the Lease Term shall commence or expire on other than the first or last day, as applicable, of a calendar month, such monthly installment of Fixed Rent and any applicable Additional Rent, as set forth below, shall be prorated for each calendar day of such partial month.

3.2 Late Payment . If any portion of Fixed Rent, Additional Rent or any other sum payable to Landlord hereunder shall be due and unpaid for more than five (5) days, it shall bear interest at a rate equal to ten percent (10%) per annum (the “ Default Rate ”) from the due date until the date of payment thereof by Tenant. In addition Tenant shall pay a late charge equal to five (5%) of the late payment if Tenant fails to pay an amount beyond applicable notice and cure periods. If any payment tendered by Tenant shall fail collection on presentment, Tenant shall reimburse Landlord for all charges imposed by Landlord’s bank on account thereof and pay to Landlord a bad check fee equal to $100.00. In no event shall Landlord be deemed to contract for or receive charges by way of interest or otherwise in excess of those permitted by law and any sum paid in excess of that permitted shall be refunded or credited to Tenant.

4. ADDITIONAL RENT . In addition to Fixed Rent, in accordance with and as more fully set forth on Exhibit D attached hereto and made a part hereof, Tenant shall pay to Landlord, without demand, deduction or setoff (except as expressly set forth herein), as “ Additional Rent ” (which amounts along with any other amounts or charges which may become due or payable by Tenant to Landlord may collectively or separately be referred to as “ Rent ” hereunder): (a) Tenant’s Proportionate Share of Operating Expenses to the extent the Operating Expenses exceed the Operating Base Year; and (b) Tenant’s Proportionate Share of Taxes to the extent the Taxes exceed the Tax Base Year (as such terms are defined in Exhibit D ).

5. SECURITY DEPOSIT .

5.1 Upon its execution of this Lease, Tenant shall deposit the sum of $150,000.00 in cash with the Landlord (the “ Security Deposit ”) which Security Deposit shall secure the faithful performance and observance by Tenant of the terms, covenants, conditions, agreements and provisions of this Lease. If Tenant is in an Event of Default, Landlord may use, apply or retain the whole or any part of the Security Deposit to the extent required for the payment of any Fixed Rent, Additional Rent or any other sum as to which Tenant is in default (beyond any applicable notice and cure period) or for any sum which Landlord may expend or may be required to expend by reason of Tenant’s default (beyond any applicable notice and cure period) in respect of any of the terms, covenants, conditions, agreements and provisions of this Lease, including, but not limited to, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. In the event the Security Deposit is applied by Landlord, Tenant shall promptly restore the Security Deposit to its original amount. The Security Deposit (less any deductions permitted hereunder) shall be returned to Tenant, without interest, within a reasonable period (not to exceed thirty (30) days) after the expiration of this Lease and after delivery of entire possession of the Premises to Landlord. In the event of a sale of the land and the building of which the Premises form a part, Landlord shall either (i) transfer the Security Deposit to Tenant and Landlord shall thereupon be released by Tenant from all liability for the return of such Security Deposit or (ii) transfer the Security Deposit to the new Landlord in which case Tenant agrees to look to the new Landlord solely for the return of said Security Deposit. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as the Security Deposit and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. In the

 

2


event of any bankruptcy or other insolvency proceeding against Tenant, it is agreed that the Security Deposit held hereunder shall be deemed to be applied by Landlord to Rent and other charges due to Landlord for the last month of the Lease Term and each preceding month until such Security Deposit is fully applied.

5.2 Provided that Tenant is not in an Event of Default, upon written request from Tenant, Landlord shall promptly return $50,000 to Tenant and the Security Deposit shall be reduced to $100,000.00 after the thirty-sixth (36 th ) month following the Lease Commencement Date.

6. USE OF PREMISES . Tenant covenants and agrees to use and occupy the Premises for general office use as permitted by law (the “ Permitted Use ”). Tenant shall not use or permit any use of the Premises which creates any safety or environmental hazard, or which would: (a) be dangerous to the Premises, the Building or other tenants of the Building, or (b) be unreasonably disturbing to other tenants of the Building, or (c) if used for other than the Permitted Use, cause any increase in the premium cost for any insurance which Landlord may then have in effect with respect the Building generally. Except as otherwise set forth specifically herein, Tenant shall obtain and maintain all necessary licenses and permits that may be necessary for Tenant to occupy the Premises for the Permitted Use except Landlord shall be responsible for obtaining all permits and certificates of occupancy in connection with the Landlord’s Work (as defined in Exhibit F ). Landlord represents and warrants that the Premises may be used for general office purposes as of right under the applicable Legal Requirements and that the use of the Premises for general office purposes will not violate the foregoing prohibition.

7. CONDITION OF PREMISES . EXCEPT FOR LANDLORD’S WORK (AS FURTHER DESCRIBED ON EXHIBIT F ) AND FOR THE OBLIGATION OF LANDLORD TO DELIVER THE PREMISES WITH ALL MECHANICAL AND HVAC SYSTEMS SERVING THE SAME IN GOOD AND OPERATIONAL CONDITION. WITH A REMAINING USEFUL LIFE AT LEAST AS LONG AS THE LEASE TERM AS THE SAME MAY BE EXTENDED HEREUNDER. TENANT ACKNOWLEDGES THAT NO REPRESENTATIONS AS TO THE CONDITION OF THE PREMISES HAVE BEEN MADE BY LANDLORD AND TENANT ACKNOWLEDGES AND AGREES THAT LANDLORD SHALL DELIVER AND TENANT SHALL ACCEPT THE PREMISES IN ITS CURRENT “AS IS” CONDITION. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH HEREIN, LANDLORD MAKES NO REPRESENTATION OR WARRANTY THAT THE PREMISES ARE FIT OR ZONED FOR THE PERMITTED USE.

8. HAZARDOUS MATERIALS .

8.1 Limitations on Use . Tenant shall not transport, use, store, maintain, handle, generate, manufacture, dispose, discharge or release any Hazardous Material (as defined below in Section 8.2) upon or about the Premises, or permit Tenant Responsible Parties (as defined below in Section 8.2) to engage in such activities upon or about the Property, in violation of applicable laws and regulations. However, the foregoing provisions shall not prohibit the transportation to and from, and use, storage, maintenance and handling within the Premises of Hazardous Materials customarily used in the business or activity expressly permitted to be undertaken in the Premises under this Lease (“ Customary Hazardous Materials ”); provided: (a) such substances shall be used and maintained only in such quantities as are reasonably necessary for such permitted use of the Premises and the ordinary course of Tenant’s business therein, strictly in accordance with all applicable laws, prevailing standards and the manufacturers’ instructions therefor, (b) such substances shall not be disposed of, discharged or released in or about the Premises (except as may be permitted by applicable law), and shall be transported to and from the Premises in compliance with all applicable laws, (c) if any applicable law or Landlord’s trash removal contractor requires that any such substances be disposed of separately from ordinary trash, Tenant shall make arrangements at Tenant’s expense for such disposal directly with a qualified and licensed disposal

 

3


company at a lawful disposal site (subject to scheduling and approval by Landlord), (d) any remaining such substances shall be completely, properly and lawfully removed from the Property upon expiration or earlier termination of this Lease, and (e) for purposes of removal and disposal of any such substances for which applicable law requires such a classification, Tenant shall be named as the owner and generator, obtain a waste generator identification number, and execute all applications, permits, manifests, waste characterization documents and any other required forms.

8.2 Notices Regarding Hazardous Materials . Tenant shall promptly notify Landlord in writing of: (a) any enforcement, cleanup or other regulatory action taken or threatened by any governmental or regulatory authority with respect to the presence of any Hazardous Material on the Premises or the migration thereof from or to other property, to the extent caused by Tenant or its operation in the Premises, (b) any demands or claims made or threatened by any party relating to any loss or injury resulting from any Hazardous Material placed or introduced into the Premises by Tenant, (c) any discharge, release or non-routine, improper or unlawful disposal or transportation by Tenant of any Hazardous Material on or from the Premises or in violation of Section 8, and (d) any matters where Tenant is required by law to give a notice to any governmental or regulatory authority respecting any Hazardous Material on the Premises. Landlord shall have the right (but not the obligation) to join and participate, as a party, in any legal proceedings or actions affecting the Premises initiated in connection with any environmental, health or safety law. At such times as Landlord may reasonably request, Tenant shall provide Landlord with a written list, certified to be true and complete, identifying any Hazardous Material then used, stored, or maintained upon the Premises (other than Customary Hazardous Materials”), the use and approximate quantity of each such material, a copy of any material safety data sheet (the “ MSDS ”) issued by the manufacturer or supplier therefore, and such other information as Landlord may reasonably require or as may be required by law. The term “ Hazardous Material ” for purposes hereof shall mean any chemical, substance, material or waste or component thereof which is now or hereafter listed, defined or regulated as a hazardous or toxic chemical, substance, material or waste or component thereof by any federal, state or local governing or regulatory body having jurisdiction, or which would trigger any employee or community “right-to-know” requirements adopted by any such body, or for which any such body has adopted any requirements for the preparation or distribution of an MSDS.

8.3 Indemnification regarding Hazardous Materials . Tenant covenants and agrees to exonerate, indemnify, defend, protect and save Landlord, and the directors, officers, shareholders, agents, employees and contractors of Landlord, harmless from and against any and all claims, demands, expenses, losses, suits and damages as suffered directly or from a third-party claim arising out of or related to any Hazardous Materials introduced by Tenant or any Tenant Responsible Parties into the Premises or Building. The obligations of the parties pursuant to this Section 8.4 shall survive the expiration or earlier termination of the Lease.

8.4 Remediation . If any Hazardous Material is released, discharged or disposed of by Tenant or Tenant Responsible Parties, on or about the Property in violation of Section 8, Tenant shall immediately, properly and in compliance with all applicable laws clean up and remove the Hazardous Material from the Property and any other affected property and clean or replace any affected personal property (whether or not owned by Landlord), at Tenant’s expense (without limiting Landlord’s other remedies therefore). Such clean up and removal work shall be subject to Landlord’s prior written approval (except in emergencies), which shall not be unreasonably withheld, delayed or conditioned, and shall include, without limitation, any testing, investigation, and the preparation and implementation of any remedial action plan required by any court or governmental body having jurisdiction or reasonably required by Landlord. If Landlord or any lender or governmental body arranges for any tests or studies showing that Section 8 has been violated by Tenant, Tenant shall pay for the actual costs of such tests. Nothing in Section 8 shall be construed as preventing Tenant from obtaining additional testing at its own

 

4


expense. During the Lease Term, Landlord shall have the option to retain a consultant who will conduct an investigation to verify that no portion of the Building (including the Premises, to the extent Landlord has reasonable cause to believe that there is such a use) is being used for any activities involving, directly or indirectly, the unlawful use, storage, maintenance, handling, generation, manufacture, disposal, discharge or release of any Hazardous Material. Subject to terms and conditions of this Lease regarding Landlord’s access, Tenant hereby grants to Landlord, its agents, employees, consultants and contractors the right to enter upon the Premises (subject to Section 17.4 hereof) and to perform such tests on the Premises as are reasonably necessary to conduct any such investigation. To the extent Tenant discovers any Hazardous Materials at the Premises, which was not introduced to or released in the Premises by Tenant by any action or inaction, or its agents, employees or contractors, and the presence of which violates any applicable laws, regulations or other requirements now or hereafter in effect, then Landlord shall, at its sole cost, comply with all such laws, regulations or other requirements with respect to the remediation of the same. Landlord shall be fully responsible for the removal of any Hazardous Materials discovered during the Lease Term (as same may be extended) that were not caused by Tenant in and upon the Land, Building and Premises and Landlord covenants and agrees to exonerate, indemnify, defend, protect and save Tenant, and the directors, officers, shareholders, agents, employees and contractors of Tenant, harmless from and against any and all claims, demands, expenses, losses, suits and damages as suffered directly or from a third-party claim arising out of or related to such Hazardous Materials. Landlord represents and warrants that it has no knowledge of any Hazardous Materials in violation of applicable Legal Requirements existing in the Premises as of the date of this Lease, and Landlord shall remediate any Hazardous Materials encountered in the Premises during the course of the performance of Landlord’s Work.

9. INDEMNIFICATION . Except to the extent caused by the negligence or willful misconduct of Landlord and/or its agents, representative, contractors or employees, Tenant covenants and agrees to exonerate, indemnify, defend, protect and save Landlord, Landlord’s managing agent and Landlord’s mortgagee (if any) (the “ Landlord Parties ”) harmless from and against any and all claims, demands, expenses, losses, suits and damages as may be occasioned by reason of (i) any accident, injury or damage occurring in the Premises causing injury to persons or damage to property (including, without limitation, the Premises); and (ii) the failure of Tenant to fully and faithfully perform the obligations and observe the conditions of this Lease. Landlord covenants and agrees to exonerate, indemnify, defend, protect and save Tenant and the Tenant Parties harmless from and against any and all claims, demands, expenses, losses, suits and damages as may be occasioned by reason of (i) the negligence or willful misconduct of Landlord or any Landlord Parties; and (ii) the failure of Landlord to fully and faithfully perform the obligations and observe the conditions of this Lease. The obligations of the parties pursuant to this Section 9 shall survive the expiration or earlier termination of the Lease.

10. ALTERATIONS, ADDITIONS OR IMPROVEMENTS BY TENANT .

10.1 Alterations by Tenant . Tenant shall not make any alterations, additions, improvements or other changes in or to the Premises (the “ Alterations ”) without Landlord’s prior written consent, other than the installation of typical office decorations, furniture, furnishings, cosmetic or other minor works (i.e. painting, carpeting, minor repair and restorations) (such consent not to be unreasonably withheld, conditioned or delayed), provided, however, that if the proposed Alterations will adversely affect the exterior or structural components of the Building, or the Building systems (including, but not limited to, the electric, HVAC, plumbing, telecommunication and security systems), Tenant must obtain Landlord’s written consent and Landlord may withhold its consent to such Alterations in Landlord’s sole discretion. If Landlord does not respond within ten (10) days after receipt of any written request by Tenant for approval of any such Alterations, Landlord shall be deemed to have approved any such Alteration specified in Tenant’s written request for Landlord’s approval. Without limitation, it shall not be unreasonable for Landlord to withhold its consent to any Alterations which would impose on Landlord

 

5


any special maintenance, repair or replacement obligations not within the scope of those expressly provided for herein, unless Tenant agrees, at the time of its request for approval or notice of such Alterations, to pay all costs associated with Landlord’s meeting the additional obligations. All Alterations shall be subject to the provisions of Sections 10.2, 10.3 and 10.4 below.

10.2 Quality and Performance of Work . All construction work required or permitted by this Lease shall be done in a good and workmanlike manner by contractors approved by Landlord and in compliance with the rules and regulations of the Building (the “ Building Rules and Regulations ”), attached hereto and made a part hereof as Exhibit “E” , all insurance requirements of this Lease, and all applicable laws, statutes, codes, ordinances, orders, rules, regulations, conditions of approval and requirements of all federal, state, county, municipal and other governmental authorities, including the requirements of the Americans with Disabilities Act (“ ADA ”) (collectively, “ Legal Requirements ”). Tenant acknowledges that in connection with any Alterations it shall not take any action which would cause a work stoppage, picketing, labor disruption or other dispute (the “ Labor Disruption ”). In addition, Tenant acknowledges that if any Alterations require the Tenant to access any portion of the Building outside of the Premises beyond normal construction hours (Monday through Friday between the hours of 7:30am to 3:30pm) (the “ Construction Hours ”), Tenant shall pay to Landlord for cost of Landlord’s on-site supervisory personnel at the rate of $75.00 per hour within fifteen (15) days of invoice from Landlord.

10.3 Additional Covenants Regarding Alterations .

(a) Unless otherwise specified herein, all Alterations shall be made (i) at Tenant’s sole cost and expense, (ii) according to plans and specifications approved in writing by Landlord (to the extent plans, specifications, and/or Landlord’s consent is required), (iii) in compliance with all Legal Requirements, (iv) by a licensed union contractor reasonably approved by Landlord in advance, and (v) in a good and workmanlike manner. Tenant shall provide Landlord with as-built plans for any materials Alterations for which plans are used, regardless of whether the Alterations require Landlord’s consent hereunder.

(b) Tenant shall keep the Premises and the Building free from any liens arising out of any work performed, materials ordered or obligations incurred by or on behalf of Tenant. Without limitation, Tenant shall be responsible for, and shall pay when due, all costs associated with the preparation of plans and the performance of Alterations, and the same shall be performed in a lien-free, good and workmanlike manner, and in compliance with all Legal Requirements. In the event that Tenant shall fail to pay the costs associated with Alterations on a timely basis, and as a result of such failure, a statutory and/or common law lien is asserted against the Premises or the Building, and Tenant shall fail, within fifteen (15) days after notice of such assertion, to cause (by payment, posting of a proper bond, or otherwise) such lien to be released of record, Landlord shall have the right (but not the obligation), upon prior written notice to Tenant and at Tenant’s expense, to cause such lien to be bonded over or released of record.

(c) Tenant shall ensure that all contractors and subcontractors performing Alterations are insured in amounts required by law.

(d) Tenant agrees that Landlord shall have the right to examine and inspect any Alteration; provided, however, that no such examination or inspection shall constitute an approval or warranty or give rise to any liability of Landlord with respect to any thereof. In the performance of Alterations in accordance with this Lease, Tenant shall cause its contractors to use reasonable and diligent efforts not to materially interfere with ongoing operations in the Building, to keep all construction areas

 

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clean and free of trash and debris, and otherwise to comply with any other reasonable rules and regulations established by Landlord with regard to construction activities.

(e) Tenant shall provide copies of any warranties for Alterations and the materials and equipment which are incorporated into the Premises and the Building in connection therewith, and either assign to Landlord, or enforce on Landlord’s behalf, all such warranties to the extent repairs and/or maintenance on warranted items would be covered by such warranties and are otherwise Landlord’s responsibility under this Lease.

(f) Landlord shall notify Tenant in writing at the time of Landlord’s approval of any Alterations, whether or not the proposed Alterations will be required to be removed by Tenant at the end of the Lease Term (it being agreed that Landlord shall have no right to require Tenant to remove Alterations of the type typical of office use in the area where the Premises are located). Tenant shall be obligated to remove any Alterations that Landlord has not designated in writing will be permitted to remain in the Premises in accordance with Section 26.

11. COVENANTS OF LANDLORD .

11.1 Landlord will supply: (a) hot, cold water, and sewer services to the Premises and the Building; (b) elevator service to the Premises and the Building, (c) janitorial and cleaning services on a nightly basis during Business Days and which services shall otherwise be in amounts consistent with similar buildings in the community (“ Comparable Buildings ”), and (d) a security desk staffed on a 24/7/365 basis.

11.2 Landlord shall provide: (a) electricity services to the Premises for normal office use at a capacity which has been confirmed by Tenant to be adequate for its use in the Premises; and (b) HVAC services to the Premises during Business Hours (as defined in Section 11.6 below), and at all other times upon Tenant’s request, subject to reimbursement in accordance with Section 12.1 below, and which HVAC services shall provide comfortable temperatures that are consistent with Comparable Buildings.

11.3 The services provided by Landlord pursuant to section 11.1 and 11.2 above shall be known as the “ Building Services ”. Landlord shall not be liable for the failure to supply or interruption of any Building Services by reason of any cause beyond Landlord’s reasonable control provided Landlord diligently pursues restoration of the same. Notwithstanding the foregoing, in the event: (a) there is an interruption of the Building Services or access to the Premises for more than three (3) consecutive Business Days (or more than ten (10) Business Days total in any twelve (12) month period during the Lease Term (as same may be extended); and (b) the circumstances are within the reasonable control of Landlord, then Tenant shall be entitled to abatement of Rent for each day of interruption until the Building Services or access have been restored. The provisions of this Section 11.3 shall not apply in the event of a fire, other casualty or condemnation event, in which events, the provisions of Sections 14 and 15 shall apply.

11.4 If Tenant requires installation of a separate or supplementary heating, cooling, ventilating and/or air conditioning system, Tenant shall pay all costs in connection with the furnishing, installation and operation thereof. If Tenant requires janitorial and cleaning services beyond those provided by Landlord herein, Tenant shall arrange for such additional services through Landlord, and Tenant shall pay Landlord within thirty (30) days after receipt of billing therefor.

11.5 Landlord shall be responsible for the prompt maintenance, repair and replacement of the Building systems (including the electric, HVAC, elevator, plumbing, telecommunication and security

 

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systems), exterior and structural repairs to the Building, including but not limited to the floor, footings, foundation, structural frame, glazing and structural elements of the roof and roof membrane, all below ground plumbing and all fuel tanks located in or around the Building, and capital improvements to the Building and all common areas of the Building, so as to maintain the same in good and operational condition, unless such repairs and replacements are necessitated by damage caused by the negligence or intentional acts of Tenant or Tenant’s employees, servants, agents or invitees. Landlord shall be responsible for maintaining the foregoing areas in compliance with applicable Legal Requirements.

11.6 For purposes herein, “ Business Days ” shall mean Monday through Friday, excluding Saturdays, Sundays and federal or state legal holidays. “ Business Hours ” shall mean 8:00 a.m. to 6:00 p.m. on Business Days, and 8:00 a.m. to 1:00 p.m. on Saturdays.

12. COVENANTS OF TENANT .

12.1 Upon request from Tenant, Landlord shall provide HVAC service to Tenant beyond Business Hours at the rate of sixty dollars ($60.00) per hour, which amount shall be paid to Landlord within thirty (30) days after receipt of invoice from Landlord. Such hourly rate shall be subject to reasonable adjustments from time to time to reflect increases in Landlord’s costs for providing such additional service;

12.2 Tenant, at its sole cost and expense, shall pay for all utilities which are separately metered to the Premises directly to the applicable utility provider(s) when due (and if the utilities are not separately metered Tenant shall pay for utilities through it payment of Additional Rent pursuant to Section 4);

12.3 Tenant, at its sole cost and expense, shall keep the Premises in substantially the same order and repair as exists on the Lease Commencement Date, reasonable wear and tear, damage by fire or other casualty, takings, and any items that Landlord is obligated to maintain, repair or replace excepted;

12.4 Tenant, at its sole cost and expense, shall surrender the Premises on the Expiration Date of this Lease in the condition required pursuant to Section 25 hereof;

12.5 Tenant shall not, without the prior consent of Landlord, (i) place, erect, maintain or display any sign or other marking of any kind whatsoever on the windows, doors or exterior walls of the Premises; or (ii) place any blinds, curtains, drapes or coverings over the exterior windows or on the window surfaces which are visible from the outside of the Building;

12.6 Tenant, at its sole cost and expense, shall be responsible for the maintenance of the Premises (including, but not limited to, any tenant improvements, Alterations, fixtures, equipment and systems installed therein by Tenant), and for the repair and replacement of any part of the Premises and the Building made necessary by reason of damage thereto caused by the negligence or willful misconduct of Tenant or Tenant’s employees, servants, agents or invitees, subject to Section 16.3 below. In no event shall Tenant be responsible for any item that Landlord is obligated to repair, maintain or replace under this Lease. In the event Tenant shall fail to perform such maintenance, repairs or replacements within thirty (30) days of the date such work becomes necessary, and thereafter fails to commence same within ten (10) days after receipt of Landlord’s notice specifying the need for such repair, Landlord may, but shall not be required to, perform such work and charge the amount of the reasonable expense therefor, which amount shall be paid by Tenant within thirty (30) days after receipt of Landlord’s invoice therefor;

 

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12.7 Tenant, at its sole cost and expense, shall comply with all laws, enactments and regulations of any governmental authority relating or applicable to Tenant’s particular use of the Premises or Tenant’s Alterations.

12.8 Tenant shall promptly notify Landlord of any damage or defects in the Premises or notices of violation received by Tenant with respect to the Premises;

12.9 Without the prior written consent of Landlord, not place within the Premises or bring into the Building personalty having a weight in excess of the design capacity of the Building;

12.10 Comply with the Building Rules and Regulations, and any reasonable and non-discriminatory amendments, modifications and/or additions thereto as may hereafter be adopted and published by written notice to tenants by Landlord for the safety, care, security, good order and/or cleanliness of the Premises and/or the Building. Landlord agrees to enforce such rules and regulations against all tenants in the Building in a non-discriminating fashion and Landlord shall not be liable to Tenant for any violation of such rules and regulations by any other tenant or occupant of the Building, but shall use commercially reasonable efforts to enforce such rules and regulations to the extent the violation thereof by other tenants or occupants interferes with Tenant’s use and occupancy of the Premises;

12.13 Comply with all reasonable recommendations of Landlord’s or Tenant’s insurance carriers relating to layout, use, storage of materials and maintenance of the Premises.

13. ASSIGNMENT AND SUBLETTING .

13.1 Tenant shall not assign, pledge, mortgage or otherwise transfer or encumber this Lease, nor sublet all or any part of the Premises or permit the same to be occupied or used by anyone other than Tenant or its employees, guests and invitees (the “ Transfer ”) without Landlord’s prior written consent such consent not to be unreasonably withheld, conditioned or delayed. Landlord shall respond to any request for consent within ten (10) days. Any consent by Landlord hereunder shall not constitute a waiver of strict future compliance by Tenant of the provisions of this Section 13 or a release of Tenant from the full performance by Tenant of any of the terms, covenants, conditions, agreements or provisions of this Lease. Any assignment or subletting in contravention of the provisions of this Section 13 shall be void. Notwithstanding anything to the contrary contained in this Section 13 or elsewhere in this Lease, any assignment or subletting shall be subject to the following further conditions and limitations set forth in this Section 13. Notwithstanding the foregoing, Tenant shall have the right without Landlord’s consent to have up to two (2) other companies in which Tenant, Tenant’s shareholders or Atlas Venture partners have an ownership interest occupy up to forty percent (40%) of the Premises in the aggregate provided such portions of the Premises are not separately demised.

13.2 Proposed Subtenants and Assignees . In no event may Tenant assign or sublet to (a) a prospective tenant (or its designee) who is discussing with Landlord (or Landlord’s agent) its need for space in the Building, or who has so negotiated within the previous six (6) months; or (b) a current tenant, subtenant, assignee or occupant of space in the Building if Landlord has comparable space available for a comparable term available for lease in the Building.

13.3 Advertising . In no event shall Tenant advertise space using signage, online or other public marketing materials (on a per rentable square foot basis) at a lower rate than Landlord is then advertising space (on a per rentable square foot basis) in the Building. Notwithstanding the foregoing, Tenant may engage a broker to solicit subtenants or assignees to pay at a lower rate than Landlord is then advertising space in the Building, and Tenant and any such broker may prepare and submit letters of intent and other written proposals to prospective subtenants or assignees at such lower rates.

 

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13.4 Right to Share Profits .

(a) If Landlord consents to the subletting of all or any part of the Premises to any third party, Tenant shall in consideration thereof pay to Landlord, as Additional Rent, as and when received, fifty percent (50%) of any Net Profits (as hereinafter defined) in connection with the subletting. “ Profits ” on a subletting shall mean the difference between (i) the amounts paid as rent and additional rent by the subtenant to Tenant in and for each month of the sublease term and (ii) Fixed Rent and Additional Rent due and payable by Tenant to Landlord in and for each month of the sublease term, in each and every month when the former exceeds the latter, provided, however, that if a sublease involves less than the entire Premises, the amounts paid by Tenant to Landlord used in subpart (ii) above shall be prorated each month to reflect the portion of the Premises being sublet. “ Net Profits ” on a subletting shall mean monthly Profits reduced by an amount equal to the quotient found by taking reasonable and customary attorneys’ fees, real estate brokerage commissions and alteration expenses (if any), paid and incurred by Tenant in connection with the subletting, and dividing by the number of months in the sublease term.

(b) If Landlord consents to the assignment of this Lease, Tenant shall in consideration thereof pay to Landlord fifty percent (50%) of any Net Consideration (as hereinafter defined) in connection with the assignment. “ Consideration ” for an assignment shall mean any sums paid to Tenant in consideration of the assignment (other than the amount of rent and additional rent assumed by the assignee). “ Net Consideration ” for an assignment shall mean Consideration reduced by an amount equal to the total reasonable and customary attorneys’ fees, real estate brokerage commissions and alteration expenses (if any), paid and incurred by Tenant in connection with the assignment.

(c) Landlord shall have the right at any time and from time to time upon reasonable prior notice to Tenant to audit and inspect Tenant’s books, records, accounts and federal income tax returns to verify the determination of Additional Rent payable under Section 13.3.

13.5 Legal and Administrative Costs . Within thirty (30) days after receipt of Landlord’s invoice therefor, Tenant shall pay Landlord’s reasonable legal and other reasonable out-of-pocket expenses incurred in processing each of Tenant’s third party subletting and/or assignment requests.

13.6 Permitted Transfer . Provided that (a): there is no Event of Default; and (b) the Permitted Transferee (as defined below) (if other than an entity described in subsection (i) below) has a net worth equal to or greater than the Tenant’s new worth calculated as of the date of this Lease, Tenant shall have the right to assign or sublease the Premises without securing consent of Landlord, but upon prior written notice to Landlord if permitted by applicable law (the “ Permitted Transferee Notice ”) to: (i) any affiliate, business partner, or entity that controls, is controlled by, or is under common control of Tenant; (ii) succeeds-in-interest to Tenant by way of merger or consolidation; or (iii) is the successor in interest to Tenant due to the sale of all the stock or substantially all of the assets of Tenant (collectively, a “ Permitted Transferee ”). Notwithstanding the foregoing, Tenant shall remain primarily liable for its obligations under the Lease and shall produce documentation reasonably requested by Landlord evidencing the Permitted Transfer. Any other assignment or sublease shall be only upon the prior written consent of Landlord which consent shall not be unreasonably withheld, delayed or conditioned and shall be further governed by Section 13.1 - 13.5. Section 13.4 shall not apply in connection with a Transfer to a Permitted Transferee.

14. EMINENT DOMAIN . If the whole or a material portion of the Premises (or use or occupancy of the Premises) shall be taken or condemned by a governmental or quasi-governmental authority for any public or quasi-public use or purpose (including sale under threat of such a taking), or if the owner elects to convey title to the condemnor by a deed in lieu of condemnation, or if all or any portion of the Land or

 

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Building are so taken, condemned or conveyed and as a result thereof, in Landlord’s reasonable but sole judgment, the Premises cannot be used for Tenant’s Permitted Use as set forth herein, then this Lease shall cease and terminate as of the date when title vests in such governmental or quasi-governmental authority and Fixed Rent and Additional Rent shall be abated on the date when such title vests in such governmental or quasi-governmental authority. If less than a material portion of the Premises is taken or condemned by any governmental or quasi-governmental authority for any public or quasi-public use or purpose (including sale under threat of such a taking), Landlord shall promptly restore the remaining portion of the Premises to an architecturally and functionally complete unit, and Fixed Rent and Tenant’s Proportionate Share shall be equitably adjusted (on the basis of the number of square feet before and after such event) on the date when title vests in such governmental or quasi-governmental authority and this Lease shall otherwise continue in full force and effect. In any case, Tenant shall have no claim against Landlord for any portion of the amount that may be awarded as damages as a result of any governmental or quasi-governmental taking or condemnation (or sale under threat or such taking or condemnation); and all rights of Tenant to damages therefor are hereby assigned by Tenant to Landlord. The foregoing shall not, however, deprive Tenant of any separate award for moving expenses, dislocation damages, value of furnishing and trade fixtures, or for any other award which would not reduce the award payable to Landlord.

15. FIRE OR OTHER CASUALTY .

15.1 In the event of damage to or destruction of the Premises caused by fire or other casualty, or any such damage to or destruction of the Building necessary to provide normal services and access to the Premises in accordance herewith (the “ Event of Casualty ”), Landlord, after receipt of written notice thereof from Tenant, shall undertake to make repairs and restorations with reasonable diligence, unless this Lease has been terminated by Landlord or Tenant as hereinafter, unless any mortgagee which is entitled to receive casualty proceeds fails to make available to Landlord a sufficient amount of such proceeds to cover the cost of such repairs and restorations. If (i) in Landlord’s sole judgment, the damage is of such nature or extent that more than one hundred (180) days would be required to repair and restore the Premises or the Building (with normal work crews and normal work crew hours) as the case may be; or (ii) in Landlord’s sole judgment, the damage not covered by insurance (or required to be covered by insurance hereunder) and is of such nature or extent that it is uneconomical to repair and restore the Premises or the Building, as the case may be; or (iii) less than one (1) year remains on the then current Lease Term, Landlord shall so advise Tenant within thirty (30) days after the Event of Casualty (the “ Landlord’s Notice of Casualty ”), and either party shall have thirty (30) days after receipt of Landlord’s Notice of Casualty to terminate this Lease by written notice to the other. If either party elects to terminate this Lease in the case described in clauses (i), (ii) or (iii) above, then the Lease Term shall expire as of the date of the Event.of Casualty, and Tenant shall vacate the Premises and surrender the same to Landlord in accordance with the terms of this Lease.

15.2 If an Event of Casualty occurs, provided this Lease is not terminated pursuant to the terms of Section 15.1, and sufficient casualty insurance proceeds are available for application to such repair and restoration (provided Landlord maintained all insurance required hereunder), Landlord shall proceed diligently to repair and restore the Premises and Building to substantially the same condition prior to the Event of Casualty. Notwithstanding the foregoing, Landlord shall not be obligated to repair or restore: (i) any Alterations made by Tenant after the Lease Commencement Date; or (ii) any Personal Property (as hereinafter defined) which Tenant may have installed (whether or not Tenant is required to remove or leave the same on the Premises as of the expiration or earlier termination of this Lease) unless Tenant, in a manner satisfactory to Landlord, assures payment in full of all costs as may be incurred by Landlord in connection therewith.

 

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15.3 Landlord shall not be required to insure: (i) any Alterations to the Premises made by Tenant after the Lease Commencement Date; or (ii) any Personal Property of Tenant.

15.4 In the event of the failure of Landlord to complete the repair and restoration of the Premises or the Building within the longer of (i) one hundred eighty (180) days after the date of the Casualty of (ii) the period specified in the Landlord’s Casualty Notice, Tenant may terminate this Lease upon written notice to Landlord.

15.5 Rent shall abate after an Event of Casualty until the Premises, access thereto and all services thereto have been restored, such abatement to be on a proportionate basis if the Event of Casualty only impacts Tenant’s operations in a portion of the Premises.

16. INSURANCE; WAIVER OF SUBROGATION .

16.1 Tenant’s Insurance .

(a) Personal Property . Tenant agrees that all risks (including that of fire or other casualty, theft or other harm, damage or loss) to Tenant’s Personal Property, including the loss of use of the same, shall be borne solely by Tenant, except to the extent of loss caused by the negligence or willful misconduct of Landlord, subject to Section 16.3 below. As used herein, “ Personal Property ” includes, but is not limited to, all of Tenant’s tangible and intangible goods and accounts, inventory, merchandise, furniture, fixtures, equipment (including computer equipment and any data stored thereon) and systems. Tenant shall purchase and maintain insurance in an amount adequate to repair or replace or otherwise cover its Personal Property (and the Personal Property of others held or leased by Tenant or otherwise in the Premises)and any Alterations made by Tenant after the Lease Commencement Date.

(b) Business Interruption . Tenant shall maintain in full force and effect at all times, and at its own expense, business interruption insurance in amounts adequate to cover all Fixed Rent and Additional Rent due under this Lease.

(c) Commercial General Liability . Tenant shall maintain in full force and effect at all times, and at its own expense, commercial general liability insurance (including contractual and personal injury liability insurance) in an amount not less than $1,000,000.00 combined single limit bodily injury and property damage per occurrence and $3,000,000.00 annual aggregate limit per location (or such higher limits as may be reasonably determined by Landlord from time to time after the initial Term).

(d) Automobile Liability . For any vehicles owned by Tenant, Tenant shall maintain in full force and effect at all times, and at its own expense, automobile liability insurance in an amount not less than $1,000,000.00 combined single limit bodily injury and property damage per accident.

(e) Workers’ Compensation . Tenant shall maintain in full force and effect at all times, and at its own expense, the statutory limits of workers’ compensation insurance in amounts required by applicable law.

(f) Excess/Umbrella Liability. Tenant shall maintain in full force and effect at all times, and at its own expense, umbrella liability coverage in an amount not less than $2,000,000.00 per occurrence. Umbrella liability coverage is to be in excess of the commercial general liability, and automobile liability requirements outlined in Sections 16.1 (b), and (c) above.

(g) The liability coverage in the insurance policies required in Sections 16.1 (b), (c) and (e) above shall name Landlord Parties as additional insureds on a primary non-contributing basis. All

 

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insurance policies required in Sections 16.1 (a) - (f) above shall be issued by companies authorized to do business in Massachusetts with an A.M. Best’s financial rating of A- or better and a size class rating of VII (7) or larger or otherwise acceptable to Landlord. At or prior to the Tenant’s access to the Premises, Tenant shall deposit with Landlord a certified copy of the insurance binder (countersigned by the insurer) or evidence of insurance (in ACORD Form 28) or other proof satisfactory to Landlord for each of the insurance policies Tenant is required to carry in compliance with its obligations under this Lease. If available, such insurance policies shall contain a provision that the insurer will not cancel or refuse to renew the policy, or change in any material way the nature or extent of the coverage provided by such policy without first endeavoring to give at least thirty (30) days prior written notice to Landlord Parties. If this provision is not available, then Tenant shall be required to provide such notice to Landlord. If Tenant shall fail to obtain and maintain the required insurance and shall fail to remedy such within ten (10) Business Days after written notice by Landlord, such failure shall constitute an Event of Default under this Lease. Notwithstanding the foregoing, Tenant will be liable for any and all costs, liabilities, damages and penalties resulting to Landlord Parties from such termination, unless a written waiver of the specific insurance requirement(s) is provided to Tenant by Landlord Parties.

16.2 Insurance During Construction . In addition, during the performance of any construction by Tenant on the Premises, in addition to the above coverage required to be maintained by Tenant, Tenant shall cause the general contractor performing the work to carry: (a) commercial general liability insurance in an amount not less than $1,000,000.00 combined single limit bodily injury and property damage per occurrence and $2,000,000.00 annual aggregate limit per location (or such higher limits as may be determined by Landlord from time to time); and (b) the statutory limits of workers’ compensation insurance during the course of the construction with a limit of not less than the total replacement cost of the completed improvements under construction. Such contractor insurance policies shall name Landlord Parties as additional insureds on a primary non-contributing basis.

16.3 Waiver of Subrogation .

Landlord and Tenant hereby release each other from any and all liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property caused by fire or other casualty, even if such fire or other casualty shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible, provided, however, that this release shall be applicable and in full force and effect only to the extent permitted by law and only to the extent that the cost of repairing such damage is covered by insurance or would have been covered by insurance proceeds payable under any policy (including the deductible and/or uninsured portion thereof) required to be maintained under this Lease, but not so maintained. Each policy of such insurance shall contain a waiver of subrogation by insurer against Landlord or Tenant, as the case may be.

16.4 Landlord’s Insurance . Landlord shall maintain insurance against loss or damage with respect to the Building on an “all risk” type insurance form, with customary exceptions, subject to such commercially reasonable deductibles as Landlord may determine, in an amount equal to at least the replacement value of the Building. The cost of such insurance may be treated as a part of Operating Expenses.

17. INSPECTION; ACCESS; CHANGES IN BUILDING FACILITIES .

17.1 Landlord, its agents, employees and contractors may enter the Premises at any time in response to an emergency and at other reasonable times (i) to examine, inspect and protect the Premises and the Building; (ii) to make such repairs as Landlord may deem necessary to the Premises and the Building; (iii) during the last nine (9) months of the Lease Term, or any extension or renewal thereof, to

 

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show it to prospective tenants; and (iv) at any time during the Lease Term, upon reasonable advance notice, to show it to prospective purchasers of the Building. Landlord may, at any time, affix to any suitable part of the exterior of the Building in which the Premises is located a notice for letting the Premises or the Building or selling the Building.

17.2 Landlord shall have access to all areas in the Premises (including exterior Building walls, core corridor walls and doors and any core corridor entrances), any roofs adjacent to the Premises, and any space in or adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other Building facilities, as well as access to and through the Premises for the purpose of operation, maintenance, decoration and repair.

17.3 Landlord reserves the right at any time, without incurring any liability to Tenant therefor, to make such changes in or to the Building and the fixtures and equipment thereof, as well as in or to the street entrances, halls, foyers, passages, elevators, if any, and stairways thereof, and garages as it may deem necessary or desirable, provided the same does not unreasonably interfere with Tenant’s use and occupancy of the Premises.

17.4 Notwithstanding the foregoing, Landlord shall exercise its rights to enter the Premises and/or perform any installations, construction, or other work in the Premises and/or Building: (i) at reasonable times upon at least twenty-four (24) hours prior written notice to Tenant; (ii) so as not to change the size, shape, configuration or location of the Premises; (iii) so as to minimize interference with Tenant’s business at the Premises; (iv) so as not to impair access to or visibility of the Premises; (v) so as to always maintain adequate, reasonable proximate, parking to service the Premises and the Building; and (vi) with due diligence and care so as to not damage Tenant’s Personal Property or the Premises. Landlord shall, at its own cost, repair any damage to the Premises or Tenant’s personal property in connection with such entry or work. In addition, any installations, construction or other work to be performed by Landlord or on Landlord’s behalf in the Premises and/or Building pursuant to the terms of this Lease shall, at all times, be (i) in a good and workmanlike quality, (ii) in a timely fashion and (iii) in accordance with all applicable laws, regulations and requirements.

18. DEFAULT .

18.1 Tenant’s Default . Any other provisions of this Lease notwithstanding, it shall be a Tenant event of default (an “ Event of Default ”) under this Lease if: (i) Tenant fails to pay any installment of Fixed Rent, Additional Rent or other sum payable by Tenant hereunder when due and such failure continues for a period of ten (10) days after receipt of written notice from Landlord that such sum is unpaid (provided that Landlord shall only be required to notify Tenant twice within any twelve (12) month period after which Tenant’s failure to pay Fixed Rent or Additional Rent hereunder when due shall automatically constitute an Event of Default without the requirement of written notice to Tenant); or (ii) Tenant fails to perform or observe any other covenant, condition or agreement of this Lease and such failure continues after written notice given by or on behalf of Landlord to Tenant for more than thirty (30) days; provided, however, if such failure is of such a nature that Tenant cannot reasonably remedy the same within the said thirty (30) day period, then such thirty (30) day period shall be extended (but in no event longer that sixty (60) days) so long as Tenant commences promptly same and diligent prosecutes such remedy to completion; (iii) Tenant abandons the Premises for a period of more than thirty (30) days and fails to pay Rent hereunder when due; or (iv) Tenant files a petition commencing a voluntary case, or has filed against it a petition commencing an involuntary case, under the Federal Bankruptcy Code (Title 11 of the Unites States Code), as now or hereafter in effect, or under any similar law, or files or has filed against it a petition or answer in bankruptcy or for reorganization or for an arrangement pursuant to any state bankruptcy or insolvency law or any similar state law, and, in the case of any such involuntary action, such action shall not be dismissed, discharged or denied within sixty (60) days after the filing

 

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thereof, or Tenant consents to or acquiesces in the filing thereof; or (v) if Tenant is a banking organization, Tenant files an application for protection, voluntary liquidation or dissolution applicable to banking organizations; or (vi) a custodian, receiver, trustee or liquidator of Tenant or of all or substantially all of Tenant’s Personal Property or of the Premises shall be appointed in any proceedings brought by or against Tenant and, in the latter case, such entity shall not be discharged within sixty (60) days after the appointment thereof, or Tenant consents to or acquiesces in the appointment thereof; or (vii) Tenant shall admit in writing its inability to pay its debts as they become due, or shall make an assignment of Tenant’s lease obligations for the benefit of or enter into an agreement with its creditors.

18.2 Landlord’s Default . It shall be a default and breach of this Lease by Landlord if Landlord shall fail to perform or observe any material term, condition, covenant or obligation required to be performed or observed by it under this Lease for a period of thirty (30) days after notice thereof from Tenant specifying in detail Landlord’s non-compliance (“ Landlord Event of Default ”); provided, however, that if the material term, condition, covenant or obligation to be performed by Landlord is of such nature that the same cannot reasonably be performed within such thirty-day period, such default shall be deemed to have been cured if Landlord commences such performance within said thirty (30) day period and thereafter diligently undertakes to complete the same. If: (a) any Landlord Event of Default is not cured within the applicable cure period, Tenant’s exclusive remedy shall be an action for specific performance; and (b) if the default is a failure of Landlord to perform a repair obligation which is in Landlord’s control and the failure to perform such repair obligation has rendered the Premises untenable, Tenant shall have the right, but not the obligation, to perform such repair so as to make the Premises tenable and Landlord shall reimburse Tenant for the reasonable costs incurred in making such repair within thirty (30) days after Landlord’s receipt of Tenant’s invoice thereof, which shall include reasonable documentation of all costs incurred. Notwithstanding the foregoing, Tenant hereby waives the benefit of laws granting it: (i) the right to perform Landlord’s obligations except as expressly provided in the immediately preceding sentence; or (ii) the right to terminate this Lease or withhold Rent on account of any Landlord Event of Default.

19. LANDLORD S RIGHTS AND REMEDIES .

19.1 Landlord’s Remedies . In addition to all other rights and remedies of Landlord, if an Event of Default shall occur, Landlord may, at its option, at any time thereafter exercise any one or more of the following remedies:

(a) Termination of Lease . Landlord may terminate this Lease, by written notice to Tenant, without any right by Tenant to reinstate its rights by payment of rent due or other performance of the terms and conditions hereof. Upon such termination Tenant shall immediately surrender possession of the Premises to Landlord, and Landlord shall immediately become entitled to receive from Tenant an amount equal to the difference between the aggregate of all Fixed Rent and Additional Rent reserved under this Lease for the balance of the Lease Term, and the fair rental value of the Premises for that period, determined as of the date of such termination, such difference discounted at a rate of five percent per annum.

(b) Reletting . With or without terminating this Lease, as Landlord may elect, Landlord may re-enter and repossess the Premises, or any part thereof, and lease them to any other person upon such terms as Landlord shall deem reasonable for a term within or beyond the term of this Lease; provided, that any such reletting prior to termination shall be for the account of Tenant, and Tenant shall remain liable for (i) all Fixed Rent, Additional Rent and other sums which would be payable under this Lease by Tenant in the absence of such expiration, termination or repossession, less (ii) the net proceeds, if any, of any reletting effected for the account of Tenant after deducting from such proceeds all of

 

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Landlord’s expenses, including employees’ expenses, attorneys’ fees, real estate brokerage commissions and alteration expenses (if any), incurred as a result of Tenant’s breach of this Lease. Landlord shall use reasonable efforts to mitigate damages resulting from any Event of Default of Tenant, and, in no event, shall Landlord be entitled to double recovery of damages. If the Premises are at the time of default sublet or leased by Tenant to others, Landlord may, as Tenant’s agent, collect rents due from any subtenant or other tenant and apply such rents to the rent and other amounts due hereunder without in any way affecting Tenant’s obligation to Landlord hereunder. Such agency, being given for security, is hereby declared to be irrevocable.

(c) Removal of Contents by Landlord . With respect to any portion of the Premises which is vacant or which is physically occupied by Tenant, Landlord may remove all persons and property therefrom in accordance with applicable Legal Requirements, and store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant without being deemed guilty of trespass or becoming liable for any loss or damage which may be occasioned thereby.

19.2 Injunction . In the event of breach or threatened breach by either Tenant or Landlord of any provision of this Lease, each party shall have the right of injunction and the right to invoke any remedy allowed at law or in equity in addition to other remedies provided for herein.

19.3 Not Exclusive Right . No right or remedy conferred upon or reserved to Landlord or Tenant under the terms of this Lease is intended to be exclusive of any other right or remedy herein or by law provided, but each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity by or by statute.

19.4 Expenses . If either Landlord or Tenant shall commence any action or other proceeding against the other arising out of, or relating to, this Lease or the Premises, the prevailing party shall be entitled to recover from the losing party, in addition to any other relief, its actual attorneys’ fees irrespective of whether or not the action or other proceeding is prosecuted to judgment and irrespective of any court schedule of reasonable attorneys’ fees. In addition, (i) Tenant shall reimburse Landlord, within thirty (30) days of demand, for all reasonable attorneys’ fees incurred in collecting Rent, resolving any Event of Default by Tenant or otherwise successfully enforcing against Tenant, its sublessees and assigns, the Tenant’s obligations under this Lease, and (ii) Landlord shall reimburse Tenant, within thirty (30) days of demand, for all reasonable attorneys’ fees incurred in resolving any Landlord Default or otherwise successfully enforcing against Landlord the Landlord’s obligations under this Lease.

20. LANDLORD S RIGHT TO CURE TENANT S DEFAULT . If an Event of Default on the part of Tenant exists, then, upon thirty (30) days prior written notice to Tenant, Landlord may, but shall not be required to, make such payment or do such act, and charge the amount of Landlord’s reasonable expense to Tenant, with interest accruing and payable thereon at the Default Rate as of the date of the expenditure by Landlord or as of the date of payment thereof by Tenant, whichever is higher, from the date paid or incurred by Landlord to the date of payment hereof by Tenant; provided, however, that nothing herein contained shall be construed or implemented in such a manner as to allow Landlord to charge or receive interest in excess of the maximum legal rate then allowed by law. Such payment and interest shall constitute Additional Rent hereunder due and payable with the next monthly installment of Fixed Rent; but the making of such payment or the taking of such action by Landlord shall not operate to cure such default by Tenant or to estop Landlord from the pursuit of any remedy to which Landlord would otherwise be entitled.

21. TENANT ESTOPPEL CERTIFICATE . Upon request, and within ten (10) days of notice from Landlord or Landlord’s mortgagee, Tenant shall execute, acknowledge and deliver a written statement certifying that this Lease is in full force and effect subject only to such modifications as may be set out; and that Tenant is in possession of the Premises and is paying rent as provided in this Lease; and that, to its knowledge, there are no uncured defaults unless they are claimed. Any such statement may be relied upon by any prospective transferee or mortgage of all or any portion of the Building, or any assignee of any such persons.

 

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22. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT .

22.1 The estate, interest and rights hereby created are subordinate to any mortgage now or hereafter placed upon the Building or the Land or any estate or interest therein, including, without limitation, any mortgage on any leasehold estate, and to all renewals, modifications, consolidations, replacements and extensions of the same as well as any substitutions therefor. Tenant agrees that in the event any person, firm, corporation or other entity acquires the right to possession of the Building or the Land, including any mortgagee or holder of any estate or interest having priority over this Lease, Tenant shall, if requested by such person, firm, corporation or other entity, attorn to and become the tenant of such person, firm, corporation or other entity, upon the same terms and conditions as are set forth herein for the balance of the Lease Term. Notwithstanding the foregoing, any mortgagee may, at any time, subordinate its mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution and delivery, and in that event, such mortgagee shall have the same rights with respect to this Lease as though it had been executed prior to the execution and delivery of the mortgage.

22.2 Upon request, and within ten (10) days after written notice given by or on behalf of Landlord, any mortgagee, any ground or superior lessor of the Building or the Land, or other successor to the interests of Landlord thereto, Tenant shall execute and deliver, as appropriate, any instruments in recordable form as may be required by such parties, including a Subordination, Non-Disturbance and Adornment Agreement in a form reasonably proposed by Landlord’s mortgagee(s) in order to confirm or effect the subordination or priority of this Lease, as the case may be, and the attornment of Tenant to future landlords, and a non-disturbance agreement in favor of Tenant.

22.3 Notwithstanding the foregoing, the (i) subordination of this Lease to any ground lease, mortgage lien and/or other instrument, (ii) Tenant’s obligation to attorn to any ground lessor, mortgagee, and/or purchaser through foreclosure or sale in lieu thereof, and (iii) Tenant’s obligation to execute any documents in connection with such subordination or attornment shall be conditioned on the ground lessor, mortgagee, purchaser or other party in question agreeing in writing to recognize and not disturb Tenant’s rights under this Lease.

23. FINANCIAL STATEMENTS . If Tenant: (a) is in an Event of Default; (b) seeking relief from Landlord under the Lease; or (c) if requested by Landlord’s mortgagee(s) or a prospective purchaser of the Building, within fifteen (15) days written notice given by or on behalf of Landlord, but not more than twice per calendar year, Tenant shall furnish Landlord with current financial statements (including, without limitation, its most recent balance sheet, year-to-date operating statement and profit and loss statement) reflecting Tenant’s current financial condition, provided Landlord and any other party which desires to review such financial statements executes and delivers a confidentiality agreement in form and substance reasonably acceptable to Tenant. In the event Tenant (or its parent) is a publicly-traded entity, Tenant’s obligation to deliver financial statements shall be limited to such statements as are publicly available or required by law to be made public.

24. HOLDING OVER . If Tenant retains possession of the Premises or any part thereof after the termination of this Lease or expiration of the Lease Term or otherwise in the absence of any written agreement between Landlord and Tenant concerning any such continuance of the term, Tenant shall pay Landlord an amount, calculated on a per diem basis for each day of such unlawful retention, equal to one

 

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hundred and fifty percent (150%) for the first thirty (30) days of such holding over, and increasing thereafter to two hundred percent (200%), of the daily Annual Fixed Rent and Additional Rent at the rate prior to such holdover for the time Tenant thus remains in possession in holdover plus all other damages, costs and expenses sustained by Landlord by reason of Tenant’s holding over; however Tenant shall not be liable for any consequential damages incurred by Landlord unless Tenant’s holding over exceeds sixty (60) days. Without limiting any rights and remedies of Landlord resulting by reason of the wrongful holding over by Tenant, or creating any right in Tenant to continue in possession of the Premises, all Tenant’s obligations with respect to the use, occupancy and maintenance of the Premises shall continue during such period of unlawful retention.

25. SURRENDER OF PREMISES . Tenant shall, upon expiration or earlier termination of this Lease, promptly surrender the Premises (including all Alterations, additions and improvements which Landlord has not designated in writing that for removal from the Premises pursuant to Section 10.3(f)) in ordinary operating condition and in conformity with the applicable provisions of this Lease, excepting only reasonable wear and tear, damage by fire or other casualty, takings, and any items that Landlord is obligated to maintain, repair or replace. Upon the expiration or earlier termination of this Lease, and ninety (90) days prior to Tenant vacating the Premises, Landlord and Tenant shall jointly inspect the Premises and Tenant shall either complete any required repairs or pay to Landlord the amount reasonably estimated by Landlord as necessary to put the Premises in the condition required to be surrendered hereunder. Any work required to be done by Tenant prior to its vacating of the Premises which has not been completed upon such vacating of the Premises, shall be completed by Landlord and billed to Tenant. If Tenant is dispossessed by process of law or otherwise, Tenant shall remove its Personal Property from the Premises. If Tenant fails to remove its Personal Property, Landlord, at its option may, upon ten (10) days prior written notice to Tenant, treat such failure as a hold over, and/or may (without liability to Tenant for loss thereof), at Tenant’s sole cost and expense and in addition to Landlord’s other rights and remedies under this Lease, at law or in equity: (a) remove and store such items; and/or (b) sell such items at private or public sale for such price as Landlord at its discretion may obtain. Landlord shall apply the proceeds of any such sale to any amounts due to Landlord under this Lease from Tenant (including Landlord’s attorneys fees and other costs incurred in the removal, storage and/or sale of such items), with any remainder to be paid to Tenant.

26. BROKERS . Each party represents and warrants to the other that they have not made any agreement or taken any action which may cause anyone to become entitled to a commission as a result of the transactions contemplated by this Lease, and each will indemnify and defend the other from any and all claims, actual or threatened, for compensation by any such third person by reason of such party’s breach of their representation or warranty contained in this Section 26 except for JLL, representing Landlord exclusively (the “ Landlord s Broker ”) and Colliers International, representing Tenant exclusively (the “ Tenant s Broker ”). Landlord will pay any commission due to Landlord’s Broker and Tenant’s Broker pursuant to its separate agreement with Landlord’s Broker.

27. NOTICES . All notices or other communications hereunder shall be in writing and shall be deemed to have been given (i) if delivered by hand, by messenger or by an express delivery service (FedEx, UPS, DHL, etc.), then if and when delivered (or if delivery is refused, when refused) to the respective parties at the below addresses (or at such other address as a party may hereafter designate for itself by notice to the other party as required hereby), or (ii) if mailed, then on the third Business Day following the date on which such communication is deposited in the United States mails, by first class registered or certified mail, return receipt requested, postage prepaid, and addressed to the respective parties at the below addresses (or at such other address as a party may hereafter designate for itself by notice to the other party as required hereby).

 

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If to Landlord:                    U.S. REIF Central Plaza Massachusetts, LLC

c/o Intercontinental Real Estate Corporation

1270 Soldiers Field Road

Boston, MA 02135

ATTN: Scott Kelly, Regional Asset Manager

If to Tenant:                        At the Premises

Attention: Chief Executive Officer

With a copy to:

Dain Torpy

745 Atlantic Avenue, 5 th floor

Boston, MA 02111

ATTN: Joseph Torpy

28. SIGNAGE . Landlord, at its sole costs and expense, shall provide Tenant with Building Standard signage in the Building directory and at its entrance to the Premises.

29. PARKING . During the Lease Term, Tenant shall have the right to use (8) parking spaces (the “ Parking Spaces ”) in the parking facilities on the Land. For use of the Parking Spaces, Tenant shall pay to Landlord, an amount equal to $210.00 per space per month at the same time that Fixed Rent is due under the Lease. Additional parking may be available on a tenancy at will basis pursuant to a separate written agreement. The parking rate may be reasonably adjusted from time to time on an annual basis. Landlord does not assume any responsibility for, and shall not be liable for, any damage, loss or theft (of any nature whatsoever) to or of any automobiles or other vehicles, or any contents or other Personal Property located therein, while in or about the parking areas.

30. MISCELLANEOUS .

30.1 Authority . Tenant and Landlord each represent and warrant that it is duly formed and in good standing, and has full corporate or partnership power and authority, as the case may be, to enter into this Lease and has taken all corporate or partnership action, as the case may be, necessary to carry out the transaction contemplated herein, so that when executed, this Lease constitutes a valid and binding obligation enforceable in accordance with its terms.

30.2 Successors and Assigns . The obligations of this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that Landlord and each successive owner of the Building shall be liable only for obligations accruing during the period of its ownership or interest in the Building, and from and after the transfer by Landlord or such successive owner of its ownership or other interest in the Building, Tenant shall look solely to the successors in title for the performance of Landlord’s obligations hereunder arising thereafter.

30.3 Waivers . No delay or forbearance by Landlord or by Tenant in exercising any right or remedy hereunder or in undertaking or performing any act or matter which is not expressly required to be undertaken by such party shall be construed, respectively, to be a waiver of Landlord’s or Tenant’s rights or to represent any agreement by Landlord or by Tenant to undertake or perform such act or matter thereafter.

 

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30.4 Waiver of Trial by Jury . Tenant hereby consents to the exclusive jurisdiction of the courts of the state where the Premises are located in any and all actions or proceedings arising under this Lease, and irrevocably agrees to service of process in accordance with Section 27 above. Landlord and Tenant agree to waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant’s use of or occupancy of the Premises and/or any claim of injury or damage and any emergency or any other statutory remedy.

30.5 Limitation of Landlord’s Liabilities . Tenant shall look solely to the Landlord’s interest in the Building and the Land for enforcement of any obligation hereunder or by law assumed or enforceable against Landlord, and no other property or other assets of Landlord shall be subjected to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies or with respect to this Lease, the relationship of landlord and tenant hereunder or Tenant’s use and occupancy of the Premises.

30.6 Time of the Essence . All times, wherever specified herein for the performance by Landlord or Tenant of their respective obligations hereunder, are of the essence of this Lease.

30.7 Severability . Each covenant and agreement in this Lease shall for all purposes be construed to be a separate and independent covenant or agreement. If any provision in this Lease or the application thereof shall to any extent be invalid, illegal or otherwise unenforceable, the remainder of this Lease, and the application of such provision other than as invalid, illegal or unenforceable, shall not be affected thereby; and such provisions of this Lease shall be valid and enforceable to the fullest extent permitted by law.

30.8 Headings and Terms . The title and headings of this Lease are for convenience of reference only and shall not in any way be utilized to construe or interpret the agreement of the parties as otherwise set forth herein. The term “Landlord” and term “Tenant” as used herein shall mean, where appropriate, all persons acting by or on behalf of the respective parties, except as to any required approval, consents or amendments, modifications or supplements hereunder when such terms shall only mean the parties originally named on the first page of this Lease as Landlord and Tenant, respectively, and their agents so authorized in writing.

30.9 Lease Not Binding Until Executed and Delivered . This Lease shall not bind Landlord unless and until it has been signed and delivered by Tenant, received and accepted by Landlord, and then countersigned and redelivered by Landlord to Tenant.

30.10 Counterparts . This Lease may be executed in four (4) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same lease agreement.

30.11 Amendment and Modification . This Lease, including all Exhibits and Addenda attached hereto, each of which is incorporated in this Lease, contains the entire agreement between the parties hereto, and shall not be amended, modified or supplemented unless by agreement in writing signed by both Landlord and Tenant.

30.12 Governing Law . This Lease shall be governed by and construed in accordance with the laws of the State of Massachusetts.

30.13 Tenant’s Right of Access . Subject to the terms and conditions of this Lease and any other reasonable rules and regulations imposed by Landlord, Tenant shall have access to and use of the Premises and the storage areas (if applicable) twenty-four (24) hours a day, seven (7) days a week, three

 

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hundred sixty-five (365) days per year during the Lease Term (as same may be extended) pursuant to key card access.

31. EXHIBITS AND ADDENDA . Additional terms to this Lease, if any, are set forth in the Exhibits and Addenda attached hereto, which are incorporated herein by reference, and made a part hereof, as follows:

 

  A. Premises

 

  B. Lease Commencement Date Certificate

 

  C. Fixed Rent

 

  D. Provisions Regarding Additional Rent

 

  E. Building Rules and Regulations

 

  F. Landlord’s Work

 

  G. Extension Option

 

  H. Right of First Offer

[END OF TEXT; SIGNATURES FOLLOW ON NEXT PAGE.]

 

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IN WITNESS WHEREOF , the parties hereto have caused this Lease to be executed as of the date first written above.

 

LANDLORD :
U.S. REIF CENTRAL PLAZA MASSACHUSETTS, LLC
a Delaware limited liability company

 

By:   U.S. REIF CENTRAL PLAZA MASSACHUSETTS MANAGER, LLC
  a Delaware limited liability company, its Manager
By:   U.S. REAL ESTATE INVESTMENT FUND REIT, INC.
  a Delaware corporation, its Manager

 

By:  

/s/ Peter Paladjian

Name:   Peter Paladjian
Title:   President & Treasurer
TENANT :
SPERO OPCO INC.,
a Delaware corporation
By:  

/s/ Ankit Mahadavia

Name:   Ankit Mahadavia
Title:   CEO

 

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EXHIBIT “A”

THE PREMISES

ATTACHED HERETO CONSISTING OF ONE (1) PAGE.


LOGO


EXHIBIT “B”

FIXED RENT

PREMISES

BASED ON 7,791 RENTABLE SQUARE FEET

 

Lease Term

   Annual Fixed Rent      Monthly Fixed Rent      Per RSF  

Month 1 - Month 12

   $ 381,759.00      $ 31,813.25      $ 49.00  

Month 13 - Month 24

   $ 389,550.00      $ 32,462.50      $ 50.00  

Month 25 - Month 36

   $ 397,341.00      $ 33,111.75      $ 51.00  

Month 37 - Month 48

   $ 405,132.00      $ 33,761.00      $ 52.00  

Month 49 - Month 60

   $ 412,923.00      $ 34,410.25      $ 53.00  


EXHIBIT “C”

LEASE COMMENCEMENT DATE CERTIFICATE

 

RE: Lease Agreement between U.S. REIF CENTRAL PLAZA MASSACHUSETTS, LLC (“ Landlord ”) and SPERO OPCO INC. (the “ Tenant ”) dated                      (the “Lease”) for premises consisting of approximately 7,791 rentable square feet in the building located at 675 Massachusetts Avenue, Cambridge, Massachusetts

Dear Tenant:

This shall constitute the Lease Commencement Date Certificate referenced in Section 2 of the above-referenced Lease. Unless otherwise defined herein, all capitalized terms shall have the same meaning ascribed to them in the Lease.

 

1. The Lease Commencement Date shall be                                 .

 

2. The Expiration Date shall be                                                     .

 

3. Fixed Rent shall be paid in accordance with the following schedule:

PREMISES

BASED ON 7,791 RENTABLE SQUARE FEET

 

Lease Term

   Annual Fixed Rent      Monthly Fixed Rent      Per RSF  

Month 1 - Month 12

   $ 381,759.00      $ 31,813.25      $ 49.00  

Month 13 - Month 24

   $ 389,550.00      $ 32,462.50      $ 50.00  

Month 25 - Month 36

   $ 397,341.00      $ 33,111.75      $ 51.00  

Month 37 - Month 48

   $ 405,132.00      $ 33,761.00      $ 52.00  

Month 49 - Month 60

   $ 412,923.00      $ 34,410.25      $ 53.00  

 

C-1


IN WITNESS WHEREOF, the parties hereto have caused this Lease Commencement Date to be executed on the dates set forth below.

 

LANDLORD:
U.S. REIF CENTRAL PLAZA MASSACHUSETTS, LLC
a Delaware limited liability company

 

By:   U.S. REIF CENTRAL PLAZA MASSACHUSETTS MANAGER, LLC
  a Delaware limited liability company, its Manager
By:   U.S. REAL ESTATE INVESTMENT FUND REIT, INC.
  a Delaware corporation, its Manager

 

By:  

 

Name:   Peter Palandjian
Title:   President & Treasurer
Date:  

 

TENANT :
SPERO OPCO INC.
A Delaware corporation
By:  

 

Name:  

 

Title:  

 

Date:  

 

 

C-2


EXHIBIT “D”

PROVISIONS REGARDING ADDITIONAL RENT

1. DEFINITIONS.

1.1 “Tenant’s Proportionate Share” shall mean 6.29%, which is a fraction, the numerator of which shall be approximately 7,791 rentable square feet in the Premises and the denominator of which shall be approximately 123,810 rentable square feet in the Building.

1.2 Operating Expenses.

(a) “Essential Capital Improvements” shall mean (i) any labor saving device, energy saving device or other installation, improvement or replacement which is intended to reduce Operating Expenses, whether or not voluntary or required by governmental mandate (a “ Cost Saving Capital Improvement ”) but excluding Cost Saving Capital Improvements to the systems serving the Premises, or (ii) any installation or improvement required by reason of any Legal Requirement which did not exist on the date of the execution of this Lease.

(b) “Operating Expenses” shall mean any and all of Landlord’s commercially reasonable operating costs and expenses of any kind or nature paid or incurred in the operation, maintenance and management of the Building, the Land, and the sidewalks, roadways and parking areas located thereon, all computed on an accrual basis and in accordance with the terms of this Lease, including but not limited to the following:

(i) Electricity, gas, fuel, steam, water, sewer and any other utility charges (including surcharges) of whatever nature (excluding the use of utilities by other tenants as such may be sub-metered or directly metered pursuant to their leases);

(ii) Any insurance premiums and deductibles paid by Landlord;

(iii) Building personnel costs, including but not limited to salaries, wages, fringe benefits, taxes, insurance and other direct and indirect costs;

(iv) The cost of all service and maintenance contracts, including but not limited to security services, janitorial and cleaning services, interior and exterior landscaping services, sidewalk and roadway maintenance, and snow removal;

(v) All other service, maintenance and repair expenses (excluding those expenses paid by proceeds of insurance or by Tenant or by other third parties, and those solely attributable to tenants of the Building other than Tenant) and the cost of all materials and supplies therefor;

(vi) Any other costs and expenses (other than capital improvements) incurred by Landlord in operating the Building;

(vii) The cost of any additional services not provided to the Building on the Lease Commencement Date but thereafter provided by Landlord in the prudent management of the Building; provided, however, an amount equal to the cost of such service in the first year it is provided shall be added to the amount of Operating Expenses for the Operating Base Year;

 

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(viii) The annual amortization of any Essential Capital Improvement which is made by Landlord after the Lease Commencement Date based on the useful life of the improvement plus interest at the prime interest rate (the “ Prime Rate ”) on the date of the expenditure on the unamortized portion thereof; provided however that with respect to Cost Saving Capital Improvements, the inclusion shall be limited to the reasonably projected annual savings resulting from such Cost Saving Capital Improvement;

(ix) Landlord’s central office administrative costs and overhead applicable to the Building;

(x) Accounting fees for preparing the Operating Expense Statement and Tax Statement; and

(xi) Management fees paid to the managing agent not to exceed four percent (4%) of gross revenues of the Building.

(c) Operating Expenses shall not include:

(i) Rent or other charges payable under any ground or underlying lease;

(ii) Any expenditures on account of Landlord’s acquisition of air or similar development rights;

(iii) Costs of repositioning, selling or syndicating Landlord’s interest in the Property;

(iv) Costs with respect to any financing or refinancing of the Property, including debt service, amortization, points and commissions in connection therewith;

(v) The cost of making leasehold improvements to any leasable space to prepare the same for occupancy by a tenant thereof, or thereafter for the benefit of a particular tenant or tenants;

(vi) Services performed for or provided to any tenant to the extent such services are exclusive to such tenant;

(vii) Advertising and promotional expenditures, contributions or gifts;

(viii) Brokerage fees or commissions;

(ix) Legal fees incurred in connection with Landlord’s preparation, negotiation and enforcement of leases with other tenants;

(x) Salaries for any agents or employees of Landlord above those attributable to the operation, maintenance and management of the Building; or

(xi) Any costs which have been previously included in Operating Expenses or Taxes (whether under the same or a different category);

(xii) Any expense which Landlord incurs after the Lease Commencement Date to comply with Legal Requirements;

 

D-2


(xiii) Capital repairs or replacements except to the extent of Essential Capital Improvements;

(xiv) any utility or other service used or consumed in the premises leased or leasable to any tenant or occupant if Tenant’s use or consumption of such utility or other services is separately metered or sub-metered at the Premises or Tenant is charged a separate amount therefore;

(xv) costs of repairs, restoration or replacements occasioned by fire or other casualty or caused by the exercise of the right of eminent domain, whether or not insurance proceeds or condemnation award proceeds are recovered or adequate for such purposes;

(xvi) the cost of environmental monitoring, compliance, testing and remediation performed in, on, about and around the Property;

(xvii) amounts paid to subsidiaries or affiliates of Landlord for services rendered to the Property to the extent such amounts exceed the competitive costs for delivery of such services were they not provided by such related parties; and

(xviii) depreciation.

(d) “Operating Year” shall mean each calendar year occurring during the Lease Term (as same may be extended).

(e) “Operating Statement” shall mean a statement in line item detail signed by Landlord setting forth the actual Operating Expenses payable by Tenant for a specified Operating Year pursuant to this Section 1.2.

1.3 Taxes .

(a) “Taxes” shall mean all taxes, assessments and governmental charges, whether federal, state, county or municipal, and whether general or special, ordinary or extraordinary, foreseen or unforeseen, imposed upon the Building, the Land, and the sidewalks, roadways and parking areas located thereon, or due to the operation thereof, whether or not directly paid by Landlord. Taxes shall not include income taxes, excess profit taxes, franchise taxes or other taxes imposed or measured on or by the income of Landlord from the operation of the Building or the Land; provided , however , that if, due to a future change in the method of taxation or assessment, any income, excess profit, franchise or other tax, however designated, shall be imposed in substitution, in whole or in part, for (or in lieu of) any tax, assessment or charge which would otherwise be included within the definition of Taxes, such other tax shall be deemed to be included within Taxes as defined herein to the extent of such substitution. If Landlord incurs any reasonable expenses (including, but not limited to, reasonable attorneys’ fees) in connection with its efforts to reduce or minimize increases in the Taxes and/or the assessed value of the Building, any and all such expenses shall be added to, and made a part of, the Taxes for the Operating Year to which they relate. Tenant shall pay to the appropriate governmental authority any use and occupancy tax. In the event that Landlord is required by law to collect such tax, Tenant shall pay such use and occupancy tax to Landlord as Additional Rent upon demand and Landlord shall remit any amounts so paid to Landlord to the appropriate governmental authority. Any assessments shall be paid over the longest time permitted by the appropriate governmental authority.

(b) “Tax Year” shall mean the fiscal year used by the City of Cambridge commencing July 1st and ending on June 30th.

 

D-3


(c) “Tax Statement” shall mean a statement in line item detail signed by Landlord setting forth the actual Taxes payable by Tenant for a specified Tax Year pursuant to this Section 1.3.

1.4 “Operating Base Year” shall mean an amount equal to the actual Operating Expenses for the Building for the calendar year 2016.

1.5 “Tax Base Year” shall mean an amount equal to the actual Taxes for the Building for the fiscal year 2016 (July 1, 2015 - June 30, 2016). Landlord represents that the Taxes for the Tax Base Year shall reflect a fully-assessed Building.

2. ADDITIONAL RENT FOR OPERATING EXPENSES AND TAXES.

2.1 In addition to Fixed Rent, Tenant shall pay to Landlord for each month of each Operating Year and Tax Year, without demand, deduction or setoff, except as set forth in this Lease, as Additional Rent: (a) beginning on the later of (i) January 1, 2017, or (ii) the Commencement Date, Tenant’s Proportionate Share of Operating Expenses to the extent the Operating Expenses exceed the Operating Base Year; and (b) beginning on July 1, 2016, Tenant’s Proportionate Share of Taxes to the extent the Taxes exceed the Tax Base Year, in accordance with the procedures set forth below.

2.2 As soon as available in each Operating Year and Tax Year falling fully or partially within the Lease Term (as same may be extended), Landlord shall provide Tenant with a written statement setting forth a good faith projection of Tenant’s Proportionate Share of Operating Expenses and Taxes for such year. Commencing on the first day of the first month following receipt of such statement and continuing until receipt by Tenant of Landlord’s statement of the next projection, Tenant shall pay to Landlord with each monthly installment of Fixed Rent an amount equal to: (a) one-twelfth (1/12th) of such projected Tenant’s Proportionate Share of Operating Expenses to the extent such Operating Expenses exceed the Operating Base Year; and (b) an amount equal to one-twelfth (1/12th) of such projected Tenant’s Proportionate Share of Taxes to the extent such Taxes exceed the Tax Base Year.

2.3 Landlord shall, as soon as possible after the close of each such Operating Year and Tax Year, provide Tenant with an Operating Statement and Tax Statement for such period (which shall be accompanied by such documentation so as to enable Tenant to verify any element of changes). Any underpayment by Tenant during such Operating Year due to the fact that projected Operating Expenses and Taxes were less than actual Operating Expenses and Taxes shall be paid to Landlord within thirty (30) days after Tenant’s receipt of a statement for such deficiency. Any overpayment by Tenant during such Operating Year due to the fact that projected Operating Expenses and Taxes were greater than actual Operating Expenses and Taxes shall be, at Landlord’s option, (a) applied to any other amounts of Rent then due from Tenant to Landlord, (b) credited to the next payment of Rent coming due from Tenant to Landlord, or (c) refunded to Tenant if no Rent is then due or coming due. Notwithstanding the foregoing, Tenant shall not be responsible for any payments under any Operating Statement or Tax Statement which is billed to Tenant more than ten (10) months after the earlier of (i) the expiration of the applicable Operating Year or Tax Year, as applicable, and (ii) the expiration or sooner termination of this Lease.

3. ADJUSTMENT TO OPERATING EXPENSES. In determining Operating Expenses for any Operating Year and for the Operating Base Year, if the Building was less than fully occupied during such entire year, or was less than fully operational during such entire year, then Operating Expenses shall be adjusted by Landlord to reflect the amount that such expenses would normally be expected to have been, in the reasonable opinion of Landlord, had the Building been ninety-five percent (95%) occupied and fully operational throughout such year, except that in no event shall such adjustment result in an amount less than the actual Operating Expenses.

 

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4. PRO-RATIONS. If this Lease shall commence or terminate at any time other than the first day of an Operating Year, Tenant shall be liable only for that portion of the Operating Expenses and Taxes with respect to such Operating Year as represented by a fraction, the numerator of which is the number of days of the Lease Term which fall within the Operating Year and the denominator of which is three hundred sixty-five (365).

5. AUDIT. Tenant shall have the right to examine, audit and photocopy Landlord’s books and records relating to Tenant’s Proportionate Share of Operating Expenses and Taxes for any Operating Year for a period of six (6) months following the date that Tenant receives the Operating Statement and Tax Statement; provided, however, that (a) Tenant may exercise such right only one time with respect to any Operating Year; and (b) Tenant signs a confidentiality agreement in form satisfactory to Landlord in its sole discretion. In connection with Tenant’s examination in accordance with the preceding sentence, Tenant shall have the right to review the invoices and statements relating to the Operating Expenses and Taxes for the Operating Base Year and Tax Base Year. Tenant shall give Landlord not less than thirty (30) days’ prior written notice of its intention to examine and audit such books and records, and such examination and audit shall take place in the city where the Premises are located. All costs of the examination and audit shall be performed by a certified public accountant and shall be on a non-contingent fee basis and shall be borne by Tenant; provided, however, that if such examination and audit establishes that Tenant’s Proportionate Share of Operating Expenses and Taxes for the year in question are less than the amount set forth on the Operating Statement and Tax Statement by at least five percent (5%), then Landlord shall pay the reasonable costs of such examination and audit. If the payments made by Tenant for such year are more than Tenant’s required payment on account thereof for such Operating Year, Landlord shall promptly refund such overpayment. If the payments made by Tenant for such year are less than Tenant’s required payment on account thereof for such Operating Year, Tenant shall pay the deficiency to Landlord within thirty (30) days after conclusion of the examination and audit as well as Landlord’s actual out-of-pocket costs in connection with such examination and audit. The obligation to make such refund or payment for any period within the Lease Term shall survive expiration of the Lease Term. If Tenant does not elect to exercise its right to examine and audit Landlord’s books and records for any Operating Year within the time period provided for by this Section 6, Tenant shall have no further right to challenge Landlord’s Operating Statement and Tax Statement.

6. PERSONAL PROPERTY TAXES. Tenant will be responsible for ad valorem taxes on its Personal Property an on the value of any Alterations to the Premises in excess of Landlord’s Work to the extent separately assessed and to the extent such amounts are paid by all other tenants of the Building.

7. SURVIVAL. If, upon the expiration or earlier termination of this Lease, the amount of any Additional Rent due hereunder has not yet been determined, an appropriate payment from Tenant to Landlord or refund from Landlord to Tenant, shall be made promptly after such determination, subject to the limitation in Section 2.3 above.

 

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EXHIBIT “E”

BUILDING RULES AND REGULATIONS

The following Building Rules and Regulations, hereby accepted by Tenant, are prescribed by Landlord to enable Landlord to provide, maintain and operate, to the best of Landlord’s ability, clean, orderly and desirable Premises, Building and parking areas for Tenant therein at as economical a cost and in as efficient a manner as reasonably possible to assure for the security and protection of Tenant so far as reasonably possible, and to regulate conduct in and use of said Premises, Building and parking areas in such manner as to minimize interference by others in the proper use of same by Tenant. To the extent the Building Rules and Regulations (as same may be amended) are inconsistent with the terms and provisions of the Lease (as same may be amended), the terms and provisions of the Lease shall control.

1. Landlord shall provide key cards for access to the Building by Tenant and its employees at no additional expense to Tenant. Upon termination of this Lease, all keys shall be returned by Tenant to Landlord. No additional locks or similar devices shall be placed by Tenant on any door without the prior written consent of Landlord and without providing keys or access codes, as applicable, to Landlord.

2. Unless otherwise consented to by Landlord, no items visible from outside the Premises such as curtains, blinds, shades, screens or signs other than those furnished by Landlord shall be attached to, hung in or used in connection with any window or door of the Premises without the prior written consent of Landlord.

3. Tenant will refer all contractors, contractors’ representatives and technicians rendering any service to Tenant to Landlord for Landlord’s reasonable approval and supervision before performance of any contractual service. Such supervisory action by Landlord shall not render Landlord responsible for any work performed for Tenant. This provision shall apply to all work performed in the Building including but not limited to the installation of telephone and computer wiring, cabling and equipment, telegraph equipment, electrical devices, attachments, and installations of any nature affecting any portion of the Building. Tenant shall be solely responsible for complying with all applicable codes and ordinances pursuant to which said work shall be performed.

4. Tenant shall carry out Tenant’s maintenance, repairs, replacements, alterations, additions and improvements in the Premises only during times reasonably agreed to in advance by Landlord and in a manner which will not unreasonably interfere with the rights of other tenants in the Building.

5. Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Tenant of any merchandise or materials which require the use of elevators, stairways, lobby areas or loading dock areas, shall be restricted to hours reasonably designated by Landlord. Except with respect to Tenant’s weekly beverage delivery, Tenant must seek Landlord’s prior approval by providing in writing a detailed listing of any such activity. If approved by Landlord, such activity shall be under the supervision of Landlord and performed in the manner stated by Landlord. Tenant is to assume all risk for damage to articles moved and injury to any persons resulting from such activity. If any property or personnel of Landlord is damaged or injured as a result of or in connection with such activity, Tenant shall be solely liable for any and all damage or loss resulting therefrom subject to the terms of the Lease.

6. Tenant shall not place, install or operate in any part of the Premises or the Building any engine or machinery, except for Tenant’s normal office equipment, including computers, copiers, facsimile machines and the like. Tenant shall not keep any flammable, explosive or hazardous materials in any part of the Premises or Building without the prior written consent of Landlord.

 

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7. Reserved and handicap parking spaces should be honored.

8. Landlord shall not be responsible for any lost or stolen Personal Property, money or jewelry from the Premises, Building or parking areas, regardless of whether loss occurs when such area is locked against entry or not.

9. No animals, with the exception of seeing-eye dogs, shall be brought into, kept in or about the Building.

10. Bicycles and other vehicles are not permitted inside the Building other than in the Tenant’s basement storage areas, or on the walkways outside the Building, except in those areas specifically designated by Landlord for such purposes.

11. Employees of Landlord shall not receive or carry messages to or for Tenant, nor shall such employees contract with or render free or paid services to Tenant’s employees, servants, agents or invitees.

12. Entries, passages, doors, elevators, elevator lobbies, hallways and stairways shall not be blocked or obstructed at any time. No rubbish, litter, trash, or material of any nature shall be placed, emptied, or thrown in these areas. Such areas shall not be used at any time except for ingress or egress to or from the Premises. At no time shall Tenant permit or shall Tenant’s employees loiter in common areas or elsewhere in the Building.

13. No lighted or fluorescent signs or machinery, including but not limited to soft drink and snack machines, shall be placed anywhere in the Building by any tenant so as to be visible from the exterior of the Building.

14. Landlord shall have the right to install or provide such security measures as the Landlord shall deem reasonable and prudent. After hours and weekend access to the Building may be obtained only through entrances designated by the Landlord and, if Landlord has provided security services, Tenant, their licensees and invitees shall identify themselves at the guard desk of the Building prior to proceeding into the Building or any Leased Premises therein. Tenant shall comply with all reasonable security measures from time to time established by Landlord for the Building.

15. Plumbing fixtures and appliances shall be used only for purposes for which constructed. No sweepings, rubbish, rags, coffee grounds, oil, or other unsuitable material shall be thrown or placed therein. Damage, resulting to any such fixtures or appliances or to other tenant’s premises and/or similar, caused by Tenant shall be repaired and replaced at Tenant’s sole cost and expense subject to the terms of the Lease.

16. All corridor doors, when not in use, shall be kept closed.

17. The work of the janitor or cleaning personnel shall not be hindered by Tenant after 5:30 p.m., and such cleaning work may be done at any time when the offices are vacant. Windows, doors, and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles, cabinets, bookcases, map cases, etc. necessary to prevent unreasonable hardship to Landlord regarding cleaning service.

18. Landlord shall have the right to determine and prescribe the weight and proper position of any unusually heavy equipment, including safes, large files, etc., that are to be placed in the Premises. Only those items which, in the opinion of Landlord, do not exceed acceptable floor loading and will not, with

 

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reasonable probability, do damage to the floors, structure, and/or elevator may be moved into the Building. Any damage occasioned in connection with the moving or installing of such items or the existence of same shall be paid by Tenant subject to the terms of the Lease.

19. Landlord shall have the right to prohibit the use of the name of the Building or any other publicity by Tenant, which in Landlord’s reasonable opinion, may tend to impair the reputation of the Building or its desirability for the offices of Landlord or of other tenants. Upon written notice from Landlord, Tenant will refrain from and/or discontinue such publicity immediately.

20. At its sole discretion, Landlord may place directories in any reasonable location in the Building.

21. Neither the Premises nor any portion of the Building shall be used for lodging, sleeping, or for any immoral or illegal purpose, or for any purpose that will damage the Premises or the reputation thereof.

22. Canvassing, soliciting, and peddling in the Building is prohibited. Tenant shall cooperate and use its best efforts to prevent the same.

23. At no time shall Tenant permit or shall Tenant’s employees, guests, and invitees smoke in any common area of the Building unless such common area has been declared a designated smoking area by Landlord.

24. Landlord shall have the right, exercisable without notice and without liability to Tenant or any other tenant, to change the name and street address of the Building and the project.

25. Landlord shall have the right to show the Premises to prospective tenants and purchasers during the Lease Term, subject to the provisions of Section 17 of the Lease.

26. Landlord shall have the right, at its sole discretion, to implement a maintenance request program for the Building. Tenant agrees to comply with the policies and procedures of such a program as long as the policies and procedures of such program do not conflict with any other provisions of this Lease, are imposed by Landlord equally to all tenants in the Building, do not reduce Tenant’s rights under this Lease, or adversely affect the business operations of Tenant.

27. The Landlord reserves the right to rescind any of these rules and to make such other and further rules and regulations as, in Landlord’s judgment, may from time to time be needed for safety, care, maintenance, operation and cleanliness of the Building and for the preservation of good order therein, which, when so made and notice thereof shall have been given to any Tenant, shall have the same force and effect as if originally made part of the foregoing Lease, and such other and further rules shall not, however, be inconsistent with the proper and rightful enjoyment by the Tenant under the Lease of the Premises.

 

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EXHIBIT “F”

LANDLORD’S WORK

1. Landlord shall perform certain improvements to the Premises (collectively, the “ Landlord’s Work ”) using its own contractors in accordance with those plans and specifications prepared by Landlord’s architect and mutually agreed to between Landlord and Tenant, and generally consistent with the initial Test Fit (the “ Plans and Specifications ”) in compliance with all applicable Legal Requirements. Landlord agrees to contribute an amount equal to $50.00 per rentable square foot of the Premises ($389,550.00) (“ Landlord’s Work Allowance ”) towards the Landlord’s Work, subject to the guaranteed maximum price set forth below. Landlord hereby approves the initial Test Fit attached hereto as Exhibit F-2 (the “ Test Fit ”). In addition, Landlord shall also provide Tenant with up to $.10 per rentable square foot of the Premises ($779.91) for the initial Test Fit prepared by Tenant’s architect. Tenant shall reimburse Landlord for all costs in excess of Landlord’s Work Allowance (the “ Excess ”) on a monthly basis in proportion to the amount the Excess represents to the total costs of Landlord’s Work, subject to the guaranteed maximum price. Notwithstanding the foregoing, Tenant may elect to reimburse Landlord for the Excess through the payment of additional Fixed Rent which shall be amortized by Landlord at the rate of eight percent (8%) over the Lease Term.

2. Within forty (40) days after the date of the Lease, Landlord shall deliver the proposed Plans and Specifications to Tenant for review (the “ Proposed Plans and Specifications ”). Within seven (7) business days after receiving the Proposed Plans and Specifications, Tenant shall give to Landlord written notice of Tenant’s approval of such Proposed Plans and Specifications or Tenant’s disapproval of such Proposed Plans and Specifications, together with a reasonably detailed explanation of the reasons for any disapproval. Within seven (7) business days after receiving from Tenant any such notice of Tenant’s disapproval of any version of Proposed Plans and Specifications, Landlord shall cause its architect to revise the Proposed Specifications as reasonably requested by Tenant and submit such revised Plans a and Specifications to Tenant. Such process shall continue until the same are approved by Tenant, and the approved documents shall be the Plans and Specifications.

Within twenty (20) days of the date the Plans and Specifications are approved by Landlord and Tenant, Landlord shall obtain bids for the performance of the Landlord’s Work and deliver a proposed price for the total cost of Landlord’s Work. If the same is in excess of the Landlord’s Work Allowance, Tenant shall have the right to value engineer the Plans and Specifications to reduce the cost of Landlord’s Work. Upon completion of such value engineering, Landlord shall again obtain bids for the total cost of Landlord’s Work and submit the same to Tenant for approval. Upon approval, such amount shall be the guaranteed maximum price for the total cost of Landlord’s Work except to the extent Tenant thereafter requests changes thereto.

If Tenant requests changes to the Landlord’s Work, Landlord shall promptly quote any net additive cost of such proposed change order and the delay, if any, in the Estimated Commencement Date. Tenant shall either approve or reject such change order within five (5) days. If Tenant either rejects or does not respond to Landlord’s change order proposal within the foregoing period, the change order shall be deemed withdrawn. If Tenant approves, Tenant shall pay the cost of the change order to the extent in excess of the portion in Excess of Landlord’s Work Allowance and Landlord shall perform the work identified in the change order.

3. For purposes herein, “Substantial Completion of Landlord’s Work” shall be deemed to be the date on which: (a) Landlord’s Work has been completed in a good and workman like manner in accordance with the Plans and Specifications, subject to minor punch list items of a non-material nature

 

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that do not affect Tenant’s occupancy of the Premises as reasonably determined by Landlord; and (b) Landlord has obtained a certificate of occupancy so that Tenant can legally occupy the Premises.

4. For purposes herein “Tenant Delay” shall be any one of the following: (a) Tenant’s selection of equipment or materials that have long lead times after first being informed by Landlord that the selection may result in a delay; (b) changes requested or made by Tenant to the Plans and Specifications after initial approval of the same; (c) the performance of work in the Premises by Tenant or Tenant’s contractor(s) that conflicts with the performance of Landlord’s Work. Landlord agrees that Tenant shall not be charged with any Tenant Delay until Landlord notifies Tenant of the occurrence of the same. In the event of any Tenant Delay, the Lease Commencement Date shall be deemed to be the date which Substantial Completion of Landlord’s Work would have occurred but for such Tenant Delay and the Lease Term shall be advanced and adjusted accordingly as reasonably determined by Landlord, but in no event prior to December 15, 2015, but the foregoing shall not relieve Landlord from the obligation to actually complete Landlord’s Work.

5. Landlord agrees to use diligent efforts to achieve Substantial Completion of Landlord’s Work by December 15, 2015 (the “Estimated Commencement Date” ). In the event Substantial Completion of Landlord’s Work has not occurred by February 1, 2016, Tenant shall receive a credit of one day of Fixed Rent for each day after date until the date of Substantial Completion of Landlord’s Work (the “Rent Credit”). Such Rent Credit shall be applied commencing on the Lease Commencement Date and continuing until exhausted. In addition, in the event Landlord has not achieved Substantial Completion of Landlord’s Work by March 1, 2016, Tenant shall have the right to terminate this Lease by delivering written notice to Landlord and Landlord shall refund all amounts previously paid by Tenant.

6. Landlord agrees to cure any defects workmanship, materials or equipment in Landlord’s Work, provided Tenant shall have given written notice of such defects to Landlord within one (1) year from the completion of such work by Landlord.

 

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EXHIBIT “F-2”

TEST FIT PLAN

ATTACHED HERETO

 

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LOGO

 

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EXHIBIT “G”

EXTENSION OPTION

1. Tenant shall have one (1) option to extend the Lease Term (the “ Extension Option ”) for an additional period of five (5) years (the “ Extension Term ”) upon the same terms and conditions of the Lease except that Fixed Rent shall be determined in accordance with the provisions below.

2. Tenant’s rights pursuant to this Exhibit G are contingent upon: (a) Tenant not having subleased more than fifty percent (50%) of the Premises or assigned the Premises or any portion thereof (in each case other than to a Permitted Transferee); and (b) Tenant not being in an Event of Default upon exercise of its Extension Option or upon commencement of the Extension Term.

3. Tenant shall notify Landlord of its desire of to exercise the Extension Option no later than nine (9) months prior to expiration of the then current term (such notice to be known as “ Tenant’s Notice ”). If Tenant does not notify Landlord in accordance with the preceding sentence, it will be conclusively deemed that Tenant has not exercised the Extension Option and the Lease will expire upon expiration of the current term in accordance with the terms of the Lease. No later than thirty (30) days after receiving Tenant’s Notice, Landlord shall notify Tenant of the proposed Fixed Rent which shall be applicable during the Extension Term and which shall be Landlord’s good faith determination of 100% of the fair market rate for such Extension Term (the “ Landlord’s Rate ”) (such notice to be known as “ Landlord’s Notice ”).

4. Tenant shall have ten (10) Business Days in which to accept the terms and conditions set forth in Landlord’s Notice by written notice to Landlord. If Tenant accepts the terms and conditions set forth in Landlord’s Notice, the parties shall promptly execute an amendment confirming such terms. If Tenant fails to provide written notice to Landlord within ten (10) business days of Landlord’s Notice of its acceptance or rejection of the terms set forth in Landlord’s Notice, the Extension Option shall be deemed null and void and the Lease shall expire upon expiration of the current term in accordance with the terms of the Lease.

5. If Tenant rejects Landlord’s Rate, Tenant shall provide written notice to Landlord within ten (10) Business Days of Landlord’s Notice and set forth its good faith determination of 100% of the fair market rent for the Extension Term (the “ Tenant’s Rate ”). Thereafter, if the parties cannot mutually agree upon the fair market rate within ten (10) additional days of Tenant’s Rate being delivered to Landlord, each party shall have ten (10) additional days to designate by written notice to the other party one (1) disinterested real estate appraiser of good reputation, having at least ten (10) years’ experience in the commercial real estate office market for Cambridge, Massachusetts. The two (2) appraisers so designated shall together determine whether Landlord’s Rate or Tenant’s Rate is closest to the fair market rate for the Extension Term. Landlord and Tenant shall each require the appraisers to make such determination and report it in writing to Landlord and Tenant within twenty (20) days after such election, and each party shall use its reasonable efforts to secure such determination within such time period. If either appraiser fails to timely report its determination, then the timely appraiser’s determination shall be the fair market rate for the Extension Term. If the two (2) selected appraisers agree as to which rate is closest, the rate agreed to be the closest (either Landlord’s Rate or Tenant’s Rate) shall be deemed to be the fair market rate for the Extension Term. If the two (2) elected appraisers fail to agree, they shall together immediately and mutually select a third (3’) appraiser (which appraiser shall be a disinterested similarly qualified real estate appraiser of good reputation having the same qualifications as set forth above) who shall then (within five (5) days of the appraisers’ selection) determine whether Landlord’s Rate or Tenant’s Rate is closest to the fair market rate. If the appraisers do not agree upon the third (3 rd ) appraiser within fifteen

 

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(15) days after Landlord and Tenant have both received the reports of the first two (2) appraisers, then either party may request the Greater Boston Board of Real Estate to appoint the third (3rd) appraiser and such appraiser shall be the third (3’) appraiser. The third (3 rd ) appraiser shall notify Landlord and Tenant of the third (3 rd ) appraiser’s determination as to whether the Landlord’s Rate or the Tenant’s Rate is closest to the fair market rate and such determination shall be the fair market rate for the applicable Extension Term. Landlord and Tenant shall each bear the costs of its respective appraiser except that Landlord and Tenant shall each bear one-half (1/2) the cost of the third (3 rd ) appraiser, if applicable.

6. If, however, the low appraisal and/or high appraisal are more than ten percent (10%) lower and/or higher than the middle appraisal, the low appraisal and/or high appraisal shall be disregarded. If only one appraisal is disregarded, the remaining two appraisals shall be added together and their total divided by two; the resulting quotient shall be the fair market rate for the Premises. If both the low appraisal and the high appraisal are disregarded the middle appraisal shall be the fair market rate for the Extension Term.

7. For purposes of this Exhibit “G”, “fair market rent” shall mean rental rate for premises comparable to the Premises in the Building and comparable buildings in the area of the Building in the Cambridge Central Square market (including but not limited to those buildings located at 350 Massachusetts Avenue, 955 Massachusetts Avenue, 1100 Massachusetts Avenue and 1050 Massachusetts Avenue) taking into account all relevant factors, including, applicable base years and allowances and construction of improvements.

 

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EXHIBIT “H”

RIGHT OF OFFER

1. Subject to: (a) Tenant not being in an Event of Default upon exercise of the Right of First Offer; and (b) Tenant not having assigned its interest in this Lease or subleased more than fifty percent (50%) of the Premises (in each case, other than to a Permitted Transferee), Tenant shall have a one (1) time right of offer (the “ Right of Offer ”) to lease space any space that becomes available on the twelfth (12th) floor of the Building (the “ Offer Premises ”). The term “one-time” shall mean with respect to the particular space which is the subject of an Offer Notice (as defined below), but Tenant shall continue to have a Right of Offer with respect to any portion of the Offer Premises which is not the subject of any Offer Notice.

2. In the event any Offer Premises become vacant, prior to Landlord offering the Offer Space to another prospective tenant, Landlord shall notify Tenant in writing with a good faith market rate offer (the “ Offer Notice ”) setting forth a description of the Offer Premises and the date such Offer Premises will be available for occupancy or the commencement of improvements by Tenant (the “ Availability Date ”) as well as all economic and material terms upon which Landlord is prepared to enter into a lease with such third-party for the Offer Premises and which lease term with respect to the Offer Premises shall be co-terminous with the Lease Term. Tenant shall have a period of ten (10) days after receipt of the Offer Notice within which to advise Landlord by written notice that Tenant elects to exercise its right of first offer to lease the entirety of Offer Premises upon the same terms and conditions as set forth in the Offer Notice.

3. Failure of Tenant to advise Landlord that it elects to exercise its right of first offer on the terms set forth in the Offer Notice within such ten (10) day period shall be deemed a waiver of the Right of Offer hereunder and Landlord shall forever be free to enter into mutually agreeable lease with a third party for the Offer Premises on any terms and conditions as it deems desirable; provided, however, if Landlord desires to lease the Offer Premises on economic terms which are less than ninety-percent (90%) of the economic terms which were contained in the Offer Notice, Landlord shall again deliver an Offer Notice to Tenant offering the Offer Premises on such revised economic terms.

4. Landlord shall be responsible for delivering possession of the Offer Premises free of all occupants on the Availability Date in “broom clean” condition with all systems serving the same in good and operational condition and otherwise in accordance with the terms of the Offer Notice.

 

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Exhibit 10.12

SUBLEASE

This SUBLEASE (“ Sublease ”) is made as of July 6, 2016 (the “ Effective Date ”), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation having a place of business at 480 Arsenal Street, Watertown, MA 02472 (“ Sublessor ”) and SperoOpCo, Inc., a Delaware corporation (“ Sublessee ”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain Lease (“ Original Lease ”) dated as of November 16, 2006, between ARE-480 Arsenal Street, LLC (“ Prime Lessor ”) and Sublessor, as amended by (1) a First Amendment to Lease between Prime Lessor and Sublessor dated as of September 9, 2011, (2) a Second Amendment to Lease between Prime Lessor and Sublessor dated as of September 18, 2012, (3) a Third Amendment to Lease between Prime Lessor and Sublessor dated as of November 20, 2013, (4) a Fourth Amendment to Lease between Prime Lessor and Sublessor dated as of November 20, 2013, (5) a Fifth Amendment to Lease between Prime Lessor and Sublessor dated as of September 4, 2014, (6) a Sixth Amendment to Lease between Prime Lessor and Sublessor dated as of July 3, 2013, and (7) a Seventh Amendment to Lease between Prime Lessor and Sublessor dated as of June 18, 2015 (such Original Lease, as so amended, and all renewals, modifications and extensions thereof as permitted hereafter being hereinafter collectively referred to as the “ Prime Lease ”), a true, correct and complete copy of which is attached hereto as Exhibit  A , Prime Lessor leases to Sublessor with certain appurtenant rights certain premises consisting of 37,438 rentable square feet in the building known as and numbered 480 Arsenal Street, Watertown, Massachusetts (the “ Building ”) (all as more particularly described in the Prime Lease, the “Premises”); and

WHEREAS, Sublessee desires to sublease a certain portion of the Premises consisting of approximately 6,979 rentable square feet on the first floor of the Building from Sublessor and Sublessor is willing to sublease the same, all on the terms and conditions hereinafter set forth;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties covenant and agree as follows:

1. Sublease of Subleased Premises . For the rent and upon the terms and conditions herein, Sublessor hereby subleases to Sublessee, and Sublessee hereby subleases from Sublessor that certain portion of the Premises consisting of approximately 6,979 square feet, which shall be referred to herein as the “ Subleased Premises ” and is shown on Exhibit B attached hereto. The Subleased Premises excludes the server room (“ Server Room ”), which is delineated on Exhibit B .

2. Term . (a) Subject to the following provisos, the term of this Sublease (“ Term ”) shall commence upon the later of (i) the date on which the Subleased Premises are tendered to Sublessee for its occupancy and use, (ii) July 1, 2016, and (iii) the date that the Prime Landlord provides its consent to the Sublease (the “ Commencement Date ”), and shall expire on November 30, 2019 (the “ Expiration Date ”), unless sooner terminated.


(b) The Subleased Premises shall be delivered by Sublessor and accepted by Sublessee in “as is” condition, except as expressly provided in this Sublease and except that the Subleased Premises shall be in broom clean condition. The Building Systems and laboratory specific mechanical equipment serving the Subleased Premises shall be delivered in good operating condition and repair suitable for laboratory uses including all electrical, plumbing, heating, ventilation, and air conditioning, and to allow the laboratory to be operational and shall be delivered in compliance with all applicable local, state, and federal building laws, codes, ordinances, rules and regulations and free from Hazardous Materials. Subtenant shall be responsible for obtaining and maintaining, including all associated costs and fees, of any additional licenses and safety permit required for Subtenant to operate for its Permitted Use in the Subleased Premises. Sublandlord shall use commercially reasonable efforts to cause the Prime Landlord to maintain the Building Systems pursuant to the terms of the Prime Lease. Subtenant shall maintain all laboratory specific mechanical equipment throughout the Term of the Sublease.

TIME IS OF THE ESSENCE WITH REGARD TO THE DATES DESCRIBED IN THIS SECTION 2.

3. Appurtenant Rights; Parking . Sublessee shall have, as appurtenant to the Subleased Premises and without additional charge or cost, rights to use in common with Sublessor and others entitled thereto Sublessor’s rights in driveways, walkways, lobbies, hallways, the loading dock, freight elevators, stairways, passenger elevators convenient for access to the Subleased Premises and the other Common Areas as set forth in the Prime Lease and all in accordance with the terms of the Prime Lease. In addition, Sublessor leases to Sublessee twenty (20) parking spaces in the Building parking lot for no additional cost. All parking spaces shall be leased on an unassigned, unreserved basis.

4. Rent . (a) Sublessee shall pay to Sublessor the following rent amounts (the “ Rent ”), which is intended to be triple net rent:

 

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Term of Occupancy

   Per Annum
Rent
     Monthly
Installment
of Rent
     Rent
per Rentable
Square Foot
 

Rent Commencement Date through July 31, 2016

   $ 321,103.79      $ 26,758.65      $ 46.01  

August 1, 2016 through November 30, 2016

   $ 324,034.97      $ 27,002.91      $ 46.43  

December 1, 2016 through November 30, 2017

   $ 332,339.98      $ 27,695.00      $ 47.62  

December 1, 2017 through November 30, 2018

   $ 341,831.42      $ 28,485.95      $ 48.98  

December 1, 2018 through November 30, 2019

   $ 351,602.02      $ 29,300.17      $ 50.38  

(b) Sublessee will pay its proportionate share (which is 18.64%) of Sublessor’s cost of the actual Operating Expenses (as defined in the Prime Lease) and Taxes (as defined in the Prime Lease), each as “ Additional Rent .” In addition, Subtenant shall pay, within thirty (30) days of receipt of an invoice from Sublessor, as Additional Rent, all costs in excess of $900 attributed to the electricity serving Suite 100 located on the first floor of the Premises in the Building that Sublessor is required to pay during the Term of the Sublease. Sublessor shall inform Sublessee of its Operating Expense and Tax obligations within ten (10) business days of receipt from Prime Lessor of a statement or demand therefor, and shall provide reasonable detail to allow Sublessee to evaluate its share.

(c) Sublessee also shall pay for the cleaning of the Subleased Premises.

(d) Sublessee shall begin paying Rent to Sublessor on the Commencement Date (the “ Rent Commencement Date ”), and shall not owe Rent to Sublessor for any period prior to the Rent Commencement Date. All monthly payments of Rent (including Operating Expenses and Taxes) are due and payable in advance on the first day of each calendar month, without demand, deduction, counterclaim or setoff except as expressly provided herein. Rent for any partial month shall be prorated and paid on the first of such month. Sublessee shall make all payments required by this Sublease by wire transfer.

 

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5. Permitted Uses . Sublessee shall use the Subleased Premises for general research and development, laboratory, and office uses as set forth in the Prime Lease.

6. Condition of Subleased Premises; Security . (a) Sublessee agrees that, except as expressly provided in this Sublease, (i) it enters into this Sublease without relying upon any representations, warranties or promises by Sublessor, its agents, representatives, employees, servants or any other person in respect of the Building or the Subleased Premises, (ii) no rights, easements or licenses are acquired by Sublessee by implication or otherwise except as expressly set forth herein, (iii) Sublessor shall have no obligation to do any work in order to make the Subleased Premises suitable and ready for occupancy and use by Sublessee, except as otherwise set forth in this Sublease.

(b) After the Commencement Date, Sublessee shall have the right to install its own security system in the Subleased Premises, and Sublessee shall remove such security system at the end of the Term Sublessor. Notwithstanding any other provision, Sublessor shall have full and complete access to the Server Room, 24 hours per day, seven days per week in accordance with the terms of Section 12 of this Sublease. Sublessee shall have access to the Subleased Premises 24 hours per day, seven days per week, 365 days per year.

(c) Sublessee shall keep and maintain the Subleased Premises in at least the same order, repair and condition as exists on the Commencement Date, reasonable wear and tear and damage by fire or other casualty or condemnation and damage caused by Prime Lessor or Sublessor, and their respective officers, agents and employees excepted.

7. Insurance . Sublessee shall maintain throughout the Term of this Sublease such insurance in respect of the Subleased Premises and the conduct and operation of business therein, with Sublessor and Prime Lessor listed as additional insureds as is required of “Tenant” pursuant to the terms of the Prime Lease, with no penalty to Sublessor or Prime Lessor resulting from deductibles or self-insured retentions effected in Sublessee’s insurance coverage. If Sublessee fails to procure or maintain such insurance and to pay all premiums and charges therefor within five (5) days after receipt of written notice from Sublessor, Sublessor may pay all such premiums and charges on behalf of Sublessee (but shall not be obligated to do so), whereupon Sublessee shall reimburse Sublessor upon demand. All such insurance policies shall, to the extent obtainable, contain endorsements providing that (i) such policies may not be canceled except upon thirty (30) days’ prior notice to Sublessor and Prime Lessor, (ii) no act or omission of Sublessee shall affect or limit the obligations of the insurer with respect to any other named or additional insured and (iii) Sublessee shall be solely responsible for the payment of all premiums under such policies and Sublessor, notwithstanding that it is or may be a named insured, shall have no obligation for the payment thereof. On or before the Commencement Date, Sublessee shall deliver to Sublessor and Prime Lessor either a fully paid-for policy or certificate, at Sublessee’s option, evidencing the foregoing coverages. Any endorsements to such policies or certificates shall also be delivered to Sublessor and Prime Lessor upon issuance thereof. Sublessee shall procure and pay for renewals of such insurance from time to time before the expiration thereof, and Sublessee shall deliver to Sublessor and Prime Lessor such renewal policies or certificates within thirty (30) days after the renewal date of any existing policy. In the event Sublessee fails so to deliver any such renewal policy or certificate within thirty (30) days

 

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after the expiration of any existing policy, Sublessor shall have the right, but not the obligation, to obtain the same after five (5) days written notice and opportunity to cure whereupon Sublessee shall reimburse Sublessor upon demand the fair market cost thereof.

Sublessee shall include in all such insurance policies any clauses or endorsements in favor of Prime Lessor including, but not limited to, waivers of the right of subrogation, which Sublessor is required to provide pursuant to the provisions of the Prime Lease. Sublessor and Sublessee shall also obtain from their respective insurers waivers of subrogation riders in favor of each other and hereby agree to release each other from all claims that may arise that are otherwise covered by insurance or if would have been covered by insurance that was required to be obtained either herein or in the Prime Lease. Sublessee releases and waives all claims against Sublessor and Prime Lessor for loss or damage to Sublessee’s personal property and its alterations in the Subleased Premises to the extent the same are covered by insurance required to be maintained by Sublessee pursuant to this Sublease.

8. Indemnification . Subject to Section 7 above and the obligation of each party to first look to insurance, Sublessee agrees to protect, defend (with counsel reasonably approved by Sublessor), indemnify and hold Sublessor and its respective officers, agents and employees harmless from and against any and all claims, costs, expenses, losses and liabilities arising: (i) from any injury to or death of persons, damage to property or other event occurring in the Subleased Premises during the term hereof to the extent caused by Sublessee or any of its agents, employees, licensees, invitees or assignees; and (ii) from any willful misconduct or negligence on the part of Sublessee or any of its agents, employees, licensees, invitees or assignees or any person claiming through or under Sublessee. Sublessee further agrees to indemnify Sublessor and its respective officers, agents and employees from and against any and all damages, liabilities, costs and expenses, including reasonable attorneys’ fees, incurred in connection with any such indemnified claim or any action or proceeding brought in connection therewith. The provisions of this Paragraph are intended to supplement any other indemnification provisions contained in this Sublease and in the Prime Lease to the extent incorporated by reference herein. Any non-liability, indemnity or hold harmless provisions in the Prime Lease for the benefit of Prime Lessor that are incorporated herein by reference shall be deemed to inure to the benefit of Sublessor for the purpose of incorporation by reference in this Sublease; provided, however, Sublessee shall have no obligation to indemnify Sublessor or Prime Lessor for any Environmental Claims except those resulting from contamination caused in, on, under or about the Subleased Premises to the extent caused by Sublessee or any of its agents, employees, licensees, invitees or assignees during the Term of this Sublease and provided further that Sublessee shall in no event be liable for any Environmental Claims for conditions existing in, on, under or about the Subleased Premises on or before the date of this Sublease.

9. No Assignment or Subletting . (a) Sublessee shall not assign, sell, mortgage, pledge or in any manner transfer this Sublease or any interest herein, or the term or estate granted hereby or the rentals hereunder, or sublet the Subleased Premises or any part thereof, or grant any concession or license or otherwise permit occupancy of all or any part of the Subleased Premises by any person, without the prior written consent of Sublessor and Prime Lessor. Neither the consent of Sublessor or Prime Lessor to an assignment, subletting, concession, or license, nor the references in this Sublease to assignees, subtenants, concessionaires or licensees,

 

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shall in any way be construed to relieve Sublessee of the requirement of obtaining the consent of Sublessor and Prime Lessor to any further assignment or subletting or to the making of any further assignment, subletting, concession or license for all or any part of the Subleased Premises. Notwithstanding any assignment or subletting, including, without limitation, any assignment or subletting permitted or consented to, the original Sublessee named herein and any other person(s) who at any time was or were Sublessee shall remain fully liable under this Sublease. If this Sublease is assigned, or if the Subleased Premises or any part thereof is underlet or occupied by any person or entity other than Sublessee, Sublessor may, after default by Sublessee beyond any applicable notice and cure periods, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the rents payable by Sublessee hereunder, but no assignment, underletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a release of Sublessee from the further performance by Sublessee of the covenants hereunder to be performed on the part of Sublessee. Any attempted assignment or subletting without the prior written consent of Sublessor and Prime Lessor shall be void.

10. Primacy and Incorporation of Prime Lease .

(a) This Sublease is and shall be subject and subordinate to the Prime Lease and to all amendments, modifications and replacements of or to the Prime Lease, but only as such are permitted pursuant to this Sublease. Sublessor conveys, and Sublessee takes hereby, no greater rights then those accorded to or taken by Sublessor as “Tenant” under the terms of the Prime Lease, and likewise, except as set forth herein, is granted all benefits afforded “Tenant” under the Prime Lease. To the extent incorporated herein, Sublessee covenants and agrees that it will perform and observe all of the provisions contained in the Prime Lease to be performed and observed by the “Tenant” thereunder as applicable to the Subleased Premises, except that “Rent” shall be defined for purposes of this Sublease as set forth in Section 4 hereof and except as otherwise set forth in this Sublease. Notwithstanding the foregoing, Sublessee shall have no obligation to (i) cure any default of Sublessor under the Prime Lease, (ii) perform any obligation of Sublessor under the Prime Lease which arose prior to the Commencement Date and Sublessor failed to perform, (iii) repair any damage to the Subleased Premises caused by Sublessor, (iv) remove any alterations or additions installed within the Subleased Premises by Sublessor, (v) discharge any liens on the Subleased Premises or the Building which arise out of any work performed, or claimed to be performed, by or at the direction of Sublessor or (vi) remove any Hazardous Materials that are not caused by Sublessee or any of its agents, employees, licensees, invitees or assignees. Except to the extent inconsistent with the context hereof, capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Prime Lease. Further, except as set forth in the last paragraph of this Section (a), the terms, covenants and conditions of the Prime Lease are incorporated and made a part of this Sublease as they relate to the Subleased Premises as if such terms, covenants and conditions were stated herein to be the terms, covenants and conditions of this Sublease, so that except to the extent that they are inconsistent with or modified by the provisions of this Sublease, for the purpose of incorporation by reference, each and every referenced term, covenant and condition of the Prime Lease binding upon or inuring to the benefit of the “Landlord” thereunder shall, in respect of this Sublease and the Subleased Premises, be binding upon or inure to the benefit of Sublessor, and each and every referenced term, covenant and condition of the Prime Lease binding upon or inuring to the

 

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benefit of the “Tenant” thereunder shall, in respect of this Sublease, be binding upon or inure to the benefit of Sublessee, with the same force and effect as if such terms, covenants and conditions were completely set forth in this Sublease. It is the intent of the parties that to the extent any terms or provisions of this Sublease are inconsistent or conflict with the Prime Lease, the terms of this Sublease shall control and the applicable terms and provisions of the Prime Lease shall be deemed to be modified to reflect the terms and provisions of this Sublease. For purposes of this Sublease, as to such incorporated terms, covenants and conditions:

(i) references in the Prime Lease to the “Premises” shall be deemed to refer to the “Subleased Premises” hereunder;

(ii) references in the Prime Lease to “Landlord” and to “Tenant” shall be deemed to refer to “Sublessor” and “Sublessee” hereunder, respectively, except that where the term “Landlord” is used in the context of ownership or management of the entire Building, such term shall be deemed to mean “Prime Lessor”;

(iii) references in the Prime Lease to “this Lease” shall be deemed to refer to “this Sublease” (except when such reference in the Prime Lease is, by its terms (unless modified by this Sublease), a reference to any other section of the Prime Lease, in which event such reference shall be deemed to refer to the particular section of the Prime Lease);

(iv) references in the Prime Lease to the “Commencement Date” and “Effective Date” shall be deemed to refer to the “Commencement Date” hereunder;

(v) references in the Prime Lease to the “Base Rent,” “Additional Rent,” “Rent,” “Taxes,” and “Operating Expenses” shall be deemed to refer to the “Rent” as defined hereunder;

(vi) references in the Prime Lease to “Term” shall be deemed to refer to the Term of this Sublease.

Sublessor shall have the rights against Sublessee as would be available to Landlord against the Tenant under the Prime Lease if such breach was by the tenant thereunder. Sublessee shall have the same rights against Sublessor as would be available to Tenant against the Landlord under the Prime Lease if such breach was by the landlord thereunder.

(b) Notwithstanding the foregoing, the following provisions of the Prime Lease and Exhibits annexed thereto are not incorporated herein by reference and shall not, except as to definitions set forth therein, have any applicability to this Sublease:

Original Lease : Articles/Paragraphs/Sections 2 (Delivery, Acceptance and Commencement Date), 3 (Right to Terminate), 4 (Rent), 5 (Base Rent Adjustments), 7 (Security Deposit), 11 (Parking), 13 (Alterations), 18 (Landlord’s Insurance), 23 (Assignment and Subletting), 36 (Brokers), 40 (Rights to Extend), Exhibit C (Work Letter), and Exhibit E (Tenant’s Personal Property).

 

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First Amendment : Paragraphs/Sections 1 (Delivery), 2 (Base Rent), 6 (Broker), Exhibit A (Expansion Premises), and Exhibit B (Acknowledgment of Expansion Premises Commencement Date).

Second Amendment : Paragraphs/Sections 1 (Extension of Base Term), 6 (Landlord’s Work), 8 (Rights to Extend), 10 (Brokers), and Exhibit B (Work Letter).

Third Amendment : Paragraphs/Sections 1 (Base Term), 2 (Rent), 3 (Section 40/Right to Extend Term), and 4 (Broker).

Fourth Amendment : Paragraphs/Sections 1 (Base Term), 2 (Rent), and 3 (Broker).

Fifth Amendment : Paragraphs/Sections 1 (Base Term), and 2 (Rent).

Sixth Amendment : Paragraphs/Sections 5 (Rent).

Seventh Amendment : Paragraphs/Sections 5 (Base Rent), 7 (Premises Improvements), 8 (Restoration).

(c) Notwithstanding anything to the contrary contained in the Prime Lease, the time limits (the “ Notice Periods ”) contained in the Prime Lease for the giving of notices, making of demands or performing of any act, condition or covenant on the part of the “Tenant” thereunder, or for the exercise by the “Tenant” thereunder of any right, remedy or option, are changed for the purposes of incorporation herein by reference by shortening the same in each instance by two (2) days, so that in each instance Sublessee shall have two (2) fewer days to observe or perform hereunder than Sublessor has as the “Tenant” under the Prime Lease; provided , however , that if the Prime Lease allows a Notice Period of two (2) days or less, then Sublessee shall nevertheless be allowed the number of days equal to one-half of the number of days in each Notice Period to give any such notices, make any such demands, perform any such acts, conditions or covenants or exercise any such rights, remedies or options; provided , further , that if one-half of the number of days in the Notice Period is not a whole number, Sublessee shall be allowed the number of days equal to one-half of the number of days in the Notice Period rounded up to the next whole number.

11. Sublessor Representations . (a) Except as expressly provided in this Sublease (including, without limitation, the provisions of the Prime Lease incorporated herein by reference), Sublessor makes no representations or warranties whatsoever with respect to the Subleased Premises, this Sublease, Prime Lease or any other matter, either express or implied, except as otherwise expressly set forth in this Sublease, and except that Sublessor represents and warrants both as of the Effective Date and the Commencement Date as follows: (i) that it is the sole holder of the interest of the “Tenant” under the Prime Lease and holds good leasehold title to the Subleased Premises, (ii) that Sublessor has the legal power, right and authority to enter into this Sublease and the instruments referenced herein and to consummate the transactions contemplated hereby, and the individual(s) executing this Sublease and instruments referenced herein on behalf of Sublessor have the legal power, right and authority to bind Sublessor to the terms and conditions hereof and that the Sublease is enforceable in accordance with its terms and

 

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is in full force and effect, (iii) that the Prime Lease is in full force and effect, (iv) there currently are no defaults or events of default under the Prime Lease, and there are no events which, with the passage of time and/or the giving of notice, would constitute a default or event of default under the Prime Lease, (v) to the Sublessor’s knowledge, Prime Lessor is not in default under the Prime Lease, (vi) other than those that have been obtained and that are in full force and effect, the execution, delivery, and performance by Sublessor of this Sublease does not require the consent, waiver, approval, license, or authorization of, or any notice to or filing with, any person, entity, or governmental authority, except for the Consent, (vii) a true, accurate, and complete copy of the Prime Lease is attached hereto as Exhibit A , and there have been no modifications, amendments (including amendments to appendices) or changes to the Prime Lease except as set forth in Exhibit A , and the Prime Lease constitutes the entire agreement between Prime Lessor and Sublessor with regard to the Subleased Premises, (viii) Sublessor has no defenses, setoffs, or counterclaims to the payment of amounts due from Sublessor to Prime Lessor under the Prime Lease and no dispute currently exists under the Prime Lease, (ix) the execution and delivery of this Sublease will not conflict with or constitute a breach or default of any material terms of any note, contract, mortgage, deed of trust, lease, sublease, or other agreement or instrument to which Sublessor is a party or by which it is bound, (x) there are no actions, lawsuits, or proceedings pending or threatened against or relating to Sublessor’s ownership or use of the Subleased Premises, and Sublessor has not received any written notice from any city, county, state, or other governmental agency claiming a violation of any applicable laws relating to the Subleased Premises, and (xi) Sublessor has not contracted for any services or goods or created any obligations that will bind Sublessee as successor-in-interest with respect to the Subleased Premises except as set forth in this Sublease.

12. Access . Sublessor acknowledges that Sublessee will be conducting sensitive and valuable research and laboratory experiments in the Subleased Premises, that the Subleased Premises will contain confidential proprietary information, and that such laboratory research being conducted in the Subleased Premises is sensitive to interference and could be voided or irreparably harmed by uncontrolled access. Subject to the terms hereof, Sublessee shall upon at least two (2) business days prior written notice from Sublessor, permit Sublessor to have reasonable access to and to enter upon the Subleased Premises Monday-Friday 8:00 a.m. - 6:00 p.m., excluding holidays, for the purpose of exercising rights (if any) granted to Sublessor under this Sublease; provided, however, that Sublessee shall permit Sublessor’s facilities personnel to have immediate access to the Subleased Premises in the event of an emergency as reasonably determined by Sublessor, and Sublessor will provide notice to Sublessee promptly after any such emergency access. Sublessee shall have the right to have a representative present during all such access. Sublessor and or Prime Lessor shall always access the Subleased Premises in a safe manner, and shall comply with all applicable laws, ordinances, rules, regulations, and orders (including but not limited to those set forth in the Federal Occupational Safety and Health Act and its state and local equivalents, as amended) and with the reasonable safety and security protocols and procedures established by Sublessee from time to time and shall use commercially reasonable efforts to minimize any disruption to the operation of Sublessee’s business. In addition, notwithstanding any other provision, Sublessor shall have access to the Server Closet during the Term of this Sublease twenty-four (24) hours a day, seven (7) days a week.

 

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13. Compliance with Prime Lease . Sublessee shall neither do nor permit anything to be done which would cause the Prime Lease to be terminated or forfeited by reason of any right of termination or forfeiture reserved or vested in Prime Lessor under the Prime Lease; provided, however, that this provision shall not require Sublessee to act or refrain from acting where otherwise permitted in this Sublease. Sublessee shall defend, indemnify and hold Sublessor harmless from and against any and all claims, liabilities, losses, damages and expenses (including reasonable attorneys’ fees) of any kind whatsoever by reason of any breach or default by Sublessee of this Section 13.

Sublessor shall neither do nor permit anything to be done which would cause the Prime Lease to be terminated or forfeited by reason of any right of termination or forfeiture reserved or vested in Prime Lessor under the Prime Lease; provided, however, that this provision shall not require Sublessor to act or refrain from acting where otherwise permitted in this Sublease. Sublessor shall defend, indemnify and hold Sublessee harmless from and against any and all claims, liabilities, losses, damages and expenses (including reasonable attorneys’ fees) of any kind whatsoever by reason of any breach or default by Sublessor of this Section 13.

14. Security Deposit .

(a) Prior to the Commencement Date, Sublessee shall deposit with Sublessor the sum of $53,390 (the “ Security Deposit ”) which sum shall be held by Sublessor as security for the faithful performance by Sublessee of all of the terms, covenants and conditions of this Sublease to be performed by Sublessee during the period commencing on the Commencement Date and ending upon the expiration or termination of Sublessee’s obligations under this Sublease. If Sublessee is in monetary default or otherwise defaults with respect to any provision of this Sublease, including any provision relating to the payment of Rent, in any case beyond applicable notice and cure periods, then Sublessor 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 Sublessor for any other loss or damage that Sublessor may suffer by reason of Sublessee’s default. If any portion of the Security Deposit is so used or applied, then Sublessee shall, within ten (10) days following demand therefor, deposit cash with Sublessor in an amount sufficient to restore the Security Deposit to its original amount, and Sublessee’s failure to do so shall be a material breach of this Sublease. The provisions of this Section  14 shall survive the expiration or earlier termination of this Sublease.

(b) In the event of bankruptcy or other debtor-creditor proceedings against Sublessee, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Sublessor for all periods prior to the filing of such proceedings.

(c) Sublessor may deliver to any purchaser of Sublessor’s interest in the Subleased Premises the funds deposited hereunder by Sublessee, and thereupon Sublessor shall be discharged from any further liability with respect to such deposit. This provision shall also apply to any subsequent transfers.

(d) If Sublessee shall fully and faithfully perform every provision of this Sublease to be performed by it, then the Security Deposit, or any balance thereof, shall be returned to

 

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Sublessee (or, at Sublessor’s option, to the last assignee of Sublessee’s interest hereunder) within thirty (30) days after the expiration or earlier termination of this Sublease.

(e) If the Security Deposit shall be in cash, Sublessor shall hold the Security Deposit in an account at a banking organization selected by Sublessor; provided, however, that Sublessor shall not be required to maintain a separate account for the Security Deposit, but may intermingle it with other funds of Sublessor. Sublessor shall be entitled to all interest and/or dividends, if any, accruing on the Security Deposit. Sublessor shall not be required to credit Sublessee with any interest for any period during which Sublessor does not receive interest on the Security Deposit.

(f) The Security Deposit may be in the form of cash, a letter of credit or any other security instrument acceptable to Sublessor in its sole discretion. Sublessee may at any time, except when Sublessee is in default, deliver a letter of credit (the “ L/C Security ”) as the entire Security Deposit, as follows:

(i) If Sublessee elects to deliver L/C Security, then Sublessee shall provide Sublessor, and maintain in full force and effect throughout the Term and until the date that is thirty (30) days after the expiration or termination of the Term, a letter of credit in the form reasonable acceptable to Sublessor issued by an issuer reasonably satisfactory to Sublessor, in the amount of the Security Deposit, with an initial term of at least one year. Sublessor may require the L/C Security to be re-issued by a different issuer at any time during the Term if Sublessor reasonably believes that the issuing bank of the L/C Security is or may soon become insolvent; provided, however, Sublessor shall return the existing L/C Security to the existing issuer immediately upon receipt of the substitute L/C Security. If any issuer of the L/C Security shall become insolvent or placed into FDIC receivership, then Sublessee shall immediately deliver to Sublessor (without the requirement of notice from Sublessor) either cash in the amount of the Security Deposit or substitute L/C Security issued by an issuer reasonably satisfactory to Sublessor, and otherwise conforming to the requirements set forth in this Section 5, and Sublessor shall return the existing L/C Security to the existing issuer immediately upon receipt of the substitute L/C Security. As used herein with respect to the issuer of the L/C Security, “insolvent” shall mean the determination of insolvency as made by such issuer’s primary bank regulator (i.e., the state bank supervisor for state chartered banks; the OCC or OTS, respectively, for federally chartered banks or thrifts; or the Federal Reserve for its member banks). Except with respect to the initial letter of credit delivered prior to the Commencement Date, Sublessee shall reimburse Sublessor’s legal costs (as estimated by Sublessor’s counsel) in handling Sublessor’s acceptance of L/C Security or its replacement or extension.

(ii) If Sublessee delivers to Sublessor satisfactory L/C Security in place of the entire Security Deposit, Sublessor shall remit to Sublessee any cash Security Deposit Sublessor previously held.

(iii) Sublessor may draw upon the L/C Security, and hold and apply the proceeds in the same manner and for the same purposes as the Security Deposit, if: (i) an uncured default exists beyond applicable notice and cure periods; (ii) as of the date forty-five (45) days before any L/C Security expires (even if such scheduled expiry date is after the Term

 

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Expiration Date) Sublessee has not delivered to Sublessor an amendment or replacement for such L/C Security, reasonably satisfactory to Sublessor, extending the expiry date to the earlier of (1) thirty (30) days after the expiration or termination of the Term or (2) the date one year after the then-current expiry date of the L/C Security; (iii) the issuer fails to permit Sublessor to transfer the L/C Security to a successor sublessor under the Sublease; or (iv) the issuer of the L/C Security ceases, or announces that it will cease, to maintain an office in the city where Sublessor may present drafts under the L/C Security (and fails to permit drawing upon the L/C Security by overnight courier or facsimile). This Section does not limit any other provisions of this Lease allowing Sublessor to draw the L/C Security under specified circumstances.

(iv) Sublessee shall not seek to enjoin, prevent, or otherwise interfere with Sublessor’s draw under L/C Security. Sublessor shall hold the proceeds of any draw in the same manner and for the same purposes as a cash Security Deposit.

(v) If Sublessor transfers its interest in the Premises, then Sublessee shall at Sublessee’s expense, within ten (10) business days after receiving a request from Sublessor, deliver (and, if the issuer requires, Sublessor shall consent to) an amendment to the L/C Security naming Sublessor’s grantee as substitute beneficiary.

15. Brokerage . Sublessee and Sublessor each represents that it has not dealt with any broker in connection with this Sublease other than CBRE New England (the “ Broker ”). Each party agrees to indemnify and hold harmless the other from and against any and all liabilities, claims, suits, demands, judgments, costs, interest and expenses (including, without being limited to, reasonable attorneys’ fees and expenses) which the indemnified party may be subject to or suffer by reason of any breach of the foregoing representations. Sublessor shall pay the brokerage fee/commissions due to the Brokers and shall indemnify and hold Sublessee harmless from and against any and all liabilities, claims, suits, demands, judgments, costs, interest and expenses (including, without being limited, reasonable attorneys’ fees and expenses) which Sublessee may be subject to or suffer by reason of any claim made by the Brokers for any fees/commissions, expense or other compensation as a result of the execution and delivery of this Sublease, other than a claim based upon any agreement with Sublessee or Sublessee’s agents, representatives or employees.

16. Notices . All notices, consents, approvals, demands, bills, statements and requests which are required or desired to be given by either party to the other hereunder shall be in writing and shall be governed by Notice provision of the Prime Lease as incorporated herein by reference, except that the mailing addresses for Sublessor shall initially be as first set forth above, and the mailing address for Sublessee shall be as follows:

Spero Therapeutics, Inc.

480 Arsenal Street, Suite 100

Watertown, MA 02472

Attention: Steve Garbacz and Ankit Mahadevia

and

 

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Mintz, Levin, Cohn, Ferris, Glovsky and

Popeo, P.C.

One Financial Center

Boston, MA 02111

Attn: Allan Caggiano, Esq.

17. Interpretation . This Sublease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Sublease to be drafted. Each covenant, agreement, obligation or other provision of this Sublease shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, which covenant, agreement, obligation or other provision shall be construed and interpreted in the context of the Sublease as a whole. All terms and words used in this Sublease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. The word “person” as used in this Sublease shall mean a natural person or persons, a partnership, a corporation or any other form of business or legal association or entity. Terms used herein and not defined shall have the meaning set forth in the Prime Lease.

18. Signage . At Sublessee’s sole cost and expense, Sublessee shall have the right to a listing on the main Building tenant directory, the Sublessee’s main entrance to the Subleased Premises, and in the common lobby area located on the first floor of the Building, with the prior consent of the Sublandlord and Prime Lessor as set forth in the Consent.

19. Right to Cure Defaults . If Sublessee or Sublessor shall at any time fail to make any payment or perform any other obligation pursuant to this Sublease, then the other shall have the right, but not the obligation, after notice to the defaulting party in accordance with Section 15 of this Sublease, or without notice to the other in the case of any emergency, and without waiving or releasing the other from any obligations of the other hereunder, to make such payment or perform such other obligation of the other in such manner and to such extent as the non-defaulting party shall deem reasonably necessary, and in exercising any such right, to pay any incidental costs and expenses, employ attorneys, and incur and pay reasonable attorneys’ fees. The defaulting party shall pay to the non-defaulting party ten (10) days after demand all sums so paid by the non-defaulting party and all incidental costs and expenses of the non-defaulting party in connection therewith, together with interest thereon at an annual rate equal to ten percent (10%) per annum, or the highest rate permitted by applicable law, whichever shall be less. Such interest shall be payable with respect to the period commencing on the date such expenditures are made by the non-defaulting party and ending on the date such amounts are repaid by the defaulting party. The provisions of this Paragraph shall survive the Expiration Date or the sooner termination of this Sublease.

20. Termination of Prime Lease . If for any reason other than the action, inaction, negligence or misconduct of Sublessor the term of the Prime Lease shall terminate prior to the last day of the Term of this Sublease (as the case may be), this Sublease shall thereupon automatically terminate as to the premises demised under the Prime Lease and Sublessor shall

 

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not be liable to Sublessee by reason thereof except as otherwise set forth in this Sublease; provided , however , that the foregoing is subject to the terms of the Consent.

Neither Sublessor nor Sublessee shall do or permit anything to be done which would cause the Prime Lease to be terminated or forfeited by reason of any right of termination or forfeiture reserved or vested in Prime Lessor or in Sublessor under the Prime Lease. Sublessor and Sublessee each shall defend, indemnify and hold the other harmless from and against any and all claims, liabilities, losses, damages, and expenses (including reasonable attorneys fees) of any kind whatsoever by reason of any breach or default on the part of Sublessor or Sublessee (as the case may be) by reason of which the Prime Lease may be terminated or forfeited.

Sublessor shall perform all of its obligations under the Prime Lease, and agrees to keep and maintain the Prime Lease in full force and effect. In the event that either Sublessor or Sublessee shall receive any notice from Prime Lessor regarding a default pursuant to any of the provisions of the Prime Lease, the party receiving such notice shall promptly give a copy thereof to the other party. Further, Sublessor and Sublessee each agrees to give to the other a copy of any notice of default, event of default, or otherwise under the Prime Lease that said party gives to Prime Lessor.

Sublessor agrees not to amend, modify, surrender, cancel, or terminate the Prime Lease without Sublessee’s prior written consent, which consent shall not be unreasonably withheld by Sublessee; provided , however , that Sublessor may amend the Prime Lease without Sublessee’s prior written consent, but only if and to the extent that there is no adverse economic effect on Sublessee and the Subleased Premises and (ii) there is otherwise no material adverse effect as to non-economic terms and conditions in the Prime Lease on Sublessee and the Subleased Premises (and if there is any such permitted amendment to the Prime Lease, Sublessor shall promptly provide Sublessee with a copy of any such executed amendment).

21. Sublessee Hazardous Material Activity . (a) Subject to Sublessee’s rights under this Paragraph 21, upon the expiration or termination of this Sublease, whether by forfeiture, lapse of time or otherwise, or upon the termination of Sublessee’s right of possession, Sublessee shall surrender and deliver the Subleased Premises in the condition and repair required by, and in accordance with the provisions of, this Sublease.

(b) Sublessee shall surrender the Subleased Premises to Sublessor free from any residual impact from Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Subleased Premises by Sublessee or by any of Sublessee’s agents, servants, employees, and contractors (collectively, “ Sublessee Hazardous Material Activity ”) as provided in this Section. Notwithstanding anything in this Sublease to the contrary, Sublessee shall have no liability for any Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Subleased Premises by anyone other than Sublessee or by any of Sublessee’s agents, servants, employees, and contractors. If Sublessee determines or obtains information that (i) Hazardous Materials may have existed at, in or about the Subleased Premises prior to the Commencement Date and remain at, in, or about the Subleased Premises during the Term of the Sublease, or (ii) Hazardous Materials may exist at, on, about or from the Subleased Premises as a result of the acts or failures

 

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to act of Sublessor or Prime Lessor, then Sublessee agrees use commercially reasonable efforts to notify Sublessor of its determination or information of the presence of Hazardous Materials as soon as reasonably practicable thereafter.

(c) Within a reasonable period of time prior to the surrender of the Subleased Premises sufficient to provide Sublessor with adequate notice of Sublessee’s proposed actions, Sublessee shall deliver to Sublessor a narrative description of the actions proposed (or required by any governmental entity with jurisdiction over such activities) to be taken by Sublessee, substantially in the form attached to the Prime Lease (the “ Surrender Plan ”), in order to surrender the Subleased Premises at the expiration or earlier termination of the Term, free from any residual impact from the Sublessee Hazardous Material Activity ( or , in the event that decontamination or remediation activities, if needed, will require additional time to render the Subleased Premises free from Sublessee Hazardous Materials Activity, a narrative description of such proposed actions). Such Surrender Plan shall be accompanied by a listing of (i) all Hazardous Materials licenses and permits held by Sublessee or on behalf of any of Sublessee’s agents, servants, employees, and contractors with respect to the Subleased Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Subleased Premises by Sublessee.

(d) The Surrender Plan shall be subject to the reasonable review and approval of Sublessor’s environmental consultant, at Sublessee’s cost. Upon the request of Sublessor, Sublessee shall deliver to Sublessor or its consultant such additional non-proprietary information concerning Sublessee Hazardous Material Activity as Sublessor shall reasonably request, except that Sublessee shall not be obligated to draft, prepare, or otherwise generate any such additional non-proprietary information that is not already in existence. Sublessor shall approve the Surrender Plan (or provide reasons for rejecting the Surrender Plan with sufficient detail to allow Sublessee to correct the deficiencies) in writing within fifteen business (15) days of receipt thereof, or be deemed to have accepted the same. Where revisions are required, the immediately preceding sentence shall apply except that Sublessor shall have seven business (7) days to respond in writing.

On or before the expiration or earlier termination of this Sublease, Sublessee shall deliver to Sublessor adequate evidence that the approved Surrender Plan shall have been satisfactorily completed and Sublessor shall have the right at Sublessor’s expense to cause Sublessor’s third-party environmental consultant to inspect the Subleased Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Subleased Premises are, as of the effective date of such surrender or early termination of the Sublease or at such other date as set forth in the Surrender Plan, free from any residual impact from the Sublessee Hazardous Material Activity.

If Sublessee shall fail to deliver a required Surrender Plan, or if Sublessee shall fail to complete the approved Surrender Plan, then Sublessor shall have the right to take such actions as Sublessor deems reasonably necessary to assure that the Subleased Premises are surrendered free from any residual impact from any Sublessee Hazardous Material Activity, and the actual and necessary reasonable third-party costs of which actions shall be reimbursed by Sublessee as

 

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Additional Rent; provided , however , that Sublessor shall provide reasonable prior written notice to Sublessee specifying Sublessee’s alleged failure and of Sublessor’s intent to take such action.

(e) Sublessor shall keep the terms of the Surrender Plan confidential, except that Sublessor may disclose such Surrender Plan and any report by Sublessor’s environmental consultant with respect to the surrender of the Subleased Premises to (i) third parties with a bona fide actual or potential interest in the Subleased Premises or (ii) appropriate governmental entities if required by law, except where Sublessee has identified any such Surrender Plan or report, or any portion thereof, as confidential or reflecting proprietary information. Sublessor must obtain the advance written consent of Sublessee prior to making any such disclosure.

22. Consents and Approvals . All references in this Sublease to the consent or approval of Prime Lessor and/or Sublessor shall be deemed to mean the written consent or approval of Prime Lessor and/or Sublessor, as the case may be, and no consent or approval of Prime Lessor and/or Sublessor, as the case may be, shall be effective for any purpose unless such consent or approval is set forth in a written instrument executed by Prime Lessor and/or Sublessor, as the case may be. In all provisions requiring the approval or consent of Sublessor (whether pursuant to the express terms of this Sublease or the terms of the Prime Lease incorporated herein), Sublessee shall be required to obtain the approval or consent of Sublessor and then to obtain like approval or consent of Prime Lessor. Sublessor agrees its consent shall not be unreasonably withheld, conditioned or delayed. If Sublessor is required or has determined to give its consent or approval to a matter as to which consent or approval has been requested by Sublessee, Sublessor shall cooperate reasonably with Sublessee and use commercially reasonable efforts to obtain any required Prime Lessor’s consent or approval upon and subject to the following terms and conditions: (i) Sublessee shall reimburse Sublessor and Prime Lessor for any reasonable third-party out-of-pocket costs incurred by Sublessor in connection with seeking such consent or approval, (ii) Sublessor shall not be required to make any payments to Prime Lessor (unless Sublessee pays such costs in advance) or to enter into any agreements or to modify the Prime Lease, or this Sublease in order to obtain any such consent or approval, and (iii) if Sublessee agrees or is otherwise obligated to make any payments to Sublessor or Prime Lessor in connection with such request for such consent or approval, Sublessee shall have made arrangements for such payments which are reasonably satisfactory to Sublessor. Nothing contained in this Article shall be deemed to require Sublessor or Sublessee to give any consent or approval because Prime Lessor has given such consent or approval. Sublessor and Sublessee each shall promptly forward to Prime Lessor such requests as the other may submit for approval or consent from Prime Lessor.

23. Quiet Enjoyment . Sublessor covenants that if Sublessee is not in default beyond the expiration of any applicable notice and cure periods, then Sublessee shall quietly enjoy and occupy the full possession of the Subleased Premises without molestation or hindrance by Sublessor or any party claiming through Sublessor.

24. No Privity of Estate . Nothing contained in this Sublease shall be construed to create privity of estate or of contract between Sublessee and Prime Lessor.

 

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25. No Waiver . The failure of either party to insist in any one or more cases upon the strict performance or observance of any obligation of the other party hereunder or to exercise any right or option contained herein shall not be construed as a waiver or relinquishment for the future performance of any such obligation of such party or any right or option of the other party. Sublessor’s receipt and acceptance of Rent or Sublessor’s acceptance of performance of any other obligation by Sublessee, with knowledge of Sublessee’s breach of any provision of this Sublease, shall not be deemed a waiver of such breach. No waiver of any term, covenant or condition of this Sublease shall be deemed to have been made unless expressed in writing and signed by both parties.

26. Complete Agreement . This Sublease constitutes the entire agreement between the parties and there are no representations, agreements, arrangements or understandings, oral or written, between the parties relating to the subject matter of this Sublease which are not fully expressed in this Sublease. This Sublease cannot be changed or terminated orally or in any manner other than by a written agreement executed by both parties. This Sublease shall not be binding upon either party unless and until it is signed and delivered by and to both parties, and is further subject to Section 29.

27. Successors and Assigns . The provisions of this Sublease, except as herein otherwise specifically provided, shall extend to, bind, and inure to the benefit of the parties hereto and their respective personal representatives, heirs, successors and permitted assigns.

28. Governing Law; Jurisdiction . This Sublease shall be construed in accordance with, and governed in all respects by, the laws of the Commonwealth of Massachusetts (without giving effect to principles of conflicts of laws that would require the application of any other law). Sublessor and Sublessee agree to submit to the jurisdiction of the state and federal courts located in the Commonwealth of Massachusetts, with venue in the County of Middlesex, and waive any defense of inconvenient forum to the maintenance of any action or proceeding in such courts.

29. Waiver of Jury Trial and Right to Counterclaim . The parties hereto hereby waive any rights which they may have to trial by jury in any summary action or other action, proceeding or counterclaim arising out of or in any way connected with this Sublease, the relationship of Sublessor and Sublessee, the Subleased Premises and the use and occupancy thereof, and any claim for injury or damages. Sublessee also hereby waives all right to assert or interpose a counterclaim (other than mandatory counterclaims) in any summary proceeding or other action or proceeding to recover or obtain possession of the Subleased Premises.

30. Estoppel Certificates . Sublessee and Sublessor shall each, within fifteen (15) days after each and every request by the other party, execute, acknowledge and deliver to the other party or any other party reasonably designated by the other party, without cost or expense to the other party, a statement in writing (a) certifying that this Sublease is unmodified and, to its knowledge, is in full force and effect (or if there have been modifications, that the same is in full force and effect as modified, and stating such modifications); (b) specifying the dates to which Rent has been paid; (c) stating whether or not, to its knowledge, the other party is in default in the performance or observance of such other party’s obligations under this Sublease and, if so,

 

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specifying each such default; (d) stating whether or not, to its knowledge, any event has occurred which, with the giving of notice or passage of time, or both, would constitute a default by the other party under this Sublease, and, if so, specifying each such default; (e) stating whether or not, to its knowledge, any event has occurred which, with the giving of notice or passage of time, or both, would constitute a default by Prime Lessor under the Prime Lease with respect to the Subleased Premises, and, if so, specifying such event; (f) describing all notices of default submitted by it to the other party and Prime Lessor with respect to this Sublease, or the Prime Lease from and after the date thereof; and (g) containing such other information with respect to the Subleased Premises or this Sublease as the other party shall reasonably request. Each party hereby acknowledges and agrees that any such statement delivered pursuant to this Paragraph may be relied upon by any prospective assignee, transferee or mortgagee of the leasehold or subleasehold estate of the other party.

31. Consent of Prime Lessor . This Sublease is contingent on the approval and consent of Prime Lessor in form and substance satisfactory to Sublessee, which Sublessor agrees to use commercially reasonable efforts to obtain. This Sublease shall not become effective unless and until a written approval and consent in form and substance satisfactory to Sublessee (the “ Consent ”) is executed and delivered by the Prime Lessor and Sublessee. After the Sublessor receives the Consent as executed by Prime Lessor, Sublessor agrees to promptly deliver a fully executed original of the Consent to Sublessee. The effect and commencement of this Sublease is subject to and conditional upon the receipt by Sublessor and Sublessee of the Consent executed by Prime Lessor. Upon execution of this Sublease by Sublessee, Sublessor will promptly apply to the Prime Lessor for the Consent and Sublessor will promptly inform Sublessee as to receipt of the Consent (if and when it is received) and deliver to Sublessee a copy of the same.

If the Consent is not received within five (5) business days after this Sublease is fully executed by both Sublessor and Sublessee (the “ Sunset Date ”), then from and after the Sunset Date, at the option of either Sublessor or Sublessee, this Sublease will cease to have any further effect and the parties hereto will have no further obligations to each other with respect to this Sublease and any funds paid hereunder by Sublessee shall be promptly refunded by Sublessor.

32. Holdover . If Sublessee remains in possession of the Subleased Premises after the last day of the Term without the express written consent of Sublessor, (a) Sublessee shall become a tenant at sufferance upon the terms of this Sublease except that the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (b) if Sublessee holds over for more than 30 days and Sublessor gives Sublessee written notice that sublessor requires possession of the Subleased Premises for delivery to a subsequent tenant, Sublessee shall be responsible for all damages suffered by Sublessor resulting from or occasioned by Sublessee’s holding over, including consequential damages of which Sublessee has received prior written notice. No holding over by Sublessee, whether with or without consent of Sublessor, shall operate to extend this Sublease except as otherwise expressly provided, and this Section 32 shall not be construed as consent for Sublessee to retain possession of the Subleased Premises. Acceptance by Sublessor of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Sublease.

 

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33. Certain Lease Provisions . With respect to the Sublease Premises, Sublessee shall be entitled to the maintenance and other services and rights to which Sublessor is entitled under the Prime Lease, including but not limited to indemnification rights that Sublessor can assert against Prime Lessor under the Prime Lease, whether relating to Hazardous Materials or otherwise. In the event that Prime Lessor shall fail to furnish such services or perform any of the terms, covenants, conditions or obligations contained in the Prime Lease on its part to be performed, Sublessor shall be under no obligation or liability whatsoever to Sublessee for such failure; provided , however , that Sublessor shall, upon written notice from Sublessee, use commercially reasonable efforts to enforce the terms of the Prime Lease based on reasonable consultation with Sublessee, and Sublessor and Sublessee shall split the cost and expense of such efforts. If Prime Lessor shall default in the performance of any of its obligations under the Prime Lease, Sublessor shall, upon request and at the expense of Sublessee, timely institute and diligently prosecute any action or proceeding reasonably requested by Sublessee (based on reasonable consultation with Sublessee) to have Prime Lessor comply with any obligation of Prime Lessor under the Prime Lease or as required by law, and shall otherwise cooperate with Sublessee as may be reasonably necessary to enable Sublessee to enforce the obligations of Prime Lessor. Sublessee shall indemnify and hold harmless Sublessor from and against any and all costs or claims arising out of or in connection with any such action or proceeding undertaken by Sublessor as set forth in this Section.

34. Recording . Sublessor and Sublessee agree that neither party may record this Sublease.

35. Intentionally Omitted .

36. Limitation of Liability . Notwithstanding any indemnities or other provisions hereof to the contrary, in no event shall Sublessor or Sublessee be responsible for any consequential, incidental, special or punitive damages, except as specifically set forth herein or in the Prime Lease.

37. Certain Definitions .

(a) All capitalized terms not defined in this Sublease shall have the meanings ascribed to them in the Prime Lease.

(b) The terms “herein”, “hereunder”, and “hereof’ shall refer to this Sublease as a whole unless the context otherwise indicates.

38. Counterparts . This Sublease may be executed in multiple counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. The undersigned may rely upon facsimile or PDF counterparts signed by each other, but shall promptly upon the request of the other exchange executed original signature pages.

39. Time is of the essence . Time is of the essence with respect to each provision of this Sublease.

 

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[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Sublease as a sealed instrument as of the date first written above.

 

SUBLESSOR:
Tetraphase Pharmaceuticals, Inc.
By:  

/s/ Maria Stahl

  Name: Maria Stahl
  Title:   SVP, General Counsel
SUBLESSEE:
Spero OpCo, Inc.
By:  

Ankit Mahadevia

  Name: Ankit Mahadevia
  Title:   CEO

 

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EXHIBIT A

PRIME LEASE

See attached.

 

- 22 -


EXHIBIT B

SUBLEASED PREMISES

[ TO BE ATTACHED ]

 

- 23 -


LOGO

 

- 24 -

Exhibit 10.13

CONFIDENTIAL TREATMENT REQUESTED

 

 

 

STOCK PURCHASE AGREEMENT

among

SPERO CANTAB, INC.,

SPERO CANTAB UK LIMITED,

SPERO THERAPEUTICS, LLC,

PBB DISTRIBUTIONS LIMITED,

NEW PHARMA LICENSE HOLDINGS LIMITED,

CANTAB ANTI-INFECTIVES LTD,

and

PRO BONO BIO PLC

Dated as of June 6, 2016

 

 

 

 

 

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.


CONFIDENTIAL TREATMENT REQUESTED

 

This STOCK PURCHASE AGREEMENT, dated as of June 6, 2016 (this “ Agreement ”), is among SPERO CANTAB, INC., a Delaware corporation (“ Spero ”); SPERO CANTAB UK LIMITED, a company organized under the laws of England and Wales, having registration number 10175336 and a wholly-owned subsidiary of Spero (“ Purchaser ”); solely for purposes of Section 7.14, SPERO THERAPEUTICS, LLC, a Delaware limited liability company (“ Spero Therapeutics ”); PBB DISTRIBUTIONS LIMITED, a company organized under the laws of Malta and having registration number C 75891 and a wholly-owned subsidiary of Parent (“ Seller ”); NEW PHARMA LICENSE HOLDINGS LIMITED, a company organized under the laws of Malta and having registration number C47138 (the “ Company ”); CANTAB ANTI-INFECTIVES LTD, a company organized under the laws of England and having registration number 8217622 (“ CAI ”); and, solely for purposes of Article VI, PRO BONO BIO PLC, a company organized under the laws of England and having registration number 8705972 (“ Parent ”). Capitalized terms used herein have the meanings ascribed to them in Section 7.07.

WHEREAS, Parent is the owner of all of the issued and outstanding ordinary shares of PBB (Malta) Limited, a company organized under the laws of Malta and having registration number C62504, which, in turn, is the owner of all of the issued share capital of the Seller;

WHEREAS, Seller is the owner of all of the issued share capital of the Company (the “ Transferred Shares ”) and all of the issued and outstanding shares of capital stock of CAI;

WHEREAS, the Company is the owner of certain intellectual property relating to the research, development and commercialization of polymyxins to treat bacterial infections, as more particularly described in Exhibit A attached hereto (collectively, the “ Program IP ”);

WHEREAS, Seller desires to sell, and Purchaser desires to purchase, all of the Transferred Shares, upon the terms and subject to the conditions set forth in this Agreement (the “ Acquisition ”);

WHEREAS, CAI is party to a certain Award/Contract with the National Institute of Allergy and Infectious Diseases (“ NIAID ”), Contract Number HHSN272201500014C, dated effective July 1, 2015 (the “ NIAID Contract ”); and

WHEREAS, in connection with the Acquisition, CAI desires to assign to Purchaser, and Purchaser desires to assume from CAI, the NIAID Contract, upon the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE I

Purchase and Sale of Transferred Shares

SECTION 1.01 Purchase and Sale . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell to Purchaser with full title guarantee, and Purchaser shall purchase from Seller, all of Seller’s right, title and interest in and to the Transferred Shares, free and clear of all claims, charges, liens, contracts, rights, options, security interests, mortgages, encumbrances, precautionary warrants, executive warrants and restrictions of every kind and nature (collectively, “ Liens ”), for a purchase price (the “ Purchase Price ”) consisting of (i) one hundred twenty-five (125) shares of Spero’s common stock, $0.001 par value per share, which shares shall be issued by Spero to Seller on the Closing Date pursuant to a Subscription Agreement in substantially the form attached hereto as Exhibit B (the “ Subscription Agreement ”, and the shares to be issued thereunder, the “ Equity Consideration ”), and which Equity Consideration represents twelve and one-half percent (12.5%) of the Fully Diluted Shares (as such term is defined in the Subscription Agreement), (ii) the Upfront Consideration, payable in accordance with Section 1.02 below, (iii) the Milestone Consideration, payable in accordance with Section 1.03 below, (iv) the Royalty Payments, payable in accordance with Section 1.04 below and (v) the NIAID Payments, payable in accordance with Section 1.05 below.

SECTION 1.02 Upfront Consideration . At the Closing, Purchaser shall pay to Seller an amount in cash equal to Three Hundred Thousand Dollars ($300,000) (the “ Upfront Consideration ”), which shall be creditable against Purchaser’s obligation to make NIAID Payments under Section 1.05 below.

SECTION 1.03 Milestone Consideration .

(a) Milestone Events . Upon the occurrence of each of the events (each, a “ Milestone Event ”) set forth in the table below (the “ Milestone Table ”), Purchaser shall pay to Seller the corresponding amount set forth opposite such Milestone Event in the Milestone Table (each such payment, a “ Milestone Payment ”, and collectively, the “ Milestone Consideration ”) in accordance with Section 1.03(b) below. Milestone Events (i)(A) through (and including) (i)(E) set forth in the Milestone Table are referred to in this Agreement as “ Regulatory Milestone Events ” and Milestone Event (ii)(A) set forth in the Milestone Table below is referred to in this Agreement as the “ [***] Milestone Event ”. Payment in respect of the [***] Milestone Event is referred to in this Agreement as the “ [***] Milestone Payment ”.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

2


CONFIDENTIAL TREATMENT REQUESTED

 

    

Milestone Event

  

Milestone
Payment

(i)

  

Regulatory Milestone Events

  
  

(A)   [***]

   $[***]
  

(B)   [***]

   $[***]
  

(C)   [***]

   $[***]
  

(D)   [***]

   $[***]
  

(E)   [***]

   $[***]

(ii)

  

[***] Milestone Event

  
  

(A)   [***].

   £5,000,000

Each of the Milestone Payments shall be payable a maximum of one (1) time only even if achieved more than one (1) time with one or more Products. For the avoidance of doubt, (x) each of the Milestone Payments shall become payable upon the occurrence of the associated Milestone Event, irrespective of the order in which the Milestone Events occur relative to each other, and (y) no amounts shall be due for subsequent or repeated achievements of any Milestone Event.

(b) Notice and Payment . No later than ten (10) days after the end of the calendar month in which a Milestone Event occurs, Purchaser shall (i) provide written notice (a “ Milestone Statement ”) to Seller of the occurrence of such Milestone Event and (ii) subject to Sections 6.02(b) and 1.05(c), pay the corresponding Milestone Payment.

SECTION 1.04 Royalty Payments . During the Royalty Term, royalty payments (the “ Royalty Payments ”) shall be paid by Purchaser to Seller in accordance with this Section 1.04.

(a) Royalty Rates . The amount of the Royalty Payments shall equal [***] percent ([***]%) of annual worldwide Net Sales of each Product; provided , however , that if, at any time during the Royalty Term applicable to a Product, a Generic Product is sold to the general public by any person other than the Purchaser and its Affiliates or Commercial Licensees, then, from and after the date of first sale of such Generic Product, the royalty rate payable with respect to sales of such Product shall be reduced, on a country-by-country basis in each country where such Generic Product is sold, to [***] percent ([***]%) of Net Sales.

(b) Royalty Term . The Royalty Payments payable by Purchaser to Seller shall be paid on a Product-by-Product and country-by-country basis until the later of (i) the date which is ten (10) years after the First Commercial Sale of such Product in such country and (ii) the expiration in such country of the last to expire Valid Claim of any of the Patents identified in paragraph 3.12(a) of the Disclosure Letter (collectively, the “ Transferred Patents ”) claiming such Product (the “ Royalty Term ”).

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

3


CONFIDENTIAL TREATMENT REQUESTED

 

(c) Royalty Report and Payment . During the Royalty Term, no later than [***] after the end of each Calendar Quarter, Purchaser or its Affiliates shall pay to Seller the Royalty Payments payable for such Calendar Quarter and provide a royalty report (the “ Royalty Report ”) showing:

(i) the Net Sales of each Product sold by (A) Purchaser and its Affiliates and (B) Purchaser’s Commercial Licensees, in each case during such Calendar Quarter;

(ii) the Royalty Payments, reflected in Dollars, which shall have accrued hereunder with respect to any Net Sales of each Product;

(iii) withholding Taxes, if any, to be deducted with respect to such Royalty Payments; and

(iv) the rate of exchange, if applicable, as calculated using the average of the foreign currency exchange rate for converting the applicable currency into Dollars as published by Bloomberg Business during the Calendar Quarter.

(d) Third Party Royalty Set-Off . If Purchaser or any of its Affiliates or Commercial Licensees obtains a license from a third party to an Infringed Patent after arm’s length negotiations, Purchaser may offset up to [***] percent ([***]%) of any payments due thereunder with respect to sales of any Product against the royalty payments that are due to Seller with respect to Net Sales of such Product under this Section 1.04; provided that in no event shall royalties paid to Seller under this Section 1.04 with respect to any such Product be reduced below [***] percent ([***]%) of the royalty rate applicable to such Product under Section 1.04(a).

SECTION 1.05 NIAID Contract.

(a) Novation of NIAID Contract; Interim Payments . Seller and CAI shall use commercially reasonable efforts to procure the novation of the NIAID Contract, from CAI to Spero. During the period from the Closing Date until the earlier of (i) the effective date of the novation of the NIAID Contract from CAI to Spero and (ii) the expiration or termination of the NIAID Contract (the “ Interim Period ”): (A) if requested to do so by Spero from time to time, Seller and CAI shall each use its commercially reasonable efforts to preserve all material rights of, and material benefits to, Seller and CAI under the NIAID Contract, including, without limitation, receipt of the NIAID Contract Funding and (B) CAI shall continue work under the NIAID Contract as directed by Spero and consistent with the terms of the CAI Services Agreement (as defined in Section 1.06(b) below) and as otherwise provided in Section 1.06 below. Once agreement by the counterparty to the NIAID contract for the novation of the NIAID Contract is obtained, CAI and Spero shall promptly enter into the novation agreement.

(b) NIAID Payments . Purchaser shall make the following payments to Seller (collectively, the “ NIAID Payments ”):

(i) Purchaser shall pay to Seller an amount equal to [***] percent ([***]%) of the total amount of all NIAID Contract Funding actually received by the NIAID Recipient (as defined below) from time to time in respect of the Base Requirement, as defined in the NIAID Contract, payable in each case within [***] after the NIAID Recipient’s receipt from time to time of such NIAID Contract Funding;

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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(ii) Upon the attainment of the milestone of Option One, as defined in the NIAID Contract, being exercised, Purchaser shall pay to Seller an amount equal to [***] percent ([***]%) of all NIAID Contract Funding actually received by the NIAID Recipient from time to time in respect of Option One, payable in each case within [***] after the NIAID Recipient’s receipt from time to time of such NIAID Contract Funding;

(iii) Upon the attainment of the milestone of Option Two, as defined in the NIAID Contract, being exercised, Purchaser shall pay to Seller an amount equal to [***] percent ([***]%) of all NIAID Contract Funding actually received by the NIAID Recipient from time to time in respect of Option Two, payable in each case within [***] after the NIAID Recipient’s receipt from time to time of such NIAID Contract Funding; and

(iv) Upon the attainment of the milestone of Option Three, as defined in the NIAID Contract, being exercised, Purchaser shall pay to Seller an amount equal to [***] percent ([***]%) of all NIAID Contract Funding actually received by the NIAID Recipient from time to time in respect of Option Three, payable in each case within [***] after the NIAID Recipient’s receipt from time to time of such NIAID Contract Funding;

provided, however, that the total amount payable by Purchaser under this Section 1.05(b) shall not exceed [***] Dollars ($[***]). Notwithstanding the foregoing, the Upfront Consideration shall be credited against Purchaser’s payment obligations under this Section 1.05(b) such that no amount shall be due under this Section 1.05(b) unless and until the total aggregate amount due under this Section 1.05(b) exceeds the amount of the Upfront Consideration, and then only to the extent of such excess.

For the purpose of this Section 1.05(b), the “ NIAID Recipient ” is, pending novation of the NIAID Contract to Spero, CAI or any of its Affiliates and, following novation of the NIAID Contract to Spero, Spero or any of its Affiliates.

(c) Offset for Upfront Consideration . In the event that the total aggregate amount of the NIAID Payments payable by Purchaser under this Section 1.05 is less than the amount of the Upfront Consideration, then, notwithstanding anything in this Agreement to the contrary, the amount of the difference shall be creditable against Purchaser’s payment obligations under Sections 1.03 and 1.04 above.

SECTION 1.06 Certain Services .

(a) Termination of Development and License Agreement . The parties acknowledge and agree that prior to the Closing, CAI shall procure the termination of that certain Development and License Agreement among CAI, [***], dated [***] (the “ CAI Development Agreement ”).

(b) New Services Agreement . At the Closing, Purchaser, Spero, the Company and CAI shall enter into an agreement (the “ CAI Services Agreement ”) under which CAI shall continue to perform all or some of the research and development activities that are conducted by CAI under the NIAID Contract as of the date hereof, and certain other research and development activities for the Company.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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SECTION 1.07 Assignment, Novation and Termination of the [***] License Agreements .

(a) Seller shall procure that prior to Closing the Company shall (i) novate the Exclusive Sub-License Agreement to a subsidiary of the Parent and terminate the Sub-License Agreement and (ii) assign the intellectual property defined in the Exclusive License (the “Assigned IP”) to the Company and shall deliver such agreements to Purchaser at Closing. Seller and Parent warrants and represents to the Purchaser that (i) following such novation, termination and assignment, the Company shall have no further liability under the [***] License Agreements and shall have full legal and beneficial title to the Assigned IP free from all Liens; (ii) the Assigned IP was transferred to the Company at market value; and (iii) the Company does not have any liabilities or obligations to pay Tax of any nature whatsoever, due or to become due, accrued, absolute, contingent or otherwise.

SECTION 1.08 Payments; Records and Audit; Efforts .

(a) Manner of Payment and Exchange Rate . All payments to be made by Purchaser to Seller under Sections 1.02 through 1.06 shall be made in Dollars and shall be paid by wire transfer in immediately available funds to such bank account as is designated in writing by Seller from time to time. In computing the Dollar amount of any [***] Milestone Payment to be made by Purchaser under Section 1.03, after calculating the annual Net Sales for [***], the rate of exchange to be used in such computation shall be the average of the rate of exchange published by Bloomberg Business over the course of the Calendar Year in which such sales occurred. In computing the Dollar amount of Net Sales of a Product outside the United States, after calculating the Net Sales in the currency of sale, the rate of exchange to be used in such computation shall be the average of the rate of exchange published by Bloomberg Business over the course of the Calendar Quarter in which such sales occurred.

(b) Tax Withholding . Seller shall be liable for any and all Taxes required to be paid to any Governmental Entity (including any Tax authority of any jurisdiction) under any provision of United States federal, state, local or foreign Tax law on any payments made by Purchaser to Seller or its Affiliates under this Agreement. In the event that any payments made by or on behalf of Purchaser pursuant to this Agreement are subject to withholding Tax required to be paid to any Governmental Entity (including any Tax authority of any jurisdiction) under any provision of United States federal, state, local or foreign Tax law, Purchaser may deduct and withhold (without duplication) the amount of such withholding Tax from the amount otherwise payable to Seller. In such event, Purchaser shall notify Seller of such obligation, provide to Seller a detailed calculation of the amount withheld, and pay such withholding Tax to the proper Tax authority. Each party agrees to use commercially reasonable efforts and to cooperate with the other party to minimize any anticipated withholding Tax required to be paid under any provision of federal, state, local, or foreign Tax law with respect to the payments made by Purchaser to Seller under this Agreement. To the extent that amounts are so withheld and paid to the appropriate Governmental Entity (including any Tax authority of any jurisdiction) by Purchaser, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to Seller.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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(c) Records and Audit . Purchaser shall keep, and shall contractually require that its Affiliates and its Commercial Licensees keep, books and records prepared in accordance with their respective standard accounting procedures and in accordance with GAAP, in each case consistently applied, for the purpose of determining and validating (i) the amount of Royalty Payments due to Seller hereunder, including, without limitation, the calculation of Net Sales in each country where Products are sold, (ii) whether or not the [***] Milestone Event has occurred and (iii) the amount of any NIAID Payments due to Seller hereunder. Such books and records will be kept at the principal place of business of Purchaser (or its Affiliates or its licenses, as applicable) and maintained for no less than [***] years following the end of the Calendar Year to which they pertain. At the request of Seller, Purchaser and its Affiliates and its Commercial Licensees shall permit an independent certified public accountant appointed by Seller and reasonably acceptable to Purchaser (or its Affiliates and its Commercial Licensees, as applicable), at reasonable times and upon reasonable notice, to examine those records as may be necessary to determine, with respect to any Calendar Year ending not more than [***] years prior to Seller’s request, the correctness or completeness of any report or payment pursuant to Sections 1.03, 1.04 or 1.05. The foregoing right of review may be exercised only once per Calendar Year and only once with respect to each such periodic report and payment. Results of any such examination shall be (A) limited to information relating to Products, (B) made available to both Purchaser and Seller and (C) subject to the confidentiality provisions set forth below. Prior to commencing any examination, the independent certified public accountant shall have agreed in writing to maintain all information learned in confidence, except as necessary to disclose to Purchaser and Seller the results of such examination, and shall have executed all customary release letters reasonably requested by Purchaser’s independent auditors. Seller shall bear the full cost of the performance of any such audit, unless such audit discloses a variance to the detriment of Seller of more than [***] percent ([***]%) from the amount of the original report or Royalty Payment or NIAID Payments calculation. In such case, Purchaser shall bear the full cost of the performance of such audit. Any underpayments of Royalty Payments, the [***] Milestone Payment or NIAID Payments shall be paid by Purchaser within [***] of notification of the results of such audit, together with interest at a rate of [***] percent ([***]%) per month for each Calendar Month since the payment due date. Any overpayments of Royalty Payments, the [***] Milestone Payment or the NIAID Payments shall be fully creditable by Purchaser against any amounts subsequently payable by Purchaser pursuant to this Agreement or, if no such amounts become payable within [***] after notification of such results, shall be refunded by Seller to Purchaser or its designee. Purchaser shall contractually require that its Affiliates and their respective Commercial Licensees submit to the exercise of Seller’s right of audit hereunder.

SECTION 1.09 Joint Steering Committee .

(a) Within [***] after the Closing Date, Purchaser and Seller shall establish a committee (the “ Joint Steering Committee ”) consisting of [***] individuals (the “ Joint Steering Committee Members ”). [***] Joint Steering Committee Members shall be selected by Purchaser and [***] Joint Steering Committee Members shall be selected by Seller. Each of Purchaser and Seller may replace any Joint Steering Committee Member selected by such party by written notice to the other party. Each Joint Steering Committee Member shall be appropriately qualified and experienced in order to make a meaningful contribution to the activities of the Joint Steering Committee.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(b) The purpose of the Joint Steering Committee is to provide a forum for the parties to share information and knowledge regarding Purchaser’s research, development and manufacturing activities exclusively relating to the development and commercialization of the Program IP (the “ Program ”) and the research and development of Products.

(c) The Joint Steering Committee shall meet as often as the Joint Steering Committee Members may mutually determine, but in no event less than [***] per Calendar Year, unless such requirement is waived by mutual written consent of Purchaser and Seller. Meetings of the Joint Steering Committee may be held at any location mutually determined by the Joint Steering Committee Members or by teleconference or videoconference. Each Joint Steering Committee Member, and any other individual invited to attend meetings of the Joint Steering Committee, shall be subject to appropriate confidentiality obligations. The quorum for Joint Steering Committee meetings shall be [***] Joint Steering Committee Members, composed of not less than one (1) Joint Steering Committee Member selected by each of Purchaser and Seller. Each party shall be responsible for the expenses of its designated Joint Steering Committee Members’ participation in the Joint Steering Committee.

(d) Notwithstanding anything to the contrary contained herein, the Joint Steering Committee shall act solely in an advisory capacity, and none of the activities of the Joint Steering Committee nor any decision by the Joint Steering Committee with respect to any matter shall limit or restrict in any manner whatsoever the rights or discretion of Purchaser with respect to a Product, the Program or otherwise, nor shall any activity or decision of the Joint Steering Committee be deemed to establish a course of conduct of the parties hereunder, nor otherwise be deemed to amend or modify in any manner any of the terms of this Agreement.

(e) The Joint Steering Committee may be dissolved, at any time, by the joint written consent of Purchaser and Seller, and shall be dissolved, in any event, upon the earlier of (i) [***] or (ii) Purchaser’s decision to cease development and commercialization of any Product.

SECTION 1.10 Further Assurances . At any time after the Closing, at any party’s reasonable request and, subject to Section 5.03, at the requesting party’s sole cost and expense, each other party shall take such further action (including the execution and delivery to the requesting party of such other reasonable instruments of sale, transfer, conveyance, assignment, assumption and confirmation, providing materials and information) as shall reasonably be deemed necessary to transfer, convey and assign to Purchaser the Transferred Shares and the Transferred Intellectual Property or otherwise to carry out the purposes of this Agreement.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE II

Closing

SECTION 2.01 Closing . The closing of the Acquisition (the “ Closing ”) shall take place on the date hereof (the “ Closing Date ”) at the offices of Osborne Clarke LLP, One London Wall, London EC2Y 5EB, unless another place is agreed to in writing by the parties (it being understood that the Closing may be effected by the delivery of documents via e-mail, facsimile and/or overnight courier). The Closing and will be effective as of 12:01 AM Boston, Massachusetts local time on the Closing Date.

(a) In connection with the execution and delivery of this Agreement, Purchaser shall deliver or cause to be delivered to Seller, at or before the Closing:

(i) the Upfront Consideration;

(ii) a reasonably current good standing or similar certificate of each of Spero and Spero Therapeutics, certified by the Secretary of State of the State of Delaware;

(iii) a reasonably current copy of the certificate of incorporation of each of Spero and Spero Therapeutics, certified by the Secretary of State of the State of Delaware;

(iv) certificates, duly executed by an authorized officer of each of Spero Therapeutics and Spero, (A) certifying and attaching a copy of the certificate of incorporation or by-laws (or the comparable governing instruments) of Spero or Spero Therapeutics (as the case may be); and (B) certifying and attaching all requisite resolutions or actions of the board of directors and, if applicable, the stockholders of Spero or Spero Therapeutics (as the case may be) approving (i) the execution and delivery of this Agreement and the Other Transaction Documents to which it is a party and (ii) the consummation of the transactions contemplated thereby; and

(v) a certified copy of the articles of association of Purchaser; attaching a copy of the resolutions and minutes of the board of directors of Purchaser approving (i) the execution and delivery of this Agreement and the relevant Other Transaction Documents and (ii) the consummation of the transactions contemplated thereby.

(b) In connection with the execution and delivery of this Agreement, Seller shall, at or before the Closing, deliver or cause to be delivered to Purchaser or, in the case of the items set out in paragraph (x) below, make available to Purchaser at the Maltese premises of the Company or such other location as Purchaser may reasonably request:

(i) one share certificate for the Transferred Shares in the name of the Purchaser accompanied by a share transfer instrument relating to the Transferred Shares as signed by the Seller;

(ii) a signed statutory Form T relating to the Transferred Shares;

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(iii) a copy of the updated register of members of the Company, certified by an officer of the Company and showing the details of the Purchaser as sole shareholder of the Company;

(iv) a written declaration, signed by a duly authorized representative of the Company, confirming that the Transferred Shares are not subject to any precautionary or executive warrant;

(v) the written resignation of each officer and director (or equivalent) of the Company, effective as of the Closing, together with a signed statutory Form K relating to the resignations;

(vi) a certificate, duly executed by an authorized officer of Seller, certifying and attaching an extract from a meeting of the board of directors approving (A) the execution and delivery of this Agreement, the Subscription Agreement and the Shareholders Agreement and (B) the consummation of the transactions contemplated thereby;

(vii) a certificate, duly executed by an authorized officer of the Company, (A) certifying and attaching a copy of the certificate of incorporation and the Memorandum and Articles of Association of the Company; and (B) certifying and attaching an extract from a meeting of the board of directors of the Company approving (i) the execution and delivery of this Agreement and the Other Transaction Documents and (ii) the consummation of the transactions contemplated thereby;

(viii) a certificate, duly executed by an authorized officer of CAI, (A) certifying and attaching a copy of the certificate of incorporation or by-laws (or the comparable governing instruments) of CAI; and (B) certifying and attaching all requisite resolutions or actions of the board of directors and, if applicable, the stockholders of CAI approving (i) the execution and delivery of this Agreement and the Other Transaction Documents and (ii) the consummation of the transactions contemplated thereby;

(ix) a certificate, duly executed by an authorized officer of the Parent, (A) certifying and attaching a copy of the certificate of incorporation or by-laws (or the comparable governing instruments) of the Parent; and (B) certifying and attaching all requisite resolutions or actions of the board of directors of the Parent approving (i) the execution and delivery of this Agreement and the Other Transaction Documents and (ii) the consummation of the transactions contemplated thereby;

(x) all of the books, data, documents, instruments and other records of or relating to the Company, including, without limitation, the original incorporation documents, foreign qualifications, by-laws, minute book, register of members, contracts and other agreements of the Company, all laboratory notebooks and other records, pre-clinical and clinical studies lists, files (including patent prosecution files), documents, correspondence, creative and promotional materials, studies, reports, data (including all pharmacological, pre-clinical, clinical, analytical, quality control and manufacturing data (including batch records and technical reports)) and other printed, written or electronic materials (in all cases, in any form or medium) owned by Seller or any of its Affiliates that relate exclusively to, or that arise exclusively out of, the Transferred Intellectual Property;

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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(xi) a reasonably current good standing certificate of the Company, as issued by the Registry of Companies in Malta;

(xii) evidence of termination of the CAI Development Agreement;

(xiii) evidence of novation of the Exclusive Sub-License Agreement required pursuant to Section 1.07(a);

(xiv) evidence of termination of the Sub-License Agreement required pursuant to Section 1.07(a); and

(xv) evidence of assignment of the Assigned IP required pursuant to Section 1.07(a).

ARTICLE III

Representations and Warranties of Seller

Except as Disclosed, Seller hereby warrants and represents to Purchaser as of the Closing Date as follows:

SECTION 3.01 Title to Transferred Shares . Seller owns the Transferred Shares, being fully paid-up shares in the Company, beneficially and of record free and clear of all Liens. There is no restriction affecting the ability of Seller to transfer the legal and beneficial title and ownership of the Transferred Shares to Purchaser and, upon delivery thereof to Purchaser pursuant to the terms of this Agreement, Purchaser will acquire record and beneficial title to the Transferred Shares free and clear of all Liens.

SECTION 3.02 Authority . Seller and the Company are each a legal entity, duly organized and validly existing under the laws of Malta. Seller and the Company have all requisite corporate power and authority to enter into this Agreement, and Seller, the Company and each of their respective Affiliates has all requisite corporate power and authority to enter into the Other Transaction Documents to which it is, or is specified to be, a party and to consummate the transactions contemplated hereby and thereby. All corporate acts and other proceedings required to be taken by Seller, the Company and each of their respective Affiliates to authorize the execution, delivery and performance of this Agreement and the Other Transaction Documents to which it is, or is specified to be, a party and to consummate the transactions contemplated hereby and thereby have been duly and properly taken. This Agreement and the Other Transaction Documents have been duly executed and delivered by Seller and the Company and, assuming this Agreement and the Other Transaction Documents have been duly authorized, executed and delivered by Purchaser and, if applicable, its Affiliates, constitute a legal, valid and binding obligation of each of Seller and the Company, enforceable against Seller and the Company in accordance with their terms, subject, as to enforcement, to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors’ rights generally and to general equitable principles.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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SECTION 3.03 No Conflicts; Consents .

(a) The execution and delivery of this Agreement and the Other Transaction Documents by Seller, the Company and their respective Affiliates, as applicable, and the consummation of the transactions contemplated hereby and thereby, and compliance with the terms and conditions hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a material benefit under, or result in the creation of any Liens upon, any of the Transferred Shares or any of the assets of the Company under any provision of (i) the certificate of incorporation or by-laws (or the comparable governing instruments) of Seller, the Company or any of their respective Affiliates, (ii) any contract, to which Seller, the Company or any such Affiliate is a party or by which any of their respective properties or assets are bound, or (iii) any judgment, order or decree, or, subject to the matters referred to in clauses (i) and (ii) of paragraph (b) below, Applicable Laws; except in the case of clauses (ii) and (iii) as would not have a material adverse effect on the ability of Seller or the Company to consummate the transactions contemplated hereby or under the Other Transaction Documents and to perform their respective obligations under this Agreement or under each of the Other Transaction Documents.

(b) The execution, delivery and performance of this Agreement and the Other Transaction Documents, and the consummation of the transactions contemplated hereby or thereby, do not, and will not, require any consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental Entity except as may be required solely by reason of Purchaser’s or any Affiliate of Purchaser’s (as opposed to any third party’s) participation in the transactions contemplated hereby or thereby.

SECTION 3.04 Capitalization . The authorized share capital of the Company is USD100,000 consisting of 100,000 shares of USD1 each, whilst the issued share capital of the Company consists on the date hereof solely of [***] ordinary shares of USD1 each, fully paid up, all of which issued shares are owned by Seller, free and clear of all Liens. All of such shares are duly authorized, validly issued and fully paid and were issued in full compliance with all applicable laws. The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of the authorized capital stock of the Company are as set forth in the Company’s memorandum and articles of association, a copy of which has been provided to Purchaser, and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable in accordance with Maltese law. As of the date hereof there are no outstanding subscriptions, options, warrants, rights, calls or convertible securities, stock appreciation rights (phantom or otherwise), joint venture, partnership or other commitments of any nature relating to shares in the share capital of the Company. As of the date hereof there is no obligation (contingent or other) to purchase, redeem or otherwise acquire any of the Company’s equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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SECTION 3.05 Subsidiaries . The Company does not (i) own of record or beneficially, directly or indirectly, any shares of capital stock or securities convertible into capital stock of any other corporation or any participating interest in any partnership, joint venture or other non-corporate business enterprise or (ii) control, directly or indirectly, any other entity.

SECTION 3.06 Absence of Undisclosed Liabilities The Company does not have any liabilities or obligations of any nature whatsoever, due or to become due, accrued, absolute, contingent or otherwise. Seller does not know of any basis for the assertion against the Company of any liability or obligation. The Company is not bound by any agreement, or subject to any charter or other corporate restriction or any legal requirement, which has, or in the future can reasonably be expected to have, a material adverse effect on the Company or its assets.

SECTION 3.07 Taxes . The Company has filed on a timely basis all returns, declarations, reports, claims for refunds and information returns or statements relating to Taxes, including all schedules or attachments thereto, and including any amendment thereof (“ Tax Returns ”) and tax reports required to be filed on or before the date hereof with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed and all such Tax Returns were correct and complete in all material respects. All Taxes which have become due or payable or required to be collected by the Company or as otherwise attributable to any periods ending on or before the date hereof and all interest and penalties thereon, whether disputed or not, have been paid in full (whether or not shown on any Tax Return) or have been provided for in the accounts of the Company or payment of the Tax is otherwise taken into account in the accounts of the Company.

SECTION 3.08 Litigation . There is no (i) action, suit, claim, proceeding or investigation pending or, to the best of Seller’s knowledge, threatened against the Company, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, whether of Malta or any other jurisdiction, or (ii) arbitration proceeding or governmental inquiry pending or threatened against the Company, and, to the best of Seller’s knowledge, there are no circumstances likely to give rise to any of the foregoing. Neither the Company nor Seller has received any opinion or memorandum or advice from legal counsel to the effect that the Company is exposed, from a legal standpoint, to any liability or disadvantage which may be material to its business, prospects, financial condition, operations, property, assets or affairs. There are no outstanding orders, writs, judgments, injunctions or decrees of any court, governmental agency or arbitration tribunal against the Company. The Company is not in default with respect to any order, writ, injunction or decree served upon it from any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, whether of Malta or any other jurisdiction. There is no action or suit by the Company pending or threatened against others.

SECTION 3.09 Property . Paragraph 3.09 of the Disclosure Letter contains a true and complete list of all tangible personal property owned by or leased to the Company (the “ Tangible Personal Property ”). Except as shown in paragraph 3.09 of the Disclosure Letter, the Company has good and marketable title free and clear of all Liens to the Tangible Personal Property listed as owned by it. The Company does not own or lease any real estate.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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SECTION 3.10 Assumptions, Guaranties, Etc. of Indebtedness of Other Persons . The Company has not assumed, guaranteed, endorsed or otherwise become directly or contingently liable on any indebtedness of any other person (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor, or otherwise to assure the creditor against loss).

SECTION 3.11 Transactions With Affiliates . No director, officer or Affiliate of the Company, or member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of any equity interest, is a party to any transaction with the Company, including any contract, agreement or other arrangement.

SECTION 3.12 Intellectual Property .

(a) Paragraph 3.12(a) of the Disclosure Letter sets forth, for each of the Transferred Patents, the name of the current owner(s) (including any co-owner) thereof (and, if the owner is not the Company, the corresponding license agreement pursuant to which Seller has the right to use such Intellectual Property) and the jurisdiction of each such issued or pending Transferred Patent. The Transferred Patents are (A) valid, enforceable, subsisting and in full force and effect and, as applicable, have been filed in accordance with all Applicable Laws, (B) not the subject of any opposition, cancellation, interference, reissue, reexamination or other similar proceeding, (C) owned, held and recorded solely in the name of the Company as record and beneficial owner and (D) in compliance with all formal legal requirements. All annuity and maintenance fees that are necessary in order to keep the Transferred Patents in force have been paid by the Company.

(b) The Company solely and exclusively owns all right, title and interest in and to, or possesses a valid and enforceable right to use pursuant to a written license agreement set forth in paragraph 3.12(b) of the Disclosure Letter, the Transferred Intellectual Property, free and clear of all Liens, including any restrictions, limitations and obligations (including any royalty payment or other obligations or contractual limitations (other than pursuant to the terms of any agreement set forth in paragraph 3.12(b) of the Disclosure Letter)), and the consummation of the transactions contemplated hereby does not conflict with, alter or impair any such rights of the Company in or to any of the Transferred Intellectual Property and the Transferred Intellectual Property shall be solely and exclusively owned or available for use by Purchaser immediately after the Closing on terms and conditions identical to those under which the Company owned and/or used the Transferred Intellectual Property immediately prior to the Closing. To the Knowledge of Seller, no Transferred Intellectual Property is subject to any outstanding consent, settlement, decree, order, injunction, judgment or ruling, or any contract restricting or otherwise limiting the use, ownership, validity, enforceability, disposition or exploitation thereof.

(c) To the Knowledge of Seller, no academic institution, research center or Governmental Entity (or any person working for or on behalf of any of the foregoing) or any other person (other than Seller and/or any of its Affiliates) has, or will be entitled to have, any right, title or interest (including any “march in” or co-ownership rights) in or to any Intellectual Property included in the Transferred Intellectual Property (including any claim or option to any of the foregoing). Except as set forth in paragraph 3.12(c) of the Disclosure Letter, to the

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Knowledge of Seller, no funding, Intellectual Property, facilities, personnel or other resources of any Governmental Entity or university or other academic institution or research center or of any other person has been used in connection with the conception, invention, reduction to practice, development or other creation of any Intellectual Property included in the Transferred Intellectual Property. Except as set forth in paragraph 3.12(c) of the Disclosure Letter, the Company has not granted any license (including any sublicense), option, assignment or other agreement (including any covenants not to sue) or any other right, title or interest with respect to any Transferred Intellectual Property.

(d) To the Knowledge of Seller, the Program IP and the research and development of Products by the Company has not infringed, misappropriated or otherwise violated the Intellectual Property rights of any other person. Neither the Company nor CAI has received any written charge, complaint, claim, demand, communication or other notice, or is or has been a party to any lawsuit, claim, action or proceeding, where any person has (i) alleged, with respect to the Program IP or any Product, that the Company or CAI has infringed, misappropriated or otherwise violated, or will violate through the Program IP or the exploitation of any such Product, any Intellectual Property rights of any other person (including pursuant to any notice or demand that the Company or CAI must license or refrain from using any Intellectual Property of any other person), or (ii) challenged the validity, use, ownership, enforceability of, or has claimed any right, title or interest in or to, any Transferred Intellectual Property, and, with respect to each of clauses (i) and (ii), to the Knowledge of Seller, no such claim has been asserted or threatened, and there is no reasonable basis for any such claim. To the Knowledge of Seller, no person has infringed, misappropriated or otherwise violated any Transferred Intellectual Property.

(e) The Company, its Affiliates and CAI have taken commercially reasonable steps to protect, and to maintain and enforce all rights under, the Transferred Intellectual Property, including the secrecy, confidentiality and value of trade secrets and other confidential information. The Company, each of its Affiliates and CAI require each of their current and former employees, consultants and independent contractors to enter into valid and enforceable agreements with the Company, such Affiliate or CAI pursuant to which such person agrees and is bound to maintain and protect the confidential information of the Company and its Affiliates and assigns to the Company, such Affiliate or CAI all Intellectual Property authored, developed or otherwise created by such person in the course of such person’s employment or other engagement with the Company or any of its Affiliates, all in accordance with all Applicable Laws, and ensures that any entity conducting any research, develop or other activities on behalf of the Company or its Affiliates does the same.

(f) To the Knowledge of Seller, all listed inventors in the Transferred Patents are the sole inventors of such Patents, and all inventors of any inventions claimed by any Transferred Patent or other Transferred Intellectual Property have each assigned such person’s entire right, title and interest in and to any and all intellectual property rights in and to such inventions to the Company or one of its Affiliates, or, if the Company or one of its Affiliates acquired any such Patents or other Intellectual Property, then to the person who employed or otherwise engaged such inventor, and such person has assigned the same to Seller or one of its Affiliates. To the Knowledge of Seller, no claims have been asserted challenging the inventorship of any of the Transferred Patents.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

SECTION 3.13 Compliance with Applicable Laws . The Company and CAI are, and have been, in compliance with all applicable statutes, laws, principles of common law, ordinances, rules, orders, regulations and any other provisions having the force or effect of law, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the UK Bribery Act of 2010 and similar Laws of any applicable jurisdiction, (such laws and regulations “ Applicable Laws ”), except for instances of noncompliance that, individually or in the aggregate, would not be material to the Transferred Shares, the Transferred Intellectual Property or the Products. None of Seller, the Company or any of their respective Affiliates has received during the [***] years prior to the date hereof any written communication from a Governmental Entity that alleges that the Company or CAI is in violation of any Applicable Laws except for any such violations that, individually or in the aggregate, would not be material to the Transferred Shares, the Transferred Intellectual Property or the Products.

ARTICLE IV

Warranties of Purchaser

Purchaser hereby warrants to Seller as follows:

SECTION 4.01 Authority . Each of Purchaser, Spero and Spero Therapeutics is a legal entity, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each of Purchaser, Spero and Spero Therapeutics has all requisite corporate power and authority to own and operate its properties and assets and carry on its business as currently conducted, and to enter into this Agreement and the Other Transaction Documents to which it is, or is specified to be, a party and to consummate the transactions contemplated hereby and thereby. All corporate acts and other proceedings required to be taken by Purchaser, Spero and/or Spero Therapeutics to authorize the execution, delivery and performance of this Agreement and the Other Transaction Documents to which it is, or is specified to be, a party and to consummate the transactions contemplated hereby and thereby have been duly and properly taken. This Agreement and the Other Transaction Documents have been duly executed and delivered by Purchaser, Spero and Spero Therapeutics and, assuming this Agreement and the Other Transaction Documents have been duly authorized, executed and delivered by Seller and the Company, constitute a legal, valid and binding obligation of each of Purchaser, Spero and Spero Therapeutics, enforceable against Purchaser, Spero and Spero Therapeutics in accordance with their terms, subject, as to enforcement, to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors’ rights generally and to general equitable principles.

SECTION 4.02 No Conflicts; Consents .

(a) The execution and delivery of this Agreement and each Other Transaction Document by Purchaser, Spero and Spero Therapeutics does not, and will not, and the consummation of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Purchaser, Spero or Spero Therapeutics under,

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

any provision of (i) its certificate of incorporation or by-laws, (ii) the provisions of any of the Purchaser’s, Spero’s or Spero Therapeutics’ preferred shares or convertible securities, (iii) any contract to which Purchaser, Spero or Spero Therapeutics is a party or by which any of its properties or assets are bound or (iv) any judgment, order, or decree, or, subject to the matters referred to in paragraph (b) below, Applicable Laws, except, in the case of clauses (iii) and (iv), as would not have a material adverse effect on the ability of Purchaser, Spero or Spero Therapeutics (as the case may be) to consummate the transactions contemplated hereby or under any of the Other Transaction Documents and to perform its obligations under this Agreement and under each of the Other Transaction Document. No vote or approval of the stockholders of Purchaser, Spero Therapeutics or any of their Affiliates is required in order to consummate the transactions contemplated by this Agreement or the Other Transaction Documents.

(b) No consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by or with respect to Purchaser, Spero Therapeutics or any of their Affiliates in connection with the execution, delivery and performance of this Agreement, the Other Transaction Documents or the consummation of the transactions contemplated hereby or thereby.

SECTION 4.03 Actions and Proceedings . There are no (a) outstanding judgments, orders, injunctions or decrees of any Governmental Entity against Purchaser, Spero or Spero Therapeutics (b) lawsuits, actions or proceedings pending or, to the knowledge of Purchaser, Spero or Spero Therapeutics, threatened against Purchaser, Spero or Spero Therapeutics, or (c) investigations by any Governmental Entity which are pending or, to the knowledge of Purchaser, Spero or Spero Therapeutics, threatened against Purchaser, Spero or Spero Therapeutics.

SECTION 4.04 Solvency . Immediately after giving effect to the transactions contemplated hereby and under the Other Transaction Documents, each of Purchaser, Spero and Spero Therapeutics shall be solvent and shall (a) be able to pay its debts as they become due and (b) have adequate capital to carry on its business. No transfer of property is being made and no obligation is being incurred in connection with the transactions contemplated hereby and under the Other Transaction Documents with the intent to hinder, delay or defraud either present or future creditors of Purchaser, Spero, Spero Therapeutics or Seller. In connection with the transactions contemplated hereby and under the Other Transaction Documents, neither Purchaser, Spero nor Spero Therapeutics has incurred, or plans to incur, debts beyond its ability to pay as they become absolute and matured.

SECTION 4.05 Pre-Emption and Dilution . The issuance of the Equity Consideration will not trigger any right of anti-dilution or any preemptive rights held by any holders of Spero’s capital stock or other securities convertible into capital stock.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE V

Covenants

SECTION 5.01 Publicity . The parties agree that no public release or announcement shall be issued or any communications made to any news media concerning the transactions contemplated hereby or under the Other Transaction Documents by any party or its Affiliates without the prior written consent of the Purchaser (for itself and its Affiliates) (on the one hand) or the Seller (for itself and its Affiliates) (on the other hand) (which consent, in any such case, shall not be unreasonably withheld or delayed), except as such release or announcement may be required by Applicable Laws or the rules or regulations of any United States or foreign securities exchange to which such party is subject.

SECTION 5.02 Tax Matters . All Taxes and any filing or recording fees applicable to the Acquisition shall be paid by Purchaser. Each party shall use commercially reasonable efforts to minimize any such Taxes or fees and to avail itself of any available exemptions from any such Taxes or fees, and to cooperate with the other party in providing any information and documentation that may be necessary to obtain such exemptions.

SECTION 5.03 Books and Records.

(a) In order to facilitate the resolution of any claims made against or incurred by Seller prior to the Closing, or for any other reasonable purpose, for a period of [***] years after Closing, Purchaser shall:

(i) retain the books and records of the Company relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of Seller; and

(ii) upon reasonable notice afford the Seller’s representatives access (including the right to make, at Seller’s expense, photocopies), during normal business hours, to such books and records.

(b) In order to facilitate the resolution of any claims made by or against or incurred by Purchaser after Closing, or for any other reasonable purpose, for a period of [***] years after Closing, Seller shall:

(i) retain a copy of the books and records which relate to the Company for periods prior to Closing (other than any such transferred with the Company at Closing); and

(ii) upon reasonable notice afford the Purchaser’s representatives access (including the right to make, at Purchaser’s expense, photocopies), during normal business hours, to such books and records.

(c) Neither Purchaser nor Seller shall be obligated to provide the other party with access to any books or records pursuant to this Section 5.04 where such access would violate any Applicable Law.

SECTION 5.04 Non-Competition . Except as contemplated hereunder, including with respect to Seller’s ownership of shares of common stock in Spero, for a period of [***] years following the Closing Date (the “ Restricted Period ”), Seller shall not, and shall cause the other Restricted Persons not to, directly or indirectly, engage or participate, in the development, product design, manufacturing, production, distribution, marketing, sale, commercialization or other similar activities relating to the research, development and

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

commercialization of polymyxins to treat bacterial infections, in each case including by owning, managing, operating, controlling or otherwise participating in the ownership, management, operation or control of any entity engaged in any such activities, whether as an employer, proprietor, partner, equityholder, consultant, agent, lender or guarantor or otherwise. Notwithstanding the foregoing, any Restricted Person may own, directly or indirectly, solely as an investment, securities of any entity traded on any securities exchange if such Restricted Person is not a controlling person of, or a member of a group which controls, such entity and does not, directly or indirectly, own 10% or more of any class of securities of such entity;

provided, that neither CAI nor any other Restricted Person shall be in breach of this Section 5.04 (A) as a result of CAI performing its obligations under this Agreement and/or the CAI Services Agreement, or (B) anything being done from time to time by any Restricted Person excluding CAI in the ordinary course of business of such Restricted Person as such business is carried on immediately following Closing.

For the purposes of this Section 5.04, “ Restricted Persons ” means the Parent and any subsidiary or subsidiary undertaking of the Parent from time to time.

SECTION 5.05 Confidential Information .

(a) Except as expressly provided herein, the parties agree that, for so long as Purchaser has payment obligations hereunder, all non-public, proprietary invention disclosures, know-how, data, and technical, financial, promotional, commercial and other information of any nature whatsoever (collectively, “ Confidential Information ”), disclosed or submitted, either orally or in writing (including, without limitation, by electronic means) or through observation, by one party (the “ Disclosing Party ”) to any other party (the “ Receiving Party ”) hereunder shall be received and maintained by the Receiving Party in strict confidence, shall not be used for any purpose or disclosed to any third party (except to an Affiliate, in circumstances where such Affiliate has agreed to maintain the confidentiality of such Confidential Information) other than for the purposes contemplated by this Agreement, except to the extent that it can be established by the Receiving Party by competent proof that such information:

(i) is or becomes public or available to the general public otherwise than through the act or default of the Receiving Party;

(ii) is obtained by the Receiving Party from a third party who is lawfully in possession of such information and is not subject to an obligation of confidentiality or non-use owed to the Disclosing Party or others;

(iii) is previously known to the Receiving Party prior to disclosure to the Receiving Party by the Disclosing Party under this Agreement or otherwise, as shown by written evidence, and is not obtained or derived directly or indirectly from information obtained from the Disclosing Party;

(iv) is disclosed by the Receiving Party pursuant to any requirement under Applicable Law, provided that the Receiving Party has complied with the provisions set forth in Section 5.05(b); or

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(v) is independently developed by the Receiving Party without the use of or reliance on any information provided by the Disclosing Party hereunder, as shown by contemporaneous written evidence.

(b) Permitted Use and Disclosures . Each party hereto may disclose Confidential Information to its professional advisers (provided they have agreed to maintain the confidentiality of such Confidential Information) and use or disclose information disclosed to it by the other party to the extent such use or disclosure is reasonably necessary in complying with Applicable Laws, submitting information to any Governmental Entity (including any Tax authority of any jurisdiction), complying with the rules or regulations of any securities exchange to which such party is subject or otherwise exercising its rights hereunder; provided that, if the Receiving Party is legally required to make any disclosure of the Disclosing Party’s Confidential Information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the Disclosing Party of such disclosure and will use its reasonable efforts to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise), including, if applicable, by cooperating with the Disclosing Party in connection with any efforts by the Disclosing Party to obtain a protective order or other appropriate remedy concerning such disclosure. If any such order or other remedy does not fully preclude disclosure or the Disclosing Party waives such compliance, then the Receiving Party will make such disclosure only to the extent that such disclosure is legally required and will use its reasonable efforts to have confidential treatment accorded to the disclosed information.

(c) Publicity . At no time shall any of the parties or any of their respective Affiliates issue any press release or make any public announcement relating to the subject matter of this Agreement, save that following Closing the parties may issue a press release regarding the transactions contemplated by this Agreement in such form as shall have been agreed between the Seller and the Purchaser.

SECTION 5.06 Development Program . Purchaser shall, directly or with or through its Affiliates and Commercial Licensees, use Commercially Reasonable and Diligent Efforts to [***]. Seller acknowledges and agrees that, subject only to the foregoing requirement, Purchaser has the exclusive right to determine the manner, terms and conditions of the Program, including the determination of whether or not to [***] or the [***].

ARTICLE VI

Indemnification and Other Remedies

SECTION 6.01 Indemnification by Seller and Parent . From and after the Closing, and subject as otherwise provided in this Agreement, Seller and Parent, jointly and severally, shall indemnify Purchaser and its Affiliates and each of their respective officers, directors, employees, agents, representatives, partners, shareholders and members against and hold them harmless from any loss, Tax, liability, claim of any kind, damage, interest or expenses (including reasonable and documented legal fees and expenses and the cost of enforcing any right to indemnification hereunder) (collectively, “ Losses ”) suffered or incurred by any such indemnified party to the extent arising from any Claim arising from a breach of any of the Warranties contained in Sections 3.01, 3.02, 3.04 and 3.07 (collectively, the “ Fundamental Warranties ”) or by a breach of Section 1.07.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

SECTION 6.02 Indemnification Payments; Limitations on Liability . The amount of any Losses which may be recovered for any Claim under the General Warranties shall be net of any amounts actually received by the claiming party under insurance policies with respect to such Losses. Neither Seller nor Parent shall have any liability for any Claim under the General Warranties unless the aggregate amount of all Losses for which Seller and Parent would be liable, but for this Section 6.02, exceeds on a cumulative basis an amount (the “ Deductible ”) equal to $[***], and then only to the extent of any such excess. Notwithstanding the foregoing, Losses arising from any breach of any of the Fundamental Warranties shall not be limited by, or subject to, the Deductible. Save in the event of fraud, the aggregate liability of Seller and Parent under this Agreement shall not exceed [***]. Nothing in this Agreement shall be effective to limit or exclude any liability arising out of a party’s own fraud.

(a) Notwithstanding anything to the contrary contained in this Agreement, any “materiality” or other similar qualification contained in a warranty shall not be given any effect solely for purposes of determining the amount of Losses arising from any breach of any such warranty.

(b) If Purchaser makes a Claim for or asserts a claim pursuant to this Agreement for indemnification against Losses and (i) Seller agrees in writing that Purchaser is entitled to indemnification or other recovery for a Claim with respect to such Losses or (ii) a court of competent jurisdiction determines in a final, non-appealable judgment that Purchaser is entitled to indemnification or other recovery for a Claim with respect to such Losses, then Purchaser shall have the right to set off against any unpaid Milestone Payments, any unpaid Royalty Payments and/or any unpaid NIAID Payments the amount of such Losses and, to the extent of any such set-off, such Losses shall be extinguished.

(c) Notwithstanding any provision herein, neither Seller, Parent nor Purchaser, nor any of their respective Affiliates, shall in any event be liable, in connection with any Claims or other claims arising hereunder for any punitive damages or for any consequential Losses.

(d) Payments pursuant to Section 6.01 or arising out of a Claim in respect of any Losses shall be limited to the amount of any liability or damage that results after deducting therefrom any insurance proceeds and any indemnity, contribution or other similar payment received or reasonably expected to be received by the indemnified or claiming party in respect of any such matter. The indemnifying or claiming party shall use its commercially reasonably efforts to recover under insurance policies or indemnity, contribution or other similar agreements for any Losses prior to seeking indemnification under this Agreement or making a Claim.

(e) Seller and Purchaser shall each take, and shall cause their respective Affiliates to take, all reasonable steps to mitigate any Losses upon becoming aware of any event or circumstance that would reasonably be expected to, or does, give rise to Losses, including incurring costs only to the minimum extent necessary to remedy the breach that gives rise to such Losses.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(f) The Seller shall not be liable in respect of any Claim to the extent that it arises, or its value is increased, as a result of a change in any law, legislation, rule or regulation (including any new law, legislation, rule or regulation) that comes into force or otherwise takes effect after the date of this Agreement.

(g) Neither Seller nor Parent shall be liable under this Agreement for any Losses based upon or arising out of any inaccuracy in or breach of any of the warranties of Seller contained in this Agreement to the extent Disclosed or if Purchaser provided written acknowledgement of and consent to such inaccuracy or breach prior to Closing.

(h) Subject to the limitations of liability in this Section 6, in the event of a Claim, without prejudice to the right of the Purchaser to claim damages on any basis available to it or to any other right or remedy available to it, Seller and Parent undertake to pay in cash to the Purchaser a sum by way of damages as agreed between the Seller, Parent and the Purchaser or, in default of such agreement, as determined by order of a court of competent jurisdiction, whichever is equal to the higher of:

(i) an amount sufficient to put the Company into the position which would have existed if the Warranties had not been breached;

(ii) an amount equal to the resulting diminution in value of the Transferred Shares; and

(iii) the amount by which the assets of the Company are less, or less valuable, or its liabilities greater, than the values at which the same were included in the Company’s accounts or (if the Purchaser so elects) than they would have been if the Warranty concerned had been true and accurate in all respects and not misleading.

(i) The parties agree that rescission shall not, in the absence of intentional breach or fraud, be sought as a remedy.

SECTION 6.03 Termination of Indemnification .

(a) The obligations to indemnify and hold harmless a party hereto pursuant to (i) Section 6.01(a) shall terminate on the [***] anniversary of the Closing, and (ii) Sections 6.01(b) shall not terminate; provided, however , that as to clause (i) of this sentence such obligation to indemnify and hold harmless shall not terminate with respect to any item as to which the person to be indemnified or the related party thereto shall have, before the expiration of the applicable period, previously made a claim by delivering a notice of such claim (stating in reasonable detail the basis of such claim) to the indemnifying party, in which case any such claim and such obligation to indemnify and hold harmless shall survive the expiration of the applicable period until final resolution of such claim.

(b) The warranties contained in this Agreement or in any Other Transaction Document, or in any certificate or instrument delivered pursuant hereto or thereto, shall survive the Closing for a period of [***] years after the Closing Date, provided, however, that the Fundamental Warranties shall survive the Closing to the maximum amount permitted under the relevant statute of limitations. Each claiming party must give written notice to the paying party

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

of any claim for breach of warranty or any claim for indemnification under Section 6.01 in accordance with Section 6.05 or 6.06, as applicable. Any claim for breach of warranty or claim for indemnification made in writing by the claiming party on or prior to the expiration of the applicable survival period shall survive, and may continue to be asserted and (where applicable) indemnified against, until such claim is finally and fully resolved and, in the case of a claim by way of set-off, for the maximum period during which a payment under this Agreement becomes due. The other covenants and agreements contained in this Agreement or in any Other Transaction Document, or in any certificate or instrument delivered pursuant hereto or thereto, shall survive the Closing until fully performed or satisfied.

SECTION 6.04 Procedures Relating to Claims and Indemnification for Third Party Claims .

(a) In order for a party (the “ indemnified party ”) to be entitled to any payment (whether for a claim for breach of warranty or for indemnification provided for under this Agreement) in respect of, arising out of or involving a claim or demand made by any person who is not a party to this Agreement or an Affiliate, agent or representative of the foregoing against the indemnified party (a “ Third Party Claim ”), such indemnified party shall, as promptly as reasonably practicable, notify the paying party in writing, and in reasonable detail, of the Third Party Claim for which indemnity may be sought or a Claim made (as the case may be) hereunder; provided, however , that failure to give such notification shall not affect the indemnification provided hereunder or damages (as the case may be) except and only to the extent the paying party forfeits rights or defenses by reason of such failure or shall have been materially prejudiced as a result of such failure. Such notice by the indemnified party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall include the estimated amount (if it is reasonably possible to calculate such amount) of the Losses that have been or may be sustained by the indemnified party. Thereafter, the indemnified party shall deliver to the paying party, promptly after the indemnified party’s receipt thereof, copies of all notices and documents (including court papers) received by the indemnified party relating to the Third Party Claim.

(b) If a Third Party Claim is made against an indemnified party, the paying party shall be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof with counsel selected by the paying party (not reasonably objected to by the indemnified party) and the indemnified party shall cooperate in good faith in such defense; provided, however , that the paying party shall not be entitled to assume the defense of any Third Party Claim that (A) involves criminal liability or any admission of wrongdoing, (B) seeks equitable relief or any other non-monetary remedy against the indemnified party or (C) involves any Governmental Entity as a party thereto. If the paying party elects to assume the defense of a Third Party Claim in accordance with this Section 6.04(b), the paying party shall not be liable to the indemnified party for legal expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided, however , that if in the reasonable written opinion of outside counsel to the indemnified party (1) a conflict or potential conflict exists between the indemnified party and the paying party that would make separate representation advisable or (2) the indemnified party has legal defenses available to it which are different from or in addition to the defenses available to the paying party, then the indemnified party may retain its own counsel; provided , further , that the paying party shall not be liable for the costs of more than one such

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

counsel for all indemnified parties in connection with any such Third Party Claim. If the paying party elects to assume the defense of a Third Party Claim in accordance with this Section 6.04(b), the indemnified party shall have the right to participate in the defense thereof and, without limiting the preceding sentence, to employ counsel, at its own cost and expense, separate from the counsel employed by the paying party.

(c) If the paying party so elects to assume the defense of a Third Party Claim in accordance with Section 6.04(b), the indemnified party shall cooperate with the paying party in the defense or prosecution thereof. Such cooperation shall include the retention and (upon the paying party’s request) the provision to the paying party of records and information which are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. If the indemnified party is conducting the defense of any Third Party Claim, the paying party shall cooperate with the indemnified party in the defense or prosecution thereof. Such cooperation shall include the retention and (upon the indemnified party’s request) the provision to the indemnified party of records and information which are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The paying party shall not admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the indemnified party’s prior written consent, unless (i) the proposed settlement or disposition involves only the payment of money damages by the paying party for which the indemnified party shall have no liability, (ii) the proposed settlement or disposition does not impose an injunction or other equitable relief upon the indemnified party, (iii) the proposed settlement or disposition does not include any admission of wrongdoing or misconduct and (iv) the indemnified party is fully and unconditionally released from any liability relating to such Third Party Claim. The indemnified party shall not admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the paying party’s prior written consent. In the event that a settlement offer solely for monetary damages is made by the applicable Third Party claimant, and the paying party notifies the indemnified party of its willingness to accepts the offer and, subject to the applicable limitations of Section 6.03, pay the amount called for by such offer, and the indemnified party declines to accept such offer, the indemnified party may continue to contest such Third Party claim, free of any participation from the paying party, and the amount of any ultimate liability with respect to such Third Party Claim that the paying party may have an obligation to pay hereunder shall be limited to the lesser of (x) the amount of the settlement offer that the indemnified party declined to accept or (y) the aggregate Losses of the indemnified party with respect to such Third Party Claim.

SECTION 6.05 Procedures Related to Indemnification for Other Claims . In the event any indemnified party should have a claim against any paying party under Section 6.01 or a claim for breach of warranty that does not involve a Third Party Claim being asserted against or sought to be collected from such indemnified party, the indemnified party shall promptly deliver written notice of such claim, in reasonable detail, to the paying party; provided, however , that failure by any indemnified party to so notify the paying party shall not relieve the paying party from any liability which it may have to such indemnified party under Section 6.01 or for damages for breach of warranty, except and only to the extent that the paying party forfeits rights or defenses by reason of such failure or shall have been materially prejudiced as a result of such failure. If the paying party disputes its liability with respect to such claim, the paying party and the indemnified party shall proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations, such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

SECTION 6.06 Tax Treatment of Payments . For all Tax purposes, Purchaser, Seller and each of their respective Affiliates agree to treat any indemnity payment under this Agreement or damages for breach of warranty as an adjustment to the Purchase Price received by Seller for the transactions contemplated by this Agreement unless a Governmental Entity determines otherwise.

ARTICLE VII

Miscellaneous

SECTION 7.01 Assignment . This Agreement and the rights and obligations hereunder shall not be assignable or transferable by Spero, Purchaser, Seller, the Company, CAI or Parent (including by operation of law in connection with a merger, consolidation or sale of substantially all the assets of Spero, Purchaser, Seller, the Company, CAI or Parent) without the prior written consent of the other parties hereto; provided , however , that Purchaser may assign its rights and obligations hereunder, without such consent, to any direct or indirect wholly owned subsidiary of Purchaser or to an acquirer of all or substantially all of the stock or assets of Purchaser, whether pursuant to a merger, sale of assets, or sale of stock or other ownership interests; provided, further , that Seller may assign its rights and obligations hereunder, without such consent, to Parent or any direct or indirect wholly owned subsidiary of Seller; provided , further , that no assignment shall relieve any party of its obligations hereunder. Any attempted assignment in violation of this Section 7.01 shall be void.

SECTION 7.02 Terms . As used throughout this agreement, references to a party or a party’s Affiliates shall be read to include any of their respective successors in interest.

SECTION 7.03 No Third-Party Beneficiaries . This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any person, other than the parties hereto and such assigns, any legal or equitable rights hereunder or any entitlement, by virtue of the Contracts (Rights of Third Parties) Act 1999, to enforce any term of this Agreement.

SECTION 7.04 Expenses . Whether or not the transactions contemplated hereby are consummated, and except as otherwise specifically provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses.

SECTION 7.05 Amendments . This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. By an instrument in writing Purchaser, on the one hand, or Seller, on the other hand, may waive compliance by the other or any of its Affiliates with any term or provision of this Agreement that such other party or such Affiliate was or is obligated to comply with or perform. Any such waiver will only be effective in the specific instance and for the specific and limited purpose for which it was given

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

and will not be deemed a waiver of any other provision of this Agreement or of the same breach or default upon any recurrence thereof. No failure on the part of any party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy, and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.

SECTION 7.06 Notices . All notices, requests, claims, demands or other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, or upon confirmation of receipt when transmitted by electronic mail, or if mailed, seven days after mailing (two business days in the case of overnight courier service), as follows:

 

  (a) if to Purchaser, Spero or Spero Therapeutics, to:

Spero Cantab, Inc.

675 Massachusetts Avenue, 14 th Floor

Cambridge, MA 02139

United States of America

Attention: Ankit Mahadevia

E-mail: [***]

with a copy (which shall not constitute notice) to:

Mintz Levin

One Financial Center

Boston, MA 02111

United States of America

Attention: Lewis J. Geffen, Esq.

E-mail: [***]

 

  (b) if to Seller, CAI or Parent, to:

Pro Bono Bio PLC

Leverton House

13 Bedford Square

London WC1B 3RA

England

Attention: Michael Earl/Justin Bowen

E-mail: [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

with a copy (which shall not constitute notice) to:

DAC Beachcroft LLP

100 Fetter Lane

London EC4A 1BN

England

Attention: Jonathan Deverill/Nick Gibbon

E-mail: [***]

SECTION 7.07 Interpretation ; Definitions .

(a) The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, (ii) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iii) all references herein to Articles, Sections, Exhibits or Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules of or to this Agreement, as the case may be, and (iv) the headings contained in this Agreement or any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized terms used in any Exhibit or Schedule hereto but not otherwise defined therein shall have the meanings as defined in this Agreement. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless business days are specified. In the event of an ambiguity or a question of intent or interpretation, this Agreement shall be construed as if drafted jointly by the parties 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.

(b) For all purposes hereof:

Acquisition ” has the meaning ascribed to such term in the preamble to this Agreement.

Affiliate ” means, with respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person; and for the purposes of this definition, “ control ” when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling ” and “ controlled ” have meanings correlative to the foregoing.

Applicable Laws ” has the meaning ascribed to such term in Section 3.14.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Approval ” or “ Approved ” means, with respect to a Product in any regulatory jurisdiction, approval from the applicable Regulatory Authority sufficient to manufacture, distribute, use (including in clinical trials) and sell a Product in such regulatory jurisdiction in accordance with Applicable Laws including receipt of pricing and reimbursement approvals, where applicable.

Assigned IP ” has the meaning ascribed to such term in Section 1.07(a).

business day ” means any day, other than a Saturday or Sunday, on which commercial banks are not required to close in Boston, Massachusetts, United States of America, London, England or Valletta, Malta.

CAI ” has the meaning ascribed to such term in Section 1.05.

CAI Development Agreement ” has the meaning ascribed to such term in Section 1.06(a).

CAI Services Agreement ” has the meaning ascribed to such term in Section 1.06(b).

Calendar Quarter ” means the respective periods of three (3) consecutive calendar months ending March 31, June 30, September 30 and December 31.

Calendar Year ” means each successive period of twelve (12) calendar months commencing on January 1 and ending on December 31.

Claim ” means a claim for breach of any of the Warranties.

Code ” means the U.S. Internal Revenue Code of 1986, as amended.

Combination Product ” means a product that includes a Product and at least one additional active ingredient (whether co-formulated or co-packaged) other than a Product. Pharmaceutical dosage form vehicles, adjuvants, and excipients shall not be deemed to be “active ingredients”, except in the case where such vehicle, adjuvant, or excipient is recognized by the FDA as an active ingredient in accordance with 21 CFR 210.3(b)(7).

Commercial License ” means the contract pursuant to which Purchaser or any of its Affiliates grants a Commercial Licensee the right to co-develop, co-promote, co-market or otherwise has a license or other right to develop, promote, market, distribute, offer for sale, sell or import or to otherwise commercialize a Product.

Commercial Licensee ” means any third party that is a party to a contract with Purchaser or any of its Affiliates pursuant to which such third party obtains rights to co-develop, co-promote, co-market or otherwise has a license or other right to develop, promote, market, distribute, offer for sale, sell or import or to otherwise commercialize a Product.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Commercially Reasonable and Diligent Efforts ” means that [***]. Commercially Reasonable and Diligent Efforts require that the party: (a) in a timely manner assign responsibility for tasks to specific employee(s) with sufficient skills and experience as are required to accomplish such tasks, and hold such employee(s) accountable for progress and monitor such progress on an on-going basis; (b) set and timely seek to achieve specific and meaningful objectives for carrying out such tasks; and (c) timely make and implement decisions and allocate resources designed to advance progress with respect to such tasks.

Deductible ” has the meaning ascribed to such term in Section 6.01.

Disclosed ” means fairly disclosed in or under the Disclosure Letter and “fairly” means with sufficient particularity to enable the Purchaser to make a reasonable assessment of the impact on the Company of the matter disclosed and to identify to a reasonable degree the nature and scope of the matter disclosed and to enable the Purchaser to have a reasonable understanding of the issue, and “ Disclose ” shall be construed accordingly.

Disclosure Bundle ” means with reference to the contents of a CD containing documents from the virtual data room provided by [***] under reference “[***]” containing information about the Company, an index of which is attached to the Disclosure Letter, only those documents which are cited in connection with specific disclosures against specified warranties and no other document shall be deemed to form part of the Disclosure Bundle.

Disclosure Letter ” means the letter from the Seller to the Purchaser with the same date as this Agreement and described as the Disclosure Letter, together with the Disclosure Bundle.

Dollars ” or “ $ ” means lawful money of the United States of America.

Equity Consideration ” has the meaning ascribed to such term in Section 1.01.

EMA ” means the European Medicines Agency.

EU ” means the European Union.

Exclusive License ” means the Amended and Restated Exclusive License between [***] dated [***] (as novated to [***] on [***]).

Exclusive Sub-License Agreement ” means the Exclusive Sub-License Agreement, dated [***], among [***], as amended by that certain Deed of Novation, dated [***], among [***], and the Company.

FDA ” means the United States Food and Drug Administration.

First Commercial Sale ” means, with respect to a Product, the first sale for use or consumption by the general public of a Product in any country after Approval of a Product has been granted, or such marketing and sale is otherwise permitted, by the applicable Regulatory Authority of such country.

Fundamental Warranties ” has the meaning given in Section 6.01.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

GAAP ” means generally accepted accounting principles in the United States.

Generic Product ” means, with respect to a Product in a country, a pharmaceutical product that (i) contains the same active ingredient(s) as a Product and (ii) is approved for commercial sale and use in such country under Applicable Laws.

General Warranties ” means the warranties of the Seller in Article III other than the Fundamental Warranties.

Good Clinical Practices ” means, with respect to Seller, the then current standards for clinical trials for pharmaceuticals (including all applicable requirements relating to protection of human subjects), as set forth in the FDCA and applicable regulations promulgated thereunder (including, for example, 21 C.F.R. Parts 50, 54, and 56), as amended from time to time, and such standards of good clinical practice (including all applicable requirements relating to protection of human subjects) as are required by other organizations and Governmental Entities in any other countries, including applicable regulations or guidelines from the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use, in which a Products of Seller or its Affiliates are sold or intended to be sold, to the extent such standards are not less stringent than in the United States.

Good Laboratory Practices ” mean, with respect to Seller, the then current standards for pharmaceutical laboratories, as set forth in the FDCA and applicable regulations and guidance promulgated thereunder, as amended from time to time, and such standards of good laboratory practices as are required by other organizations and Governmental Entities in any other countries, including applicable regulations or guidelines from the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use in which a Products of Seller or its Affiliates are sold or intended to be sold, to the extent such standards are not less stringent than in the United States.

Good Manufacturing Practices ” mean, with respect to Seller, the then current standards for the manufacture, processing, packaging, testing, transportation, handling and holding of drug products, as set forth in the FDCA and applicable regulations and guidance promulgated thereunder, as amended from time to time, and such standards of good manufacturing practices as are required by other organizations and Governmental Entities in any other countries, including applicable regulations or guidelines from the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use in which a Products of Seller or its Affiliates are sold or intended to be sold, to the extent such standards are not less stringent than in the United States.

Governmental Entity ” means any government, court, arbitrator, department, commission, board, bureau, agency, authority, instrumentality or other body, whether federal, state, local, foreign or other.

Health Laws ” means any law of any Governmental Entity (including multi-country organizations) the purpose of which is to ensure the safety, efficacy and quality of medicines or pharmaceuticals by regulating the research, development, manufacturing and distribution of these products, including laws relating to Good Laboratory Practices, Good

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Clinical Practices, investigational use, product marketing authorization, manufacturing facilities compliance and approval, Good Manufacturing Practices, labeling, advertising, promotional practices, safety surveillance, record keeping and filing of required reports such as the U.S. Food, Drug and Cosmetic Act of 1938, as amended (the “ FDCA ”), and the Public Health Service Act, as amended, in each case including the associated rules and regulations promulgated thereunder and all of their foreign equivalents.

IND ” means an Investigational New Drug Application filed with the FDA pursuant to Part 312 of Title 21 of the U.S. Code of Federal Regulations (or its successor regulation) with respect to a Product, or the equivalent application or filing filed with any equivalent agency or Governmental Entity outside the United States of America (including any supra-national agency such as the EMA), and all supplements, amendments, variations, extensions and renewals thereof that may be filed with respect to the foregoing.

Infringed Patent ” means an issued and unexpired patent (i) that has not been abandoned, held invalid, revoked, held or rendered unenforceable or lost through interference and (ii) the claims of which would be infringed by Purchaser’s making, using, selling, offering for sale or importing of a Product in a particular country.

Intellectual Property ” means all Patents; registered and unregistered copyrights and works of authorship, and applications for registration thereof; trademarks, service marks, logos, trade dress, trade names and other similar indicia of source or origin; domain names; Know-How and all other intellectual property and all copies and tangible embodiments or descriptions of any of the foregoing (in whatever form or medium) and all goodwill associated with, and all rights related to or otherwise associated with, any of the foregoing in any jurisdiction in the world (including all rights to collect royalties, products and proceeds in connection with any of the foregoing, and to sue and bring other claims for past, present and future infringement, misappropriation or other violation of any of the foregoing, and to recover damages (including attorneys’ fees and expenses) and lost profits in connection therewith).

Interim Period ” has the meaning ascribed to such term in Section 1.05(a).

Knowledge of Seller ” (and any similar expression referring, in whatever terms, to the knowledge or awareness (whatever the form of words used) of the Seller, means the [***].

Know-How ” means any data, results, and information of any type whatsoever, whether tangible or intangible and regardless of the form or medium, including any know-how, trade secrets, expertise, knowledge, practices, techniques, concepts, methodologies, methods, processes, protocols, designs, ideas, inventions (whether or not patentable or reduced to practice), improvements, industrial designs and models, discoveries, developments, unpublished patent applications, specifications, formulations, formulae, materials or compositions of matter of any type or kind (patentable or otherwise), assays, screens, software, algorithms, models, data, databases, database rights, chemistry, manufacturing and control (CMC) information and data, lab notebooks, Patent data, stability, technology, test data and results (including pharmacological, biological, chemical, biochemical, toxicological, pre-clinical and clinical test data), analytical and quality control data, results or descriptions, studies and procedures, development, manufacturing and distribution costs, information contained in submissions to and information from regulatory authorities, and marketing and other reports.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Liens ” has the meaning ascribed to such term in Section 1.01.

Losses ” has the meaning ascribed to such term in Section 6.01.

MAA ” means an EU marketing authorization application.

Milestone Consideration ” has the meaning ascribed to such term in Section 1.03.

Milestone Event ” has the meaning ascribed to such term in Section 1.03.

Milestone Payment ” has the meaning ascribed to such term in Section 1.03.

Milestone Table ” has the meaning ascribed to such term in Section 1.03.

NDA ” means a new drug application for a drug filed in accordance with 21 C.F.R. Part 314, and all supplements filed pursuant to the requirements of the FDA, including all documents, data and other information concerning the applicable drug which are necessary for FDA approval to market such drug in the United States, and any equivalent application submitted to any other health authority.

Net Sales ” means, with respect to a Product, the amount billed by Purchaser or its Affiliates or its Commercial Licensees for sales of such Product in arm’s length transactions to third parties, after deduction (if not already deducted in the amount invoiced) of the following items with respect to sales of such Product:

 

  (i) credits or allowances, to the extent actually allowed and taken and not otherwise recovered by or reimbursed to Purchaser or its Affiliates or its Commercial Licensees, as applicable, on account of price adjustments, recalls, claims, damaged goods, rejections or returns of items previously sold (including Product returned in connection with recalls or withdrawals);

 

  (ii) import taxes, export taxes, excise taxes (including annual fees due under Section 9008 of the United States Patient Protection and Affordable Care Act of 2010 (Pub. L. No. 111-48)), sales taxes, VAT, consumption taxes, duties or other Taxes levied on or imposed with respect to such sales (excluding income or net profit taxes or franchise taxes of any kind), to the extent actually paid by Purchaser or its Affiliates or its Commercial Licensees and not reimbursed by a third party;

 

  (iii) insurance, customs charges, freight, shipping and other transportation costs incurred in shipping Product to such third party, to the extent actually paid by Purchaser or its Affiliates or its Commercial Licensees and not reimbursed by a third party; and

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

  (iv) trade, quantity and cash discounts, cash and non-cash coupons, retroactive price reductions, and charge-back payments and rebates granted to any third party (in each case including by or to Governmental Entities or agencies (including Regulatory Authorities), purchasers, reimbursers, customers, distributors, wholesalers, and group purchasing and managed care organizations and other similar entities and institutions), in each case, to the extent actually allowed in the ordinary course of business (a “ Discount ”); provided, however , that where any such Discount is based on sales of a bundled set of products in which a Product is included, and in which the individual Discount for a Product is not itemized or otherwise determinable, the Discount shall be allocated to a Product on a pro rata basis based on the sales value ( i.e. , the unit average selling price multiplied by the unit volume) of a Product relative to the sales value contributed by the other constituent products in the relevant bundled set, with respect to such sale.

Net Sales and all of the foregoing deductions from the gross invoiced sales prices of a Product shall be determined in accordance with Purchaser’s standard accounting procedures and in accordance with GAAP, in each case consistently applied. Notwithstanding anything contained herein, and for all purposes under this Agreement, Product shall be considered “sold” when it is invoiced, shipped or paid for, whichever shall occur first.

For clarity, and notwithstanding anything contained herein, (A) Net Sales shall not include any payments between or among Purchaser and its Affiliates, but any subsequent sale by an Affiliate to a third party customer shall be included in Net Sales, (B) Net Sales shall not include any amounts or other consideration received by Purchaser or any of its Affiliates from a third party in consideration for entering into any contract with any Commercial Licensee or the grant of any license (including any sublicense) or other rights thereunder (including the right to co-promote or co-market or any other right to market or otherwise commercialize a Product) to such third party and/or any of its Affiliates, (C) sales by Purchaser or an Affiliate of Purchaser to a third party consignee shall not be recognized as Net Sales until the third party consignee sells a Product to a third party and so notifies Purchaser, and (D) sales by Purchaser or its Affiliates of a Product to a Commercial Licensee shall not be considered a sale to a third party customer and shall not be included in Net Sales, but any subsequent sale by a Commercial Licensee to a third party customer shall be included in Net Sales (with respect to any such sales of Product by a Commercial Licensee that are included in Net Sales hereunder, such Net Sales shall be calculated as provided herein as if such sales were by Purchaser or its Affiliates (except that such sales of Product included in Net Sales pursuant to this clause (D) shall only be deemed to be billed and/or sold when Purchaser receives written notice of such sale and a copy of the corresponding invoice)).

Notwithstanding anything contained herein, sales or other transfers of Product to any third party in connection with clinical and non-clinical research and trials, Product samples, compassionate sales or use, or an indigent program or similar bona fide arrangements in which Purchaser or any of its Affiliates or any of its or their distributors, wholesalers or Commercial Licensees agree to forego a normal profit margin for good faith business reasons shall not be included in Net Sales except to the extent that Purchaser or any of its Affiliates or Commercial Licensees invoices or receives amounts therefor.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Net Sales of any Combination Product for the purpose of calculating milestones or royalties due under this Agreement shall be determined on a country-by-country basis for a given accounting period as follows: first, Purchaser shall determine the actual Net Sales of such Combination Product (using the above provisions), and then: such Net Sales amount for the Combination Product shall be multiplied by the fraction A/(A+B), where “A” is the net selling price in such country of a product containing only a Product, if sold separately for the same dosage as contained in the Combination Product, and “B” is the net selling price in such country of any other active ingredients in the combination if sold separately for the same dosage as contained in the Combination Product. All net selling prices of the elements of such end-user product or service shall be calculated as the average net selling price of the said elements during the applicable accounting period for which the Net Sales are being calculated. In the event that, in any country, no separate sale of either such above-designated product (containing only a Product and no other active ingredients) or any one or more of the active ingredients included in such product are made during the accounting period in which the sale was made, or if net selling price for an active ingredient cannot be determined for an accounting period, Net Sales allocable to a Product in each such country shall be determined by Purchaser in good faith prior to the end of the accounting period in question based on an equitable method of determining same that takes into account, on a country-by-country basis, all relevant factors (including variations in potency, the relative contribution of each active ingredient in the combination, and relative value to the end user of each active ingredient).

For purposes of the foregoing definition, references to Purchaser or its Affiliates or its Commercial Licensees shall be deemed to include any of their respective successors in interest.

[***] Milestone Event ” has the meaning ascribed to such term in Section 1.03.

[***] Milestone Payment ” has the meaning ascribed to such term in Section 1.03.

NIAID ” has the meaning ascribed to such term in the preamble to this Agreement.

NIAID Contract ” has the meaning ascribed to such term in the preamble to this Agreement.

NIAID Contract Funding ” means any and all amounts paid by NIAID from time to time under the NIAID Contract, as the same may be amended, restated, modified, or supplemented from time to time.

NIAID Payments ” has the meaning ascribed to such term is Section 1.05.

NIAID Recipient ” has the meaning ascribed to such term in Section 1.05(b).

Non-Disclosure Agreement ” means the Confidentiality Agreement, dated as of [***], between Parent and Spero OpCo, Inc.

[***] License Agreements ” means, collectively, (i) the Sub-License Agreement, (ii) the Exclusive Sub-License Agreement and (iii) the Exclusive License.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Other Transaction Documents ” means, collectively, (i) the Shareholders Agreement, (ii) the Subscription Agreement and (iii) the CAI Services Agreement.

Patents ” means all issued patents, pending patent applications, statutory invention registrations and patent disclosures, and all reissues, continuations, continuations-in-part, divisional applications, substitutions, extensions, supplementary protection certificates, reexaminations, extensions and all foreign equivalents of any of the foregoing.

person ” means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, Governmental Entity or other entity.

Product ” means a product, the manufacture, use, sale, offer for sale or importation of which in or into a particular country would infringe a Valid Claim within the Transferred Patents, as determined on a Product-by-Product and country-by-country basis.

Program ” has the meaning ascribed to such term in Section 1.09(b).

Program IP ” has the meaning ascribed to such term in the preamble to this Agreement.

Purchase Price ” has the meaning ascribed to such term in Section 1.01.

Regulatory Authority ” means any national or supranational governmental authority, including the FDA or the EMA, with responsibility for granting any license, registrations or Approvals with respect to a Product.

Regulatory Authorizations ” means any approvals, clearances, authorizations, registrations, certifications, licenses and permits granted by any Regulatory Authority, including any INDs, NDAs and MAAs.

Regulatory Filing ” means the acceptance by the FDA of the filing of an NDA for a Product, the filing with EMA of a MAA for a Product under the centralized European procedure or if the centralized EMA filing procedure is not used, the filing of a MAA for a Product in any European country, or any similar filing in any other country as prescribed by the applicable Regulatory Authority in such country.

Regulatory Milestone Events ” has the meaning ascribed to such term in Section 1.02.

Restricted Persons ” has the meaning ascribed to such term in Section 5.04.

Royalty Term ” has the meaning ascribed to such term in Section 1.04(b).

Royalty Report ” has the meaning ascribed to such term in Section 1.04(c).

Shareholders Agreement ” means the shareholders agreement to be entered into by Spero and Seller contemporaneously herewith.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

35


CONFIDENTIAL TREATMENT REQUESTED

 

subsidiary ” of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, more than fifty percent (50%) of the equity interests of which) is owned directly or indirectly by such first person or by another subsidiary of such person.

Sub-License Agreement ” means the non-exclusive royalty free Sub-license Agreement, dated [***], between [***] and the Company, as amended by the Amendment Agreement in respect of Sub-License Agreement, dated [***], between [***] and the Company relating to the [***].

Tax ” or “ Taxes ” means any and all taxes, charges, fees, duties, contributions, levies or other similar assessments or liabilities, including income, gross receipts, corporation, ad valorem, premium, value-added, consumption, net worth, capital stock, capital gains, documentary, recapture, alternative or add-on minimum, registration, recording, excise, real property, personal property, sales, use, license, lease, service, service use, transfer, withholding, business license, business organization, environmental, profits, severance, stamp, occupation, windfall profits, escheat, customs duties, import, export, franchise, estimated and other taxes of any kind whatsoever imposed by any Governmental Entity (whether payable directly or by withholding), together with any interest, fines, penalties, assessments, additions to tax or additional amounts imposed with respect to such items, including any liability for payment of taxes as a transferee or successor by contract or otherwise.

Tax Returns ” has the meaning ascribed to such term in Section 3.07.

Transferred Intellectual Property ” means all Intellectual Property of the Company as of immediately prior to the Closing, including, without limitation, all of the Transferred Patents.

Transferred Patents ” has the meaning ascribed to such term in Section 1.04(b).

Transferred Shares ” has the meaning ascribed to such term in the preamble to this Agreement.

Upfront Consideration ” has the meaning ascribed to such term in Section 1.02.

U.S. ” or “ United States ” means the United States of America, including its territories and possessions (excluding all military bases and other military installations outside of the continental United States, Alaska, Hawaii and Washington, D.C.).

Valid Claim ” means a claim of an issued and unexpired patent which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other Governmental Entity of competent jurisdiction, unappealable or unappealed within the time allowed for appeal and that is not admitted to be invalid or unenforceable through reissue, disclaimer or otherwise ( i.e. , only to the extent the subject matter is disclaimed or is sought to be deleted or amended through reissue).

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

36


CONFIDENTIAL TREATMENT REQUESTED

 

VAT ” means value added tax imposed in any member state of the EU pursuant to Council Directive (EC) 2006/112 on the common system of value added tax and national legislation implementing that Directive or any predecessor to it, or supplemental to that Directive, or any similar tax which may be substituted for or levied in addition to it or any value added, sales turnover, goods and services or similar Tax imposed in a country which is not a member of the EU.

Warranties ” means the General Warranties and the Fundamental Warranties.

SECTION 7.08 Counterparts . This Agreement may be executed in one or more counterparts (including by facsimile or other means of electronic transmission, such as by electronic mail in “pdf” form), all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties.

SECTION 7.09 Entire Agreement . This Agreement, the Other Transaction Documents and the Non-Disclosure Agreement contain the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements, drafts, understandings, promises, undertakings or implications relating to such subject matter, whether written or oral. No provision of this Agreement shall be interpreted in favor of, or against, any party by reason of the fact that any such provision is inconsistent with any prior draft hereof. Nothing in this Section 7.09 shall be effective to limit or exclude any liability for fraud.

SECTION 7.10 Severability . If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity or enforceability of any other provision hereof (or the remaining portion thereof) or the application of such provision (or the remaining portion thereof) to any other persons or circumstances. In the event that any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal or unenforceable, such provision shall be limited or eliminated, but only to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect.

SECTION 7.11 Governing Law . This Agreement and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter or formation shall be governed by and construed in accordance with the law of England and Wales.

SECTION 7.12 Consent to Jurisdiction . Each party irrevocably agrees that the courts of England and Wales shall have non-exclusive jurisdiction to settle any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with this Agreement or its subject matter or formation. Each of Seller and CAI irrevocably appoints Parent at its registered office address from time to time as its agent to receive on its behalf in England or Wales service of any proceedings under Section 7.11. Each of Spero and Purchaser irrevocably appoints Osborne Clarke LLP at One London Wall, London EC2Y 5EB (or its

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

37


CONFIDENTIAL TREATMENT REQUESTED

 

registered office from time to time) as its agent to receive on its behalf in England or Wales service of any proceedings under Section 7.11. In each case, such service shall be deemed completed on delivery to such agent (whether or not it is forwarded to and received by any appointor of such agent) and shall be valid until such time as the other relevant parties have received prior written notice that such agent has ceased to act as agent. If for any reason such agent ceases to be able to act as agent or no longer has an address in England or Wales, the appointor shall forthwith appoint a substitute acceptable to the other relevant parties and deliver to them the new agent’s name and address within England and Wales.

SECTION 7.13 Remedies . The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. Subject to Section 6.02(g), no remedy of any party that is based upon the inaccuracy or breach of any warranty, covenant or agreement of any other party shall be affected by any investigation conducted with respect to, or any knowledge acquired, at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to any facts, matters or circumstances giving rise to any such inaccuracy or breach, and subject as aforesaid no such investigation or knowledge shall limit any party’s right to rely on any warranties of the other party.

SECTION 7.14 Spero Therapeutics .

(a) Spero Therapeutics will procure that Purchaser performs its obligations under, and complies with the terms and conditions of, this Agreement. If Purchaser fails to perform any of its obligations under this Agreement, Spero Therapeutics shall indemnify Seller from and against any and all losses, damages, expenses, liabilities, claims, costs or proceedings which Seller may suffer or incur by reason of such failure. If Spero Therapeutics undergoes any reorganization, as part of such reorganization, it will provide Seller with the indemnity set forth in this Section 7.14(a) from its successor (provided such successor is of at least similar financial standing to Spero Therapeutics as of the date hereof, failing which it shall procure that such replacement indemnity is provided by an Affiliate of at least such similar financial standing).

(b) Spero Therapeutics will procure that Spero performs its obligations under, and complies with the terms and conditions of, the CAI Services Agreement. If Spero fails to perform any of its obligations under the CAI Services Agreement, Spero Therapeutics shall indemnify CAI from and against any and all losses, damages, expenses, liabilities, claims, costs or proceedings which CAI may suffer or incur by reason of such failure. If Spero Therapeutics undergoes any reorganization, as part of such reorganization, it will provide CAI with the indemnity set forth in this Section 7.14(b) from its successor (provided such successor is of at least similar financial standing to Spero Therapeutics as of the date hereof, failing which it shall procure that such replacement indemnity is provided by an Affiliate of at least such similar financial standing).

[ Remainder of page intentionally left blank; signature page follows. ]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

38


CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, the parties have duly executed this Agreement as a deed as of the date first written above.

 

Executed as a Deed on behalf of SPERO CANTAB

UK LIMITED , a company incorporated in England

and Wales, acting by Ankit Mahadevia, a director, in

the presence of:

 

  

)

)

)

)

  

/s/ Ankit Mahadevia

Signature of witness: /s/ Lisa Henrici       Director
Name:  Lisa Henrici      

Address:  675 Mass Ave 14 th Fl.

                Cambridge, MA 02139

     
Occupation:  Executive Assistant      

 

Executed as a Deed on behalf of SPERO CANTAB

INC. , a corporation incorporated in Delaware, acting

by Ankit Mahadevia, being a person who, in

accordance with the laws of that territory, is acting

under the authority of the company

  

)

)

)

)

)

)

  

/s/ Ankit Mahadevia                                             

Authorised signatory

SOLELY FOR PURPOSES OF SECTION 7.14:      

Executed as a Deed on behalf of SPERO

THERAPEUTICS LLC , a limited liability company

formed in Delaware, by Ankit Mahadevia, being a

person who, in accordance with the laws of that

territory, is acting under the authority of the company

  

)

)

)

)

)

)

  

/s/ Ankit Mahadevia                                             

Authorised signatory

     

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Executed as a Deed on behalf of PBB

DISTRIBUTIONS LIMITED , a company

incorporated in Malta, by Michael Earl, being a

person who, in accordance with the laws of that

territory, is acting under the authority of the company

  

)

)

)

)

)

)

  

/s/ Michael Earl                                                 

Authorised signatory

 

Signed as a deed on behalf of NEW PHARMA

LICENSE HOLDINGS LIMITED , a company

incorporated in Malta, by Richard Garraway, being a

person who, in accordance with the laws of that

territory, is acting under the authority of the company

  

)

)

)

)

)

)

  

/s/ Richard Garraway                                        

Authorised signatory

 

Executed as a Deed by CANTAB ANTI-

INFECTIVES LIMITED acting by Michael Earl, a

director, in the presence of:

 

Signature of witness: /s/ Justin Bowen

 

Name: Justin Bowen

 

Address: [***]

 

Occupation: Lawyer

  

)

)

)

  

/s/ Michael Earl                                                 

Director

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

SOLELY FOR PURPOSES OF ARTICLE VI :

 

Executed as a D eed by PRO BONO BIO PLC

acting by Michael Earl , a director, in the presence of:

 

Signature of witness: /s/ Justin Bowen

 

Name: Justin Bowen

 

Address: [***]

 

Occupation: Lawyer

  

)

)

)

  



/s/ Michael Earl                                             

 

Director

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT A

Program IP

(Attached)

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Polymyxin Cases

[***] - Link to EPO Family Information - here

 

CAI Ref

  

[***] Ref

  

Country

  

Application

  

Registered Proprietor/s

  

Application Number

  

Application
Date

  

Status

  

Publication
Number

[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

CAI Ref

  

[***] Ref

  

Country

  

Application

  

Registered Proprietor/s

  

Application Number

  

Application
Date

  

Status

  

Publication
Number

[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***] - Link to EPO Family Information - here

 

CAI Ref

  

[***] Ref

  

Country

  

Application

  

Registered Proprietor/s

  

Application Number

  

Application
Date

  

Status

  

Publication
Number

[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

CAI Ref

  

[***] Ref

  

Country

  

Application

  

Registered Proprietor/s

  

Application Number

  

Application
Date

  

Status

  

Publication
Number

[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***] - Link to WIPO Information - here

 

CAI Ref

  

[***] Ref

  

Country

  

Application

  

Registered Proprietor/s

  

Application Number

  

Application
Date

  

Status

  

Publication
Number

[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]

[***] - Link to WIPO Information - here

 

CAI Ref

  

[***] Ref

  

Country

  

Application

  

Registered Proprietor/s

  

Application Number

  

Application
Date

  

Status

  

Publication
Number

[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]
[***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT B

Subscription Agreement

(Attached)

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

SUBSCRIPTION AGREEMENT

This SUBSCRIPTION AGREEMENT (this “ Agreement ”), dated as of June 6, 2016 (the “ Effective Date ”), is made by and between Spero Cantab, Inc., a Delaware corporation (the “ Company ”), and PBB Distributions Limited, a company organized under the laws of Malta (“ PBB ”).

RECITALS

WHEREAS , the Company desires to issue and sell to PBB, and PBB desires to purchase from the Company, one hundred twenty-five (125) shares (the “ Shares ”) of the Company’s common stock, $0.001 par value per share (“ Common Stock ”), which represent twelve and one-half percent (12.5%) of the Fully Diluted Shares (as defined below) as of the Effective Date.

NOW, THEREFORE , in consideration of the foregoing, the agreements set forth in this Agreement, and other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Purchase and Sale of Shares; Anti-Dilution .

a. Purchase and Sale . Subject to the terms and conditions hereof, the Company hereby issues and sells to PBB, and PBB hereby subscribes for and agrees to purchase from the Company, the Shares as partial consideration for the “Transferred Shares”, as defined in and contemplated by that certain Stock Purchase Agreement by and among the Company, PBB and the other parties thereto, dated as of the date hereof (the “ Stock Purchase Agreement ”). Concurrently with the execution of this Agreement, PBB, Therapeutics (as defined below) and the Company shall enter into a shareholders agreement.

b. Anti-Dilution .

i. Subject to Section  1.c below, in the event that the Company conducts one or more financings that involve a sale of any equity securities of the Company to Spero Therapeutics, LLC, a Delaware limited liability company and parent of the Company (“ Therapeutics ”) or any affiliate thereof (such financing, an “ Affiliate Financing ”), then the Company shall issue to PBB, for no additional consideration, that number of additional shares of Common Stock as is required for PBB’s ownership of shares of Common Stock to be equal to twelve and one-half percent (12.5%) of the Fully Diluted Shares; provided , however , that (i) from and after such time as the Company has raised a cumulative total of at least [***] Dollars ($[***] USD) but less than [***] Dollars ($[***] USD) in one or more Affiliate Financings, then the Company shall issue to PBB, for no additional consideration, that number of additional shares of Common Stock as is required for PBB’s ownership of shares of Common Stock to be equal to [***] percent ([***]%) of the Fully Diluted Shares; (ii) from and after such time as the Company has raised a cumulative total of at least [***] Dollars ($[***] USD) but less than the Financing Threshold (as defined below) in one or more Affiliate Financings, then the Company shall issue to PBB, for no additional consideration, that number of additional shares of Common Stock as is required for PBB’s ownership of shares of

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Common Stock to be equal to five percent (5.0%) of the Fully Diluted Shares; and (iii) no additional shares shall be issued to PBB pursuant to this Section  1.b.i once the Company has achieved the Financing Threshold. For avoidance of doubt, if the Company achieves the Financing Threshold as a result of receiving proceeds in a particular Affiliate Financing (whether such Affiliate Financing is the first Affiliate Financing or a subsequent Affiliate Financing), then the Company shall issue to PBB, for no additional consideration, that number of additional shares of Common Stock as is required for PBB’s ownership of shares of Common Stock to be equal to five percent (5.0%) of the Fully Diluted Shares, which percentage shall be calculated as if such Affiliate Financing resulted in the Company having raised in gross proceeds only the amount that is necessary to achieve the Financing Threshold. For purposes of illustration only, if, prior to an Affiliate Financing, the Company had raised Seven Million Dollars ($7,000,000 USD) in gross proceeds creditable toward the Affiliate Financing Threshold and the Company raises in such Affiliate Financing Two Million Dollars ($2,000,000 USD) from the issuance and sale of shares of Common Stock to Therapeutics, then the number of shares of Common Stock issuable to PBB shall be calculated as if such Affiliate Financing resulted in the Company having raised exactly One Million Dollars ($1,000,000 USD) in gross proceeds. All shares of Common Stock issued to PBB pursuant to this Section  1.b.i shall be duly authorized and validly issued and considered fully paid and nonassessable. All such shares of Common Stock shall be free and clear of all encumbrances created, imposed or suffered to be imposed by the Company.

ii. For purposes of this Agreement, the term “ Fully Diluted Shares ” means (i) all of the issued and outstanding shares of Common Stock, preferred stock (calculated on an as-converted to Common Stock basis) and other capital stock or equity security of the Company (calculated on an as-converted to Common Stock basis); (ii) any issued and outstanding security which is convertible, with or without consideration, into any Common Stock, preferred stock or other equity security of the Company; (iii) any issued and outstanding security or other agreement carrying or including any warrant or right to subscribe to or purchase any Common Stock, preferred stock or other equity security of the Company; and (iv) any issued and outstanding options and warrants to purchase Common Stock, preferred stock or other equity security of the Company (calculated on an as-exercised, as converted to Common Stock basis).

iii. For purposes of this Agreement, the term “ Financing Threshold ” means the receipt by the Company of gross proceeds in the aggregate amount of Eight Million Dollars ($8,000,000 USD) through the issuance and sale by the Company of any equity securities of the Company in one or more Affiliate Financings.

iv. The rights of PBB set forth in this Section  1.b are not transferable or separately detachable from the underlying Common Stock.

c. Third Party Financings . Notwithstanding anything in this Agreement to the contrary, the parties agree that PBB and the other stockholders of the Company shall share ratably in any dilution of their respective equity interests in the Company resulting from any Third Party Financing (as defined below), and that the percentages set forth in Section  1.b above shall be ratable adjusted in the event of any dilution caused by a Third

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

-2-


CONFIDENTIAL TREATMENT REQUESTED

 

Party Financing. Nonetheless, for so long as PBB owns [***] percent ([***]%) of the Fully Diluted Shares, PBB shall have the right, but not the obligation, to purchase, at the price and on the terms offered in each sale of any equity securities of the Company to any third party other than Spero Therapeutics, LLC or any affiliate thereof (such financing, a “ Third Party Financing ”), all or a portion of that number of securities offered for sale in such Third Party Financing (“ Offered Securities ”) as is required for PBB to maintain its ownership percentage in effect immediately prior to such Third Party Financing. For avoidance of doubt, in the event the Company conducts any such additional Third Party Financing and PBB does not exercise its right to purchase Offered Securities pursuant to this Section  1.c , then PBB’s right to purchase Offered Securities at any future Third Party Financing pursuant to this Section  1.c shall be terminated.

d. Terms of Financing . The Company hereby covenants and agrees that any and all sales by the Company of its equity securities in any Affiliate Financing shall be made on good faith terms and at commercially reasonable valuations.

2. Representations .

a. Company Representations .

i. The Company is duly formed and validly existing under the laws of Delaware, with full power and authority to conduct its business as it is currently being conducted and to own its assets; and has secured any other authorizations, approvals, permits and orders required by law for the conduct by the Company of its business as it is currently being conducted.

ii. All corporate action required to be taken by the Company’s Board of Directors and stockholders in order to authorize the Company to enter into this Agreement and to issue the Shares has been taken. This Agreement constitutes 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, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

iii. The Shares have been duly authorized and, when issued, sold, and delivered in accordance with the terms of and for the consideration set forth in this Agreement, will be validly issued, fully paid and nonassessable.

iv. The Company represents that it has no debts or other financial or legal obligations, other than those obligations incurred in the ordinary course of business that would not materially adversely affect the Company’s performance under this Agreement or any other agreement between the Company and PBB.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

-3-


CONFIDENTIAL TREATMENT REQUESTED

 

v. The authorized share capital, option plans and issuance, warrant issuance and any other equity securities (including securities convertible into or exchangeable for equity securities) of the Company (the “ Company Capitalization ”) as of the date hereof is as set forth in Schedule 2(a)(v)(i) of this Agreement, which includes (A) the aggregate number of issued and outstanding shares of capital stock of the Company (including shares of Common Stock and each series of convertible preferred shares) and (B) the aggregate number of shares of Common Stock issuable under all outstanding options, all outstanding warrants and all other outstanding securities or obligations which, by their terms, whether directly or indirectly, may be exercisable or exchangeable for, convertible into, or require the Company to issue, shares of Common Stock. All issued and outstanding shares of Common Stock and all issued and outstanding shares of preferred stock are validly issued, fully paid and non-assessable. Upon the consummation of the transactions contemplated hereby, the Company Capitalization will be as set forth in Schedule 2(a)(v)(ii) of this Agreement.

vi. Neither the Company nor any person acting on behalf of the Corporation has offered or sold any of the Shares by any form of general solicitation or general advertising (within the meaning of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder). The Company agrees that the foregoing representations and warranties shall survive the Company’s issuance of the Shares, as well as any investigation made by any party relying on the same.

b. PBB Representations .

i. PBB has full power and authority to enter into this Agreement. When executed and delivered by PBB, this Agreement will constitute a valid and legally binding obligation of PBB, enforceable in accordance with its terms, except (i) as limited by 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) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

ii. PBB does not presently 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 any of the Shares, and PBB has not been formed for the specific purpose of acquiring the Shares.

iii. PBB has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. PBB’s subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or other laws of its jurisdiction.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

3. Miscellaneous .

a. Notices . All notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid to the following addresses (or such other address as either party shall have specified by notice in writing to the other):

If to the Company:

Spero Cantab, Inc.

675 Massachusetts Avenue, 14 th Floor

Cambridge, MA 02139

Attention: Ankit Mahadevia

Email: [***]

With a copy to:

Mintz Levin

One Financial Center

Boston, MA 02111

Attention: Lewis J. Geffen, Esq.

Email: [***]

If to PBB:

c/o Pro Bono Bio PLC

Leverton House

13 Bedford Square

London WC1B 3RA

England

Attention: Michael Earl/Justin Bowen

E-mail: [***]

With a copy to:

DAC Beachcroft LLP

100 Fetter Lane

London EC4A 1BN

England

Attention: Jonathan Deverill

Email: [***]

b. Amendment . Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally or by course of dealing, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

c. Parties in Interest . All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, whether so expressed or not.

d. Headings . The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

e. Choice of Law . It is the intention of the parties that the internal laws, and not the laws of conflicts, of the State of Delaware should govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties hereto.

f. Counterparts . This Agreement may be executed in any number of counterparts, including by facsimile transmission, and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.

g. Submission to Jurisdiction . With respect to any suit, action or proceeding relating to any offers, purchases or sales of the Shares by the undersigned (“ Proceedings ”), the undersigned irrevocably submits to the jurisdiction of the federal or state courts located in the Commonwealth of Massachusetts, which submission shall be exclusive unless none of such courts has lawful jurisdiction over such Proceedings.

h. Severability . If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction.

i. Entire Agreement . This Agreement, together with the Stock Purchase Agreement, constitutes the entire agreement between the Company and PBB with respect to the subject matter hereof and supersedes all prior agreements and understandings related to such subject matter.

*         *         *         *

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

-6-


CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF , the parties hereto have duly executed this Subscription Agreement as of the date first written above.

 

COMPANY:
SPERO CANTAB, INC.
By:  

 

Name:   Ankit Mahadevia
Title:   Chief Executive Officer

 

PBB:
PBB DISTRIBUTIONS LIMITED
By:  

 

Name:  
Title:  

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

SCHEDULE 2(a)(v)(i)

 

Name of Shareholders

  

Number of Shares

Spero Therapeutics, LLC    875

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

SCHEDULE 2(a)(v)(ii)

 

Name of Shareholders

  

Number of Shares

Spero Therapeutics, LLC   

875

PBB Distributions Limited    125

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

AMENDMENT TO STOCK PURCHASE AGREEMENT

This AMENDMENT TO STOCK PURCHASE AGREEMENT (this “ Amendment ”), effective as of July 18, 2017, is made by and among Spero Cantab, Inc. (“ Cantab ”), PBB Distributions Limited (“ PBB ”), Spero Cantab UK Limited, Spero Therapeutics, Inc. (formerly Spero Therapeutics, LLC), New Pharma License Holdings Limited, Cantab Anti-Infectives LTD and Pro Bono Bio PLC.

WHEREAS, the parties entered into that certain Stock Purchase Agreement, dated June 6, 2016 (the “ Agreement ”).

WHEREAS, Cantab and PBB entered into a Stock Purchase Agreement on the same date hereof, pursuant to which PBB transferred to Cantab, and Cantab repurchased from PBB, certain shares of Cantab’s common stock in exchange for cash consideration and increased Milestone Consideration (as defined in the Agreement) as set forth in such agreement (the “ Repurchase ”).

WHEREAS, in consideration of the Repurchase and related transactions, the parties hereto desire to amend certain terms and conditions of the Agreement as set forth herein.

NOW, THEREFORE, in consideration of these premises and the mutual promises herein made, the parties hereto agree as follows:

1. Amendments .

a. In Section 1.03(a)(i)(A) of the Agreement, the first Regulatory Milestone Event of [***] is increased from $[***] to $[***]; and

b. In Section 1.03(a)(i)(B) of the Agreement, the second Regulatory Milestone Event of [***] is increased from $[***] to $[***].

2. Ratification of Agreement; Capitalized Terms . Except as expressly modified by this Amendment, the Agreement is hereby ratified and confirmed in all respects. Capitalized terms used but not otherwise defined herein have the meanings ascribed to such terms in the Agreement.

3. Entire Agreement . This Amendment, together with the Agreement and any schedules, exhibits, and other documents referenced therein, constitute the entire agreement among the parties hereto and supersede any prior correspondence or documents evidencing negotiations between the parties, whether written or oral.

4. Governing Law . This Amendment is made pursuant to and shall be governed by, interpreted under, and the rights of the parties determined in accordance with, the laws of England and Wales, without reference to principles of conflicts of law thereof.

5. Counterparts . This Amendment may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF , the parties have executed this Amendment effective as of the date first above written.

 

SPERO CANTAB, INC.
By:  

/s/ Ankit Mahadevia

Name:   Ankit Mahadevia
Title:   Chief Executive Officer
SPERO CANTAB UK LIMITED
By:  

/s/ Ankit Mahadevia

Name:   Ankit Mahadevia
Title:   Director
SPERO THERAPEUTICS, INC.
(formerly Spero Therapeutics, LLC)
By:  

/s/ Ankit Mahadevia

Name:   Ankit Mahadevia
Title:   Chief Executive Officer

 

NEW PHARMA LICENSE HOLDINGS LIMITED
By:  

/s/ Ankit Mahadevia

Name:   Ankit Mahadevia
Title:   Director

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF , the parties have executed this Amendment effective as of the date first above written.

 

PBB DISTRIBUTIONS LIMITED
By:  

/s/ Michael Earl

Name:   Michael Earl
Title:   Director
CANTAB ANTI-INFECTIVES LIMITED
By:  

/s/ Michael Earl

Name:   Michael Earl
Title:   Director
PRO BONO BIO PLC
By:  

/s/ Michael Earl

Name:   Michael Earl
Title:   Director

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

Exhibit 10.14

CONFIDENTIAL TREATMENT REQUESTED

ASSIGNMENT AND LICENSE AGREEMENT

This ASSIGNMENT AND LICENSE AGREEMENT (this “ Agreement ”) is entered into as of May 9, 2016 (the “ Effective Date ”), by and between Vertex Pharmaceuticals Incorporated, with an address at 50 Northern Avenue, Boston, Massachusetts 02210 (“ Vertex ”) and Spero Trinem, Inc., with an address at 675 Massachusetts Avenue, 14 th Floor, Cambridge, Massachusetts 02139 (“ Spero ”) and solely for the purposes of Section 13.15, Spero Therapeutics, LLC, with an address at 675 Massachusetts Avenue, 14 th Floor, Cambridge, Massachusetts 02139 (“ Parent ”). Vertex and Spero each may be referred to herein individually as a “ Party ” or collectively as the “ Parties .”

WHEREAS , Vertex owns rights to the proprietary compound identified as VXc-100/VXc486; and

WHEREAS , Spero desires to obtain the rights to develop and commercialize VXc-100/VXc486 and Vertex desires to grant such rights, all in accordance with the terms of this Agreement;

NOW, THEREFORE , in consideration of the covenants and obligations set forth herein, and other good and valuable consideration, the Parties agree as follows:

ARTICLE 1.

DEFINITIONS

For purposes of this Agreement, the following capitalized terms will have the meaning set forth below:

1.1. “ Affiliate ” means, as of any point in time and for so long as such relationship continues to exist with respect to any Person, any other Person that controls, is controlled by or is under common control with such Person. A Person will be regarded as in control of another Person if it (a) owns or controls more than 50% of the equity securities of the subject Person entitled to vote in the election of directors (or, in the case of a Person that is not a corporation, for the election of the corresponding managing authority); provided , however , that the term “Affiliate” will not include subsidiaries or other entities in which a Person owns a majority of the ordinary voting power necessary to elect a majority of the board of directors or other governing board, but is restricted from electing such majority by contract or otherwise, until such time as such restrictions are no longer in effect, or (b) possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of any such Person (whether through ownership of securities or other ownership interests, by contract or otherwise).

1.2. “ Agreement ” has the meaning set forth in the preamble.

1.3. “ Anti-Corruption Laws ” has the meaning set forth in Section 5.2.

1.4. “ Approval Application ” means new drug application that is submitted to the FDA pursuant to 21 C.F.R. 314.3 or similar application or submission for a Product filed with a Regulatory Authority in a country or group of countries to obtain Marketing Approval for a pharmaceutical product in that country or group of countries.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

1.5. “ Additional Compound ” means any compound Covered by the claimed genus in any issued Assigned Patent as the issued Assigned Patents exist as of the Effective Date, or a compound that would be Covered by a disclosed genus in any pending Assigned Patent as of the Effective Date should such disclosed genus issue to grant, in each case including [***], other than the Assigned Compound.

1.6. “ Assigned Compound ” means each of (a) VXc-486 and (b) VXc-100 (the prodrug of VXc-486), including [***].

1.7. “ Assigned Know-How ” means the information identified in Exhibit B to the extent Controlled by Vertex as of the Effective Date and to the extent solely and specifically related to the Assigned Compounds or Additional Compounds, but excluding all information related to Vertex’s general drug design, delivery, formulation and manufacturing technologies and know-how applicable to or related to Vertex’s business in general and other programs.

1.8. “ Assigned Patents ” means the Patents listed in Exhibit A , including any re-examination, re-issue, continuation, or division thereof (to the extent that each claimed invention in such application is Covered by one or more claims in the patents listed in Exhibit A ) and any foreign counterparts filed or issued in the Territory.

1.9. “ Associated Persons ” has the meaning set forth in Section 5.2.

1.10. “ Business Day ” means a Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in Boston, Massachusetts are authorized or obligated to close.

1.11. “ Calendar Quarter ” means the respective periods of three consecutive calendar months ending on March 31, June 30, September 30 or December 31, during the Term, or the applicable part thereof during the first or last calendar quarter of the Term.

1.12. “ Calendar Year ” means any calendar year ending on December 31, or the applicable part thereof during the first or last year of the Term.

1.13. “ Change of Control ” means, with respect to a Party, (a) a merger or consolidation of such Party with a Third Party that results in the voting securities of such Party outstanding immediately prior thereto, or any securities into which such voting securities have been converted or exchanged, ceasing to represent more than 50% of the combined voting power of the surviving entity or the parent of the surviving entity immediately after such merger or consolidation, or (b) a transaction or series of related transactions in which a Third Party, together with its Affiliates, becomes the beneficial owner of more than 50% of the combined voting power of the outstanding securities of such Party, or (c) the sale or other transfer to a Third Party of all or substantially all of such Party’s business to which the subject matter of this Agreement relates. For the avoidance of doubt, in no event shall a bona fide equity or debt financing of a Party, including a financing in which greater than 50% of a Party’s outstanding equity securities are acquired by a Third Party, be deemed a “Change in Control.”

1.14. “ Claims ” has the meaning set forth in Section 11.1.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

2


CONFIDENTIAL TREATMENT REQUESTED

 

1.15. “ Combination Product ” means any product, process or service which incorporates one or more therapeutically active ingredients, other than an Assigned Compound or Additional Compound, in combination or co-formulation with an Assigned Compound or Additional Compound.

1.16. “ Commercialize ” or “ Commercialization ” means (a) to market, promote, distribute, offer for sale, sell, have sold, import, export or otherwise commercialize a Product and (b) to conduct activities other than Research, Development and Manufacturing, in preparation for the foregoing activities, including obtaining pricing approval, and to conduct post-Marketing Approval studies (including clinical trials).

1.17. “ Confidential Information ” means all non-public, confidential or proprietary information, data or know-how, provided by one Party (the “ Disclosing Party ”) to the other Party (the “ Receiving Party ”) in any form pursuant to this Agreement, including information relating to the Disclosing Party’s existing or proposed research, development, patent applications, business or products. Vertex’s Confidential Information will include the Licensed Know-How. The Assigned Know-How will be deemed to be Spero’s Confidential information. The terms of this Agreement will be deemed to be each Party’s Confidential Information. Confidential Information will not include any information or materials that the Receiving Party can document with competent written proof:

(a) were already known to the Receiving Party (other than under an obligation of confidentiality) at the time of disclosure by or on behalf of the Disclosing Party;

(b) were generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party;

(c) became generally available to the public or otherwise part of the public domain after its disclosure to the Receiving Party, other than through any act or omission of the Receiving Party in breach of its obligations under this Agreement;

(d) were disclosed to the Receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the Disclosing Party not to disclose such information to the Receiving Party or others; or

(e) were independently discovered or developed by or on behalf of the Receiving Party without the use of the Confidential Information belonging to the Disclosing Party.

Confidential Information disclosed to the Receiving Party hereunder will not be deemed to fall within the foregoing exceptions merely because broader or related information falls within such exceptions, nor will combinations of elements or principles be considered to fall within the foregoing exceptions merely because individual elements of such combinations fall within such exceptions.

1.18. “ Controlled ” means, with respect to any know-how, Patent or other intellectual property right, possession of the right, whether directly or indirectly, and whether by ownership, license or otherwise, to assign, or grant a license, sublicense or other right to or under, such

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

3


CONFIDENTIAL TREATMENT REQUESTED

 

know-how, Patent, or right as provided for herein without violating the terms of any agreement or other arrangements with any Third Party; provided that if the assignment or license of such know-how, Patent or other intellectual property right would trigger a royalty or other payment to a Third Party or would require compliance with any provision of any license between Vertex and a Third Party, Vertex will so notify Spero and such know-how, Patent or other intellectual property right will only be deemed Controlled if, following receipt of such notice, Spero agrees in writing to reimburse Vertex for all such payments to such Third Party and comply with any such provision.

1.19. “ Cover ,” “ Covering ,” “ Covers ” or “ Covered ” means, as to a compound or product and Patent, that, in the absence of a license granted under, or ownership of, such Patent, the making, using, keeping, selling, offering for sale or importation of such compound or product would infringe such Patent or, as to a pending claim included in such Patent, the making, using, selling, offering for sale or importation of such compound or product would infringe such Patent if such pending claim were to issue in an issued patent without modification.

1.20. “ Development ” means, with respect to a Product, all clinical and non-clinical research and development activities conducted after filing of an IND for such Product, including toxicology, pharmacology test method development and stability testing, process development, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, clinical trials (other than post-Marketing Approval clinical trials), regulatory affairs, pharmacovigilance, clinical trial regulatory activities and obtaining and maintaining regulatory approval.

1.21. “ Disclosing Party ” has the meaning set forth in the definition of Confidential Information.

1.22. “ Effective Date ” has the meaning set forth in the preamble.

1.23. “ EMA ” means the European Medicines Agency and any successor entity thereto.

1.24. “ European Commission ” means the European Commission or any successor entity that is responsible for granting marketing approvals authorizing the sale of pharmaceuticals in the European Union.

1.25. “ European Union ” or “ EU ” means all countries or territories that are officially part of the European Union.

1.26. “ FDA ” means the United States Food and Drug Administration and any successor entity thereto.

1.27. “ Field ” means the diagnosis, treatment or prevention of bacterial infections, excluding the [***].

1.28. “ First Commercial Sale ” means, with respect to a particular Product in a particular country in the Territory, the first commercial sale of such Product to a Third Party for end use or consumption in such country in an arm’s length transaction by Spero or any other Seller after the receipt of Marketing Approval in such country. Sales for test marketing, sampling and promotional uses, clinical trial purposes or compassionate or similar use will not constitute a First Commercial Sale.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

4


CONFIDENTIAL TREATMENT REQUESTED

 

1.29. “ IND ” means any Investigational New Drug application, filed with the United States Food and Drug Administration pursuant to Part 312 of Title 21 of the U.S. Code of Federal Regulations, including any supplements or amendments thereto. References herein to IND will include, to the extent applicable, any comparable filings outside the United States.

1.30. [***].

1.31. “ Licensee ” has the meaning set forth in Section 2.5(a).

1.32. “ Licensed Know-How ” means all information other than Assigned Know-How that (a) was Controlled by Vertex as of the Effective Date and remains under the Control of Vertex during the Term, (b) was used by Vertex in its Research, Development or Manufacturing of the Assigned Compounds or Additional Compounds and (c) is necessary for the Research, Development, use, Manufacturing or Commercialization of the Assigned Compound or Additional Compounds. Licensed Know-How does not include Vertex’s general drug design or delivery technology, formulation and manufacturing technology, whether in hardware or software form, tangible or intangible, or information relating to any compounds or active ingredients other than the Assigned Compound or Additional Compounds and formulation and manufacturing technology not applied to an Assigned Compound or Product containing an Assigned Compound by or on behalf of Vertex.

1.33. “ Manufacture ” or “ Manufactured ” or “ Manufacturing ” means activities directed to making, having made, producing, manufacturing, processing filling, finishing, packaging, labeling, quality control testing and quality assurance release, shipping or storage of a Product.

1.34. “ Marketing Approval ” means, with respect to a Product in a particular jurisdiction, the receipt of all approvals, licenses, registrations or authorizations necessary for the Commercialization of such Product in such jurisdiction, including, with respect to the United States, approval of an Approval Application for such Product by the FDA, with respect to the European Union, approval of an Approval Application for such Product by the European Commission, and with respect to Japan, approval of an Approval Application for such Product by the Ministry of Health, Labor and Welfare or any successor government agency responsible for approving the sale of pharmaceuticals in Japan. For clarity, Marketing Approval does not include reimbursement authorization or pricing approval determinations.

1.35. “ Materials ” means raw materials, pharmaceutical ingredients, intermediates and drug products identified in Exhibit C .

1.36. “ Milestone Event ” has the meaning set forth in Section 4.2.

1.37. “ Milestone Payment ” has the meaning set forth in Section 4.2.

1.38. “ Monetization Transaction ” has the meaning set forth in Section 4.6.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

5


CONFIDENTIAL TREATMENT REQUESTED

 

1.39. “ Net Sales ” means the gross amount billed or invoiced by Spero, its Related Parties and their Licensees, assignees, or any other Third Party to which Spero grants rights with respect to the Manufacturing and/or Commercialization of a Product (including by assignment of the Assigned Patents or Assigned Know-How) (collectively referred to as the “ Seller ”) on sales of a Product to a Third Party, less Permitted Deductions determined under United States generally accepted accounting principles. “ Permitted Deductions ” means the following:

(a) customary transportation charges relating to such Product, including handling charges, outbound freight, shipment and insurance premiums relating thereto;

(b) sales taxes, excise taxes, use taxes, tariffs and duties paid by and not refunded to the seller and directly related to sale of such Product, and any other equivalent governmental charges imposed upon the importation, use or sale of such Product, but excluding income and similar taxes;

(c) government-mandated deductions and other rebates (notably but not limited to those in respect of any state or federal Medicare, Medicaid or similar programs), clawbacks or other forms of payment to any governmental authority or agency and payments or accruals made with respect to any national or local health insurance program, including government fees levied as a result of health care reform policies such as the branded prescription drug fee of the Affordable Care Act;

(d) customary trade, quantity and cash discounts, allowances and credits allowed or paid in the form of deductions actually allowed or fees actually paid with respect to sales of such Product (to the extent not already reflected in the amount invoiced);

(e) allowances or credits to customers on account of retrospective price reductions, rejections or returns of Product, including billing errors; and

(f) customary rebates, charge backs and discounts (or equivalent thereof) actually granted for such Product including those customarily granted to managed care entities or organizations, pharmacy benefit managers (or equivalent thereof), federal, state/provincial, local or other governments or their agencies or purchasers, reimbursers or trade customers.

A Permitted Deduction set forth in Section 1.39(a)-1.39(f) above may be deducted only once, regardless of the number of the preceding categories that describe such amount. A sale between or among Spero, or its Related Parties will be excluded from the computation of Net Sales if such sale is not intended for end use, but Net Sales will include the subsequent final sales to Third Parties by Spero or any such Related Parties. A Product will not be deemed to be sold if the Product is provided free of charge to a Third Party in reasonable quantities as a sample consistent with industry standard promotional and sample practices. For clarity, Net Sales includes [***].

In the case of any sale that is not invoiced, Net Sales will be calculated at the time of transfer of title of the Product based on the gross selling price. If a sale, transfer or other disposition with respect to a Product involves consideration other than cash or is not at arm’s length, then the Net Sales from such sale, transfer or other disposition will be calculated based on the fair market value of the Product as reasonably determined by the Parties.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

For all purposes of this Agreement, if a Product is a Combination Product, then for purposes of determining Net Sales for such Combination Product, the actual Net Sales for such Combination Product (determined as provided above) will be [***].

1.40. “ Party ” or “ Parties ” has the meaning set forth in the preamble.

1.41. “ Patents ” means patents existing upon the Effective Date and future patents and patent applications including without limitation provisional applications, continuation applications, continuations-in-part, divisional applications, Patent Cooperation Treaty applications, invention patents, utility model patents, industrial design patents, reexaminations, reissues, registrations, confirmations, revalidations, certificates of addition, utility models and petty patents, including extensions or restorations of terms thereof, pediatric exclusivity extension of a patent, supplementary protection certificates or any other such right.

1.42. “ Permitted Deductions ” has the meaning set forth in the definition of Net Sales.

1.43. “ Person ” means any natural person, corporation, general partnership, limited partnership, limited liability company, joint venture, joint-stock company, proprietorship or other business organization or legal entity.

1.44. [***].

1.45. [***].

1.46. “ Product ” means any preparation, substance or formulation comprised, in whole or in part, of an Assigned Compound or an Additional Compound. For the avoidance of doubt, Product includes any Combination Product or Single Agent Product.

1.47. “ Progress Report ” has the meaning set forth in Section 7.1.

1.48. “ Receiving Party ” has the meaning set forth in the definition of Confidential Information.

1.49. “ Regulatory Authority ” means, with respect to a country in the Territory, any national (e.g., the FDA), supra-national (e.g., the European Commission, the Council of the European Union, or the EMA), regional, state or local regulatory agency, department, bureau, commission, council or other governmental authority involved in the granting of Marketing Approvals or price approvals for pharmaceutical products in such country or countries.

1.50. “ Regulatory Exclusivity ” means, upon Marketing Approval, the period during which a drug product is granted exclusive marketing rights by the FDA, European Commission, Ministry of Health, Labor and Welfare or the applicable Regulatory Authority with respect to any country in the Territory or any successor Regulatory Authority.

1.51. “ Related Party ” means each of Spero’s Affiliates and permitted Sublicensees.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

1.52. “ Research ” means conducting research activities to advance the Assigned Compounds, Additional Compounds and Products, including pre-clinical studies and optimization, but specifically excluding Development and Commercialization.

1.53. “ Revenue Buyer ” has the meaning set forth in Section 4.6.

1.54. “ Royalty Term ” means, with respect to a Product in a country, the period commencing on the first sale generating Net Sales of such Product in such country and ending on the later of (a) [***] after the First Commercial Sale of such Product in such country or (b) the date of expiration of the last to expire Assigned Patent.

1.55. “ Seller ” has the meaning set forth in the definition of Net Sales.

1.56. “ Single Agent Product ” means any Product that is not a Combination Product. For clarity, a Product containing or comprised of one or more Assigned Compounds and/or one or more Additional Compounds and no other therapeutically active ingredients will be deemed to be a Single Agent Product.

1.57. “ Storage Facility ” has the meaning set forth in Section 2.6.

1.58. “ Sublicensee ” means an Affiliate or Third Party, to whom Spero (or Spero’s Sublicensee or Affiliate) assigns, licenses or sublicenses any of the rights granted to Spero hereunder during the Term.

1.59. “ Term ” has the meaning set forth in Section 8.1.

1.60. “ Territory ” means worldwide.

1.61. “ Third Party ” means any Person other than Vertex, Spero or their respective Affiliates.

1.62. “ Third Party Auditor ” has the meaning set forth in Section 4.5.

1.63. “ United States ” or “ U.S. ” means the United States of America and all of its districts, territories and possessions.

1.64. “ Spero ” has the meaning set forth in the preamble.

1.65. “ Spero Indemnitees ” has the meaning set forth in Section 11.2. 1.66.

1.66. “ Vertex ” has the meaning set forth in the preamble.

1.67. “ Vertex Indemnitees ” has the meaning set forth in Section 11.1.

1.68. “ Withheld Taxes ” has the meaning set forth in Section 4.4(c)(ii).

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 2.

LICENSE; ASSIGNMENTS

2.1. Assignment of Rights . Subject to the terms and conditions of this Agreement, Vertex hereby assigns to Spero, and Spero hereby accepts, all of Vertex’s right, title and interest in the Assigned Patents and Assigned Know-How, free and clear of all liens, claims, encumbrances, security interests, license, options, charges or restrictions of any kind or nature (collectively, “ Liens ”). If requested by Spero, Vertex will reasonably cooperate with Spero to take all actions, including but not limited to the execution of patent assignments, customary and suitable written instruments or other documents reasonably requested by Spero to effect the assignment of rights described in this Section 2.1.

2.2. License to Vertex . Notwithstanding the foregoing, effective upon the assignment of Assigned Patents and Assigned Know-how pursuant to Section 2.1, Spero will, and hereby does, grant to Vertex a perpetual, irrevocable, exclusive, royalty-free, fully paid-up, worldwide, sublicensable (through multiple tiers) license under any such Assigned Patents and Assigned Know-How to research, develop, manufacture, have manufactured, use, keep, sell offer for sale, import, export and commercialize any Assigned Compound or Additional Compound for any use outside of the Field, including, without limitation, the use of the Assigned Compound and Additional Compounds in any compound screening libraries and Vertex internal toxicity and DMPK databases that Vertex maintains.

2.3. Licensed Know-How . Subject to the terms and conditions of this Agreement, Vertex hereby grants to Spero a non-exclusive, royalty-bearing, revocable (as set forth in Section 8.2), sublicenseable (solely as set forth in Section 2.5), nontransferable (except to the extent this Agreement is assigned by Spero in accordance with Section 13.2) license under the Licensed Know-How to Research, Develop, Manufacture, have Manufactured, use, keep, sell, offer for sale, import, export and Commercialize the Assigned Compounds, Additional Compounds and Products containing the Assigned Compounds and/or Additional Compounds, for use in the Field in the Territory during the Term. Notwithstanding the license granted to Spero under this Section 2.3, Vertex will not be obligated to provide Spero with access to, or copies or physical embodiments of, any Licensed Know-How except as set forth herein.

2.4. Certain Restriction . Spero (or its Affiliates or Licensees) will not use the Assigned Compounds, Additional Compounds, Licensed Know-How, Assigned Know-How, Assigned Patents, or any other materials or information provided hereunder for purposes of researching, developing, commercializing or manufacturing products outside of the Field or relating to any other activities outside of the Field.

2.5. Licensing; Sublicensing .

(a) Spero will have the right to assign or grant licenses or sublicenses (through multiple tiers) under the rights assigned to Spero pursuant to Section 2.1 to its Affiliates and any Third Party (each, a “ Licensee ” and collectively, the “ Licensees ”), without the prior written consent of Vertex; provided that (i) the terms of any assignment, license or sublicense by Spero or a Licensee will be in a written agreement and consistent with the terms of this Agreement, (ii) Spero’s grant of any assignment, license or

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

sublicense will not relieve Spero from any of its obligations under this Agreement, (iii) Spero will remain responsible for its Licensees’ performance under this Agreement including payment of royalties for Products by such Licensee and (iv) Spero will notify Vertex of the identity of any Licensee and the territory in which it has granted such assignment, license or sublicense, after entering into any such assignment, license or sublicense. Notwithstanding the foregoing, before entering into any agreement with a Third Party in accordance with this Section 2.5(a) to Commercialize a Product, or any agreement to effectuate a Change of Control, Spero will notify Vertex of its intent to license, sublicense or assign rights as provided in this Section 2.5(a) or undergo such Change of Control, which notice will specify the [***] or the [***] the Change of Control Spero intends to consummate, as applicable, and Vertex may elect in writing within [***] after receipt of such notice to enter into good faith negotiations with Spero with respect to such transaction. If Vertex so elects, the Parties will in good faith negotiate the terms of such transaction for a period of not less than [***]. During such [***] period, Spero will not offer any Third Party the opportunity to enter into the proposed transaction or enter into any such transaction. If Spero does undergo a Change of Control, the obligation of Spero (or its successor) to notify Vertex of its intent to license, sublicense or assign rights as provided in this Section 2.5(a) or consummate an additional Change of Control, and Vertex’s right to elect to enter into good faith negotiations with Spero (or such successor) with respect to a potential transaction, will terminate.

(b) Spero will have the right to grant licenses or sublicenses (through multiple tiers) to a Licensee under the rights licensed to Spero under Section 2.3 (but may not assign such rights); provided that such license or sublicense is granted in connection with an assignment or grant of rights under Section 2.5(a) and is granted for use solely in connection with the Research, Development, Manufacturing or Commercialization of the Assigned Compounds, Additional Compounds or Products and subject to Spero’s compliance with Section 2.5(a).

2.6. Transfer of Materials . Vertex hereby transfers title and risk of loss to the Materials to Spero in the quantities specified in Exhibit C . Within [***] after the Effective Date, Spero will either (a) make arrangements with the Third Party storing the Materials (the “ Storage Facility ”) to ship the Materials to Spero or (b) enter into an agreement directly with the Storage Facility to continue storing the Materials at Spero’s expense. Vertex will notify the Storage Facility of the transfer of the Materials to Spero as needed to facilitate the shipment of the Materials to Spero or the continued storage of the Materials by the Storage Facility at Spero’s expense and will execute all transfer letters or other documentation necessary in connection therewith. Notwithstanding anything contained herein, if Spero does not notify Vertex of its election to either ship or continue storing such Materials with the Storage Facility within [***] after the Effective Date pursuant to this Section 2.6, such Materials will be deemed to be rejected by Spero and Vertex may destroy the Materials. Except as expressly set forth herein, Spero will be solely responsible for all Manufacturing and supply of the Assigned Compound and Additional Compounds (including without limitation for all costs and expenses associated therewith). With respect to any such Materials that are drug substances or drug products that were previously certified as to their suitability for clinical purposes, Spero will be permitted, at its expense, to retest and have recertified, any such Materials, as suitable for human clinical

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

purposes. With respect to any Materials stored by a Storage Facility in any countries or jurisdictions outside of the United States, Spero will be responsible for obtaining, completing and presenting to the applicable government authorities all export documentation, fees and license(s) required to ship such Materials.

NOTWITHSTANDING ANYTHING CONTAINED HEREIN, THE MATERIALS ARE PROVIDED “AS-IS” AND VERTEX MAKES NO REPRESENTATION OR WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, REGARDING THE MATERIALS, INCLUDING ANY WARRANTY OF MERCHANTABILITY, TITLE, INFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE.

ARTICLE 3.

PERFORMANCE OBLIGATIONS

3.1. Regulatory Approvals . As between the Parties, Spero will be responsible for obtaining all necessary regulatory approvals, including Marketing Approval with respect to the Development, Manufacturing and Commercialization of the Assigned Compounds, Additional Compounds and Products.

3.2. File/Knowledge Transfer . Within [***] after the Effective Date, Vertex will transfer copies of all Assigned Know-How in electronic format, if currently available, or such other form as mutually agreed by the Parties. Vertex will use commercially reasonable efforts to transfer such Assigned Know-How and documents promptly. Notwithstanding the foregoing, Vertex will not be obligated to transfer any publically available information or documents pursuant to this Section 3.2. Vertex will provide Spero with [***] of transition support at [***] for activities related to the knowledge transfer described in this Section 3.2. Notwithstanding anything contained herein, if any of the information or documents transferred pursuant to this Section 3.2 inadvertently contains any information or documents relating to Vertex drug design, delivery, manufacturing or formulation technology or know-how, or any other technology or know-how that is related to or applicable to Vertex’s business in general or other programs, (a) Spero shall not use such information and, upon discovery, shall promptly send such information or documents back to Vertex without retaining any copies thereof and (b) for the avoidance of doubt, such information and documents will be deemed Vertex Confidential Information. Spero will promptly reimburse Vertex for any reasonable out-of-pocket expenses incurred by Vertex in connection with the transfer of any Assigned Know-How under this Section 3.2. Vertex may hold copies of all Assigned Know-How as required to comply with applicable law.

ARTICLE 4.

FINANCIAL PROVISIONS

4.1. Upfront Payment . In consideration of the rights granted by Vertex to Spero in the Assigned Patents set forth in Exhibit A , on the Effective Date, Spero will pay to Vertex a one-time, non-refundable, non-creditable upfront fee of $500,000 USD.

4.2. Milestone Payments . Spero will pay Vertex the milestone payments (each, a “ Milestone Payment ”) set forth in this Section 4.2 within [***] after occurrence of the corresponding milestone event (each, a “ Milestone Event ”). Each Milestone Payment is payable only once, regardless of the number of Products that achieve the relevant Milestone Event or the number of times Product(s) achieve such Milestone Event.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(a) Combination Product Development Milestones . Subject to Section 4.2(e), Spero will pay Vertex the Milestone Payments set forth in this Section 4.2(a) upon the occurrence of the relevant Milestone Event, with respect to any Combination Product, regardless of whether the relevant Milestone Event is achieved by Spero or its Related Parties. For clarity, the achievement of a Milestone Event with respect to a Combination Product will not constitute the achievement of the corresponding Milestone Event with respect to a Single Agent Product under Section 4.2(b).

 

Milestone Number

  

Milestone Event

   Milestone
Payment
 

1

   [***] a Combination Product [***]    $ [ ***] 

2

   [***] a Combination Product    $ [ ***] 

3

   [***] a Combination Product    $ [ ***] 

4

   [***] a Combination Product    $ [ ***] 

5

   [***] a Combination Product    $ [ ***] 

6

   [***] a Combination Product    $ [ ***] 

(b) Single Agent Product Development Milestones . Subject to Section 4.2(e), Spero will pay Vertex the Milestone Payments set forth in this Section 4.2(b) upon the occurrence of the relevant Milestone Event with respect to any Single Agent Product, regardless of whether the relevant Milestone Event is achieved by Spero or its Related Parties.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Milestone Number

  

Milestone Event

   Milestone
Payment
 

7

   [***] a Single Agent Product [***]    $ [ ***] 

8

   [***] a Single Agent Product    $ [ ***] 

9

   [***] a Single Agent Product    $ [ ***] 

10

   [***] a Single Agent Product    $ [ ***] 

11

   [***] a Single Agent Product    $ [ ***] 

12

   [***] a Single Agent Product    $ [ ***] 

(c) Commercial Milestones . Subject to Section 1.39, Spero will pay Vertex the Milestone Payments set forth in this Section 4.2(c), upon the occurrence of the relevant Milestone Event, regardless of whether the relevant Milestone Event is achieved by Spero or its Related Parties.

 

Milestone Number

  

Milestone Event

   Milestone
Payment
 

13

   [***]    $ [ ***] 

14

   [***]    $ [ ***] 

If the Milestone Events numbered 13 and 14 both above [***], both applicable Milestone Payments will be due to Vertex.

(d) Notice; Payment; Skipped Milestones . The Milestones Events numbered 1-3 as set forth in Section 4.2(a) are intended to be successive with respect to Combination Products and the Milestone Events numbered 7-9 as set forth in Section 4.2(b) are intended to be successive with respect to Single Agent Products; if a Combination Product or Single Agent Product, as applicable, is not required to undergo the event associated with any such Milestone Event, such skipped Milestone Event will be deemed to have been achieved upon (and payment of such milestone shall be due therefor) the achievement by such Combination Product or Single Agent Product of the next successive Milestone Event. Payment for any such skipped Milestone Event that is owed in accordance with the provisions of the foregoing sentence with respect to a given Product will be due concurrently with the payment for the next successive event by such Product, it being agreed that if a Product is not required to undergo Milestone Event number 3 in Section 4.2(a) or Milestone Event number 9 in Section 4.2(b), the corresponding payment will be made upon the first to occur of the Milestone Events numbered 4-6 in Section 4.2(a) or the Milestone Events numbered 10-12 in Section 4.2(b).

(e) Notwithstanding anything to the contrary contained herein, Spero will only be obligated to pay Vertex for [***] and will make the corresponding Milestone Payment upon [***].

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

4.3. Royalties .

(a) Net Sales . On a Product-by-Product and country-by-country basis, Spero will pay to Vertex royalties based on the aggregate Net Sales of all Products sold by Spero or its Related Parties in the Territory during a Calendar Year at the rates set forth in the table below. The obligation to pay royalties will be imposed only once with respect to the same unit of a Product.

 

Calendar Year Net Sales (in Dollars) for all Products
in the Territory

   Royalty Rates as a Percentage
(%) of Net Sales
 

Portion of Calendar Year Net Sales up to and including $[***]

     [ ***]% 

Portion of Calendar Year Net Sales that exceeds $[***], up to and including $[***]

     [ ***]% 

Portion of Calendar Year Net Sales that exceeds $[***], up to and including $[***]

     [ ***]% 

Portion of Calendar Year Net Sales that exceeds $[***]

     [ ***]% 

(b) Royalty Term . Spero will pay royalties to Vertex under this Section 4.3 on a Product-by-Product and country-by-country basis during the Royalty Term. Upon expiration of the Royalty Term with respect to a given Product in a given country, the licenses granted to Spero under Section 2.3 will be fully paid perpetual and irrevocable with respect to such Product in such country.

(c) Reduction for Lack of Patent Coverage and Regulatory Exclusivity . If during any period within the applicable Royalty Term for a country, (a) no valid claim of an Assigned Patent exists that would, but for the licenses granted herein, be infringed by the Research, Development, Manufacture or Commercialization of the relevant Product in such country, and (b) all applicable Regulatory Exclusivity periods, including data exclusivity periods, have expired in such country with respect to such Product, the royalty rate for such Product in such country will be reduced to [***] percent of the royalty rate set forth in Section 4.3(a) for the remainder of the Royalty Term. If at any time, royalties are owed under this Section 4.3 with respect to more than one Product and the royalty rate applicable to one Product in one or more countries, but not all Products in all countries, is reduced pursuant to this Section 4.3(c), then Net Sales of each Product will be allocated across the royalty tiers set forth in Section 4.3(a) pro rata based on the aggregate Net Sales of each Product as compared to the aggregate Net Sales of all Products.

4.4. Payments .

(a) Reports; Timing and Method . During the Term, following the first sale generating Net Sales of a Product giving rise to Net Sales, Spero will deliver the following reports to Vertex: (i) within [***] after the end of each Calendar Quarter, a

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

flash report showing on a Product-by-Product and country-by-country basis, estimated Net Sales in the Territory during the relevant Calendar Quarter and royalties payable under this Agreement on account of those Net Sales; and (ii) within [***] after the end of each Calendar Quarter, a report specifying on a Product-by-Product and country-by-country basis: (A) gross sales in the relevant Calendar Quarter; (B) Net Sales in the relevant Calendar Quarter, including an accounting of Permitted Deductions applied to determine Net Sales; (C) a summary of the exchange rate calculations used by Spero; (D) royalties payable on such Net Sales pursuant to this Agreement; and (E) additional information related to the Net Sales as reasonably requested by Vertex from time to time. For the avoidance of doubt, the foregoing reports will clearly identify all Net Sales attributable to Spero as well as Spero’s Related Parties. Spero will pay all royalty payments due hereunder for each Calendar Quarter within [***] after Spero’s delivery of the applicable reports under this Section 4.4(a). All payments due to Vertex under this Agreement will be made in U.S. dollars and be submitted via wire transfer of immediately available funds to an account designated by Vertex. Conversion of any Net Sales made in foreign currency to U.S. dollars will be made at the average conversion rate for the applicable Calendar Quarter existing in the United States, as reported in the Wall Street Journal. Such payments will be without deduction of exchange, collection, or other charges, and specifically, without deduction of withholding or similar taxes or other government-imposed fees or taxes, except as expressly permitted in the definition of Net Sales.

(b) Late Payments . Without limiting any remedy available to Vertex hereunder, payments made by Spero after the due date will bear interest at the rate of [***] percent per full month late (or, if lower, the highest rate allowed by applicable law).

(c) Taxes; Withholding .

 

  i. Each Party will be solely responsible for the payment of all taxes imposed on its share of income arising directly or indirectly from this Agreement.

 

  ii. To the extent Spero or any Seller is required to deduct and withhold taxes on any payment to Vertex under this Agreement (“ Withheld Taxes ”), Spero will pay the amounts of Withheld Taxes to the proper governmental authority in a timely manner and promptly transmit to Vertex an official tax certificate or other evidence of such withholding sufficient to enable Vertex to claim such payment of Withheld Taxes. Subject to the terms of this Section 4.4(c)(ii), the sum payable by Spero (in respect of which such Withheld Taxes is required) will be made to Vertex after deduction of the Withheld Taxes. Vertex will provide Spero any tax forms that may be reasonably necessary in order for Spero to not withhold tax or to withhold tax at a reduced rate under an applicable bilateral income tax treaty. Vertex will use reasonable efforts to provide any such tax forms to Spero at least [***] prior to the due date for any payment for which Vertex desires that

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

  Spero apply a reduced withholding rate. Each Party will provide the other with reasonable assistance to enable the recovery, as permitted by applicable law, of withholding taxes, value added taxes, or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding tax or value added tax.

4.5. Retention of Records; Audit . Spero agrees to make and keep, and will require its Related Parties to make and keep, full, accurate and complete books and records (together with supporting documentation). Such records will contain sufficient detail to confirm the accuracy of any payments required hereunder. Such records will be retained for at least three years following the end of the applicable Calendar Year. During normal business hours and no more than once per Calendar Year, Vertex, its duly authorized agent or independent certified public accounting representative acting on Vertex’s behalf (“ Third Party Auditor ”) may conduct an audit in order to examine the foregoing books and records described in this Section 4.5 and any other supporting documentation reasonably necessary to verify the royalty reports submitted by Spero, at Spero’s (or its Related Parties’ as applicable) business premises or at a place mutually agreed upon by the Parties for the purpose of verifying reports and payments hereunder. If a payment deficiency is determined by Vertex or its Third Party Auditor, Spero will pay the deficiency outstanding within [***] after receiving written notice of the deficiency. Such examination by Vertex or its Third Party Auditor will be at Vertex’s expense, except that, if such examination shows an underreporting or underpayment in excess of [***] percent of the sums due to Vertex as determined by such audit, then Spero will pay the reasonable out of pocket cost of such audit or reimburse Vertex for the reasonable expenses incurred by Vertex in connection with such audit. Vertex will treat all information subject to review under this Section 4.5 in accordance with the confidentiality obligations set forth in Article 9 of this Agreement, and any Third Party Auditor to whom Vertex discloses financial information will be subject to confidentiality obligations with respect to such financial information that are no less restrictive than those contained in this Agreement.

4.6. Monetization Transaction . Vertex may, at any time, monetize all or a portion of the value of the payments to which it may be entitled to receive under this Article 4 by assigning to a Third Party (a “ Revenue Buyer ”) the right to receive such payments (a “ Monetization Transaction ”); provided that Vertex has put in place adequate and customary confidentiality provisions at least as stringent as those applicable to Vertex hereunder with the Revenue Buyer. In the event of a Monetization Transaction, Spero will make such payments to the Revenue Buyer as directed by Vertex and shall deliver notices and provide reports directly to the Revenue Buyer as directed by Vertex.

ARTICLE 5.

REPRESENTATIONS AND WARRANTIES

 

5.1. Mutual Representations and Warranties . Vertex and Spero each represents and warrants to the other as of the Effective Date that: (a) such Party (i) is a company duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, (ii) is duly qualified as a corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

qualification, where the failure to be so qualified would have a material adverse effect on its financial condition or its ability to perform its obligations hereunder, (iii) has the requisite corporate power and authority and the legal right to conduct its business as now conducted and (iv) is in compliance with its charter documents; (b) the execution, delivery and performance of this Agreement by such Party and all instruments and documents to be delivered by such Party hereunder (i) are within the corporate power of such Party, (ii) have been duly authorized by all necessary or proper corporate action, (iii) do not conflict with any provision of the charter documents of such Party and (iv) will not, to such Party’s knowledge, violate any laws or regulation or any order or decree of any court of governmental instrumentality, (v) will not violate or conflict with any terms of any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which such Party is a party, or by which such Party or any of its property is bound, which violation would have a material adverse effect on its financial condition or on its ability to perform its obligations hereunder; and (c) this Agreement has been duly executed and delivered by such Party and constitutes a legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms, except as such enforceability may be limited by applicable insolvency and other laws affecting creditors’ rights generally, or by the availability of equitable remedies.

5.2. Spero Representations; Legal Compliance; Anti-Corruption Laws . Spero represents and warrants that Spero, as well as all Persons performing services for or on behalf of Spero or otherwise acting on its behalf (including any agent, subcontractor, subsidiary, representative, employee, shareholder, director or officer) (“ Associated Persons ”) will comply with all applicable laws and regulations in connection with all work conducted hereunder, including (a) the United States Foreign Corrupt Practices Act and other applicable anti-corruption and anti-bribery laws (collectively, the “ Anti-Corruption Laws ”), (b) all laws and regulations relating to import and export and (c) all laws and regulations relating to the development, testing, marketing, sale, commercialization, and other exploitation of pharmaceuticals. Without limiting the foregoing, (i) Spero will not (and will procure that each Associated Person will not) perform, or fail to perform, any act that will cause or lead Vertex to be in breach of Anti-Corruption Laws and (ii) Spero represents and warrants neither it, nor any Associated Person, offers, agrees or promises to give, or authorizes the giving directly or indirectly, of any money or other thing of value to anyone as an inducement or reward for favorable action or forbearance from action or the exercise of influence (A) to any governmental official or employee (including employees of government-owned and government-controlled corporations or agencies), (B) to any political party, official of a political party, or candidate, (C) to an intermediary for payment to any of the foregoing or (D) to any other Person or entity in a corrupt or improper effort to obtain or retain business or any commercial advantage, such as receiving a permit or license. Spero further warrants and represents that should it learn or have reason to suspect any breach of its covenants in this Section 5.2, it will immediately notify Vertex.

5.3. Vertex Representations and Warranties . Subject to Section 2.1, Vertex hereby represents and warrants that prior to the Effective Date, Vertex, to its knowledge, has not previously assigned, transferred, conveyed or otherwise encumbered its right, title and interest in and to the Assigned Patents in any way that would prevent Spero or its Affiliates and subcontractors from Researching, Developing or Commercializing the Assigned Compounds or Products containing the Assigned Compounds as set forth herein, or from exploiting its rights and licenses granted under Article 2 above.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

5.4. Disclaimer . EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS Article 5, NEITHER VERTEX NOR SPERO MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY, TITLE, FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT, EACH OF WHICH ARE HEREBY EXPRESSLY DISCLAIMED. WITHOUT LIMITING THE FOREGOING, EXCEPT FOR THE EXPRESS WARRANTY IN SECTION 5.3, VERTEX MAKES NO WARRANTIES OR REPRESENTATIONS OF ANY KIND OR NATURE WITH RESPECT TO THE PATENTABILITY OF THE ASSIGNED COMPOUNDS, ADDITIONAL COMPOUNDS, OR PRODUCTS OR VALIDITY, SCOPE, OR ENFORCEABILITY OF THE ASSIGNED PATENTS OR ANY CLAIMS THEREIN, OR THE PRACTICE, INCLUDING BUT NOT LIMITED TO FREEDOM TO OPERATE, REGARDING ANY ASSIGNED COMPOUND, ADDITIONAL COMPOUND, OR PRODUCT. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5.3, ALL RIGHTS GRANTED TO SPERO HEREUNDER ARE PROVIDED ON AN AS-IS BASIS.

ARTICLE 6.

COVENANTS

6.1. At Vertex’s request, Spero will discuss in good faith with a non-profit organization designated by Vertex the possibility of establishing a relationship with such non-profit organization with respect to discovery, research, development, manufacture and/or commercialization of Products for use in the treatment of [***].

ARTICLE 7.

PROGRESS REPORTS

7.1. Progress Reports . Spero will submit [***] progress reports on its efforts to Develop and Commercialize the Assigned Compound and Additional Compounds (“ Progress Reports ”). Spero will submit the first Progress Report [***] and subsequent reports every [***] thereafter.

Within [***] after the Effective Date, Spero will provide to Vertex a report with respect to the [***] for the [***] period after the Effective Date and subsequently update such report for the [***] period commencing on January 1 st within the first [***] after the end of each Calendar Year.

7.2. Confidential Treatment . Vertex acknowledges and agrees that any reports provided pursuant to Sections 4.4(a) or 7.1 will constitute the Confidential Information of Spero, except to the extent that they contain information relating to the Licensed Know-How or other Vertex Confidential Information.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 8.

TERM

8.1. Term . This Agreement will commence on the Effective Date and will continue in effect until expiration of all payment obligations under Article 4 (the “ Term ”).

8.2. License Termination for Cease in Development . If Spero provides Vertex with notification of its intent to cease all Development hereunder or if no material Development or Commercialization occurs for a period of 12 consecutive calendar months, Vertex may terminate the license granted pursuant to Section 2.3 upon written notice to Spero, and Spero will immediately cease all use of the Licensed-Know How following its receipt of such notice.

8.3. Surviving Provisions . The following Articles and Sections will survive expiration of this Agreement: Article 1, Article 4 (to the extent any amounts are due and payable at the time of expiration), Article 6, this Article 8, Article 9, Article 10, Article 11, Article 12, Article 13, Sections 2.1, 2.5, 5.2, 5.4 and 7.2.

ARTICLE 9.

CONFIDENTIALITY

9.1. Confidential Information . Each of Spero and Vertex will (and will cause their respective Affiliates and Licensees to): (a) keep all Confidential Information received from the Disclosing Party confidential with the same degree of care it maintains the confidentiality of its own Confidential Information; (b) not publish, or allow to be published, and will not otherwise disclose, or permit the disclosure of the Disclosing Party’s Confidential Information in any manner not expressly authorized pursuant to the terms of this Agreement; and (c) not use, or permit to be used, the Disclosing Party’s Confidential Information for any purpose other than as expressly authorized pursuant to the terms of this Agreement. No disclosure of the Disclosing Party’s Confidential Information will be made by the Receiving Party to its employees, directors, officers, agents and other Persons unless and until such employees, directors, officers, agents, contractors and other Persons have agreed in writing to comply with confidentiality and non-use obligations substantially similar to those described herein. Upon termination of this Agreement, the Receiving Party will return or destroy, at the Disclosing Party’s request, all documents, tapes or other media containing Confidential Information of the Disclosing Party that remain in the Receiving Party’s, its agents’ or contractors’ possession, except that the Receiving Party may keep one copy of the Confidential Information in the legal department files of the Receiving Party, solely for archival purposes and neither the Receiving Party, nor any of its agents, contractors or other representatives will be required to delete or destroy any electronic back-up tapes or other electronic back-up files that have been created solely by the automatic or routine archiving and back-up procedures of the Receiving Party or its representatives, to the extent created and retained in a manner consistent with its or their standard archiving and back-up procedures. Such archival copies will be deemed to be the property of the Disclosing Party, and will continue to be subject to the provisions of this Article 9 notwithstanding any expiration of this Agreement or otherwise. Each Party will be liable for breach of this Article 9 by any of its agents, Related Parties, subcontractors, or its Affiliates’ sublicensees and subcontractors.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

9.2. Permitted Disclosure and Use . Notwithstanding Section 9.1, a Party may disclose Confidential Information belonging to the other Party only to the extent such disclosure is reasonably necessary: (a) to obtain Marketing Approval of the Product or any other necessary permissions, approvals and other documents issued by governmental authorities; provided that all such disclosures pursuant to this subsection 9.2(a) are covered by terms of confidentiality and non-use substantially similar to those set forth herein; (b) to perform or exercise such Party’s rights under this Agreement; provided that (i) Confidential Information disclosed to such Party’s Affiliates, licensors, licensees or sublicensees, directors, officers, employees, consultants, representatives or agents, or other Third Parties (including existing or potential acquirers, acquisition targets, collaborators, investment bankers, accountants, attorneys, investors, merger candidates, partners, venture capital firms or other financial institutions or investors) is, in each case, on a need-to-know basis and solely for business purposes relevant to and permitted by this Agreement, (ii) each individual and entity to whom such Confidential Information is disclosed is bound in writing to non-use and non-disclosure obligations no less than substantially as restrictive as those set forth in this Agreement and (iii) the Party making such disclosure shall be liable for such Third Parties’ compliance with such obligations; or (c) to comply with any applicable law or regulation (including the rules and regulations promulgated by the United States Securities and Exchange Commission or any equivalent governmental agency in any country in the Territory); provided that the Party making such disclosure will reasonably consider the comments of the other Party regarding confidential treatment sought for any disclosure. If a Party deems it necessary to disclose Confidential Information of the other Party pursuant to this Section 9.2, such Party will give reasonable advance notice of such intended disclosure to the other Party to permit such other Party sufficient opportunity to object to such disclosure or to take measures to ensure confidential treatment of such information. The Receiving Party will cooperate reasonably with the Disclosing Party’s efforts to protect the confidentiality of the information. Notwithstanding Section 9.1, Vertex may disclose Spero’s Confidential Information to a Revenue Buyer or a bona fide potential Revenue Buyer as reasonably necessary in connection with a Monetization Transaction or proposed Monetization Transaction, including a copy of this Agreement and information related to the royalties payable by Spero to Vertex such as financial reports indicating the amounts that are the subject of the Monetization Transaction, audit reports related to such amounts, if any, and notices and other correspondence; provided that such Confidential Information under or relating to the subject matter of this Agreement is relevant to the Monetization Transaction; provided further that each recipient of such Confidential Information shall be under an obligation of confidentiality no less protective than the terms of this Agreement.

9.3. Public Announcements . Except as set forth in this Section 9.3 and as required by applicable laws, neither Party will make any public announcement of any information regarding this Agreement, the Assigned Compounds, Additional Compounds, or any activities under this Agreement without the prior written approval of the other Party (the “ Approving Party ”). Notwithstanding the foregoing, within 20 days after the Effective Date, Spero will issue a press release announcing the execution of this Agreement in a form mutually agreed upon by the Parties. Once any statement is approved for disclosure by the Approving Party or information is otherwise made public in accordance with the preceding sentence, the disclosing Party may make a subsequent public disclosure of the contents of such statement without further approval by the Approving Party. Notwithstanding the foregoing, Spero will give Vertex the opportunity to review and comment on any proposed public announcement five days prior to

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

such public announcement (unless otherwise required by applicable law) and Spero will use good faith efforts to incorporate any suggested changes to any public announcement requested by Vertex that are for the purpose of protecting the Vertex Confidential Information.

9.4. Survival . The obligations and prohibitions contained in this Article 9 will survive the expiration of this Agreement for a period of [***] years, except with respect to Confidential Information which constitutes a trade secret under applicable law, which will survive for such additional period of time during which such Confidential Information constitutes the Disclosing Party’s trade secret under applicable law.

ARTICLE 10.

ADDITIONAL INTELLECTUAL PROPERTY MATTERS

10.1. Spero will be solely responsible for filing, prosecution, and maintenance of all of the Assigned Patents, as well as all internal and external costs and expenses associated therewith. Vertex will have no responsibility or liability for, or relating to, the Assigned Patents. For the avoidance of doubt, Vertex will retain sole ownership of and all intellectual property rights in and to the Licensed Know-How and does not grant Spero any interest in such Licensed Know-How except as expressly set forth in Section 2.3 of this Agreement.

ARTICLE 11.

INDEMNIFICATION

11.1. Indemnification by Spero . Spero will defend, indemnify and hold harmless Vertex and its Affiliates and each of their respective officers, directors, shareholders, employees, agents, successors and assigns (“ Vertex Indemnitees ”) from and against all charges, complaints, actions, suits, proceedings, hearings, investigations, claims and demands (“ Claims ”) of Third Parties, and all associated damages and losses resulting therefrom (including attorneys’ fees), to the extent arising out of (a) any material breach by Spero of its representations, warranties or obligations under this Agreement, or (b) the Research, Development, Manufacturing, Commercialization, use, licensing, handling, storage, marketing, sale, offer for sale, importation, exportation, distribution or other disposition of, any Assigned Compound, Additional Compound, or Product, including any product Covered by the Assigned Patents or incorporating the Assigned Know-How, by Spero, its Affiliates, agents, or Licensees. Notwithstanding the foregoing, Spero will have no obligation under this Agreement to indemnify, defend or hold harmless any Vertex Indemnitees with respect to any such Claims to the extent that they result from the negligence or willful misconduct of Vertex or a Vertex Indemnitee or Vertex’s breach of its obligations under this Agreement.

11.2. Indemnification by Vertex . Vertex will defend, indemnify and hold harmless Spero and its Affiliates and each of their officers, directors, shareholders, employees, agents, successors and assigns (“ Spero Indemnitees ”) from and against all Claims of Third Parties, and all associated damages and losses resulting therefrom, to the extent arising out of any material breach by Vertex of its obligations under this Agreement. Notwithstanding the foregoing, Vertex will have no obligation under this Agreement to indemnify, defend or hold harmless any Spero Indemnitees with respect to any such Claims and Losses to the extent that Spero is obligated to indemnify Vertex for such Claim pursuant to Section 11.1. Notwithstanding anything to the contrary in this Agreement, the indemnification provided in this Section 11.2 will be Spero’s sole and exclusive remedy, and Vertex’s entire liability for, any and all claims, Third Party or otherwise, arising out of or relating to this Agreement or any of the rights granted herein.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

21


CONFIDENTIAL TREATMENT REQUESTED

 

11.3. Conditions to Indemnification . The obligations of the indemnifying Party under this Article 11 are conditioned upon the delivery of written notice to the indemnifying Party of any Claim promptly after the indemnified Party becomes aware of such Claim; provided that failure of the indemnified Party to promptly notify the indemnifying Party of a Claim will not constitute a waiver of, or result in the loss of, the indemnified Party’s right to indemnification under Sections 11.1 or 11.2, as applicable, except to the extent that the indemnifying Party’s ability to defend against such Claim is materially prejudiced by such failure to notify. The indemnifying Party will have the right to assume control of the defense and/or settlement of any such Claim; provided that the indemnifying Party will keep the indemnified Party reasonably informed of all material developments in such defense. Notwithstanding the foregoing, the indemnified Party may participate in the defense of any Claim at its sole cost and expense.

11.4. Settlements . Except for settlements that would solely impose a monetary obligation on the indemnifying Party and for which the indemnifying Party will by fully responsible, the indemnifying Party will not settle or resolve a Claim or action with respect to such a Claim without the prior written consent of the indemnified Party, such consent not be unreasonably withheld. Any payment made by a Party to settle any such Claim or action will be at its own cost and expense.

ARTICLE 12.

LIMITATION OF LIABILITY

12.1. EXCEPT FOR (A) A BREACH BY EITHER PARTY OF Article 9 (CONFIDENTIALITY), (B) SPERO’S INDEMNIFICATION OBLIGATIONS HEREUNDER OR (C) EITHER PARTY’S FRAUD OR WILFUL MISCONDUCT, NEITHER PARTY WILL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS, LOSS OF GOODWILL, PUNITIVE OR INCIDENTAL DAMAGES. VERTEX’S ENTIRE LIABILITY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY SUBJECT MATTER REFERENCED HEREIN UNDER ANY LEGAL OR EQUITABLE THEORY, INCLUDING CONTRACT, NEGLIGENCE, STRICT LIABILITY, OR OTHERWISE WILL NOT EXCEED $[***] USD.

ARTICLE 13.

MISCELLANEOUS

13.1. Insurance . During the Term of this Agreement and for a period of [***] after the expiration of this Agreement, Spero will obtain and maintain at its sole cost and expense, liability insurance (including without limitation product liability insurance) in amounts which are reasonable and customary in the Territory for companies who are Developing, Marketing and Commercializing products and services similar to Products. Such liability insurance will insure against all liability, including without limitation personal injury, physical injury, or property damage arising out of the Manufacture, sale, distribution, or marketing of the Product. Spero will provide written proof of the existence of such insurance to Vertex upon reasonable request.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

22


CONFIDENTIAL TREATMENT REQUESTED

 

13.2. Assignment . This Agreement may not be assigned by either Party without the prior written consent of the other Party; provided , however , that either Party may assign this Agreement, in whole or in part, to any of its Affiliates if such Party guarantees the performance of this Agreement by such Affiliate; and provided further that either Party may assign this Agreement to a successor to all or substantially all of the assets of such Party pertaining to this Agreement pursuant to a Change of Control. This Agreement will be binding upon, and subject to the terms of the foregoing sentence, inure to the benefit of the Parties hereto, and their permitted successors, legal representatives and assigns.

13.3. Notices. All demands, notices, consents, approvals, reports, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally, by mail (first class, postage prepaid, certified), or by overnight delivery using a globally recognized carrier, to the Parties at the addresses set forth below or to such other address as the addressee will have last furnished in writing in accord with this provision to the addressor. All notices will be deemed effective: (a) when delivered if personally delivered on a Business Day (or if delivered or sent on a non-business day, then on the next Business Day); or (b) on receipt if sent by mail or overnight courier.

If to Vertex:

Vertex Pharmaceuticals Incorporated

Attn: Business Development

50 Northern Avenue

Boston, Massachusetts 02210

With a copy to:

Vertex Pharmaceuticals Incorporated

Attn: Corporate Legal

50 Northern Avenue

Boston, Massachusetts 02210

If to Spero:

Spero Therapeutics, Inc.

675 Massachusetts Avenue, 14 th Floor

Cambridge, Massachusetts 02139

13.4. Severability . In the event of the invalidity of any provisions of this Agreement, the Parties agree that such invalidity will not affect the validity of the remaining provisions of this Agreement. The Parties will replace an invalid provision with valid provisions which most closely approximate the purpose and economic effect of the invalid provision. Nothing in this Agreement will be interpreted so as to require either Party to violate any applicable laws, rules or regulations.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

23


CONFIDENTIAL TREATMENT REQUESTED

 

13.5. Headings . The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

13.6. Waiver . Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver will be effective unless expressly set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No provision of this Agreement will be waived by any act, omission or knowledge of a Party or its agents or employees except as expressly set forth in this preceding sentence. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, will be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. Except as expressly set forth in this Agreement, all rights and remedies available to a Party, whether under this Agreement or afforded by law or otherwise, will be cumulative and not in the alternative to any other rights or remedies that may be available to such Party.

13.7. Entire Agreement . This Agreement (including the exhibits and schedules hereto) constitutes the entire agreement between the Parties hereto with respect to the subject matter described herein and supersedes all previous agreements and understandings between the Parties, whether written or oral, including the Mutual Confidentiality Agreement between the Parties dated January 5, 2015. This Agreement may be altered, amended or changed only by a writing making specific reference to this Agreement and signed by duly authorized representatives of Vertex and Spero.

13.8. No License . Nothing in this Agreement will be deemed to constitute the grant of any license or other right in either Party, to or in respect of the Product, Assigned Compound, Additional Compounds, Patent, trademark, Confidential Information, trade secret or other data or any other intellectual property of the other Party, except as expressly set forth herein.

13.9. Third Party Beneficiaries . None of the provisions of this Agreement will be for the benefit of or enforceable by any Third Party, including without limitation any creditor of either Party hereto. No such Third Party will obtain any right under any provision of this Agreement or will by reasons of any such provision make any Claim in respect of any debt, liability or obligation (or otherwise) against either Party hereto.

13.10. Counterparts . This Agreement may be executed in any two counterparts, each of which, when executed, will be deemed to be an original and both of which together will constitute one and the same document.

13.11. Language . This Agreement is written and executed in the English language. Any translation into any other language will not be an official version of this Agreement. In the event of any conflict in interpretation between the English language version of this Agreement and any other instrument or document related to this Agreement or the business relationship between the Parties contemplated hereby, the English language version of this Agreement will prevail.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

24


CONFIDENTIAL TREATMENT REQUESTED

 

13.12. Section 365(n) of the Bankruptcy Code . All rights and licenses granted under or pursuant to any section of this Agreement are, and will otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code. Each Party will retain and may fully exercise all of its rights and elections under the Bankruptcy Code or equivalent legislation in any other jurisdiction. Upon the bankruptcy of either Party, the other Party will further be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property for which a license has been granted to such Party hereunder, and such intellectual property, if not already in its possession, will be promptly delivered to such other Party, unless the Party in bankruptcy elects to continue, and continues, to perform all of its obligations under this Agreement.

13.13. Governing Law . This Agreement will be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

13.14. Independent Parties/Entities . The relationship of Vertex and Spero is that of independent parties and not as agents of each other, partners, or participants in a joint venture. Vertex and Spero will each maintain sole and exclusive control over their respective personnel and operations.

13.15. Parent . Parent will cause Spero to perform its obligations under, and to comply with the terms and conditions of, this Agreement. If Spero fails to perform any of its obligations under this Agreement, Parent shall indemnify Vertex from and against any and all losses, damages, expenses, liabilities, claims, costs or proceedings which Vertex may suffer of incur by reason of such failure. If Parent undergoes any reorganization, as part of such reorganization, it will provide Vertex with the guarantee set forth in this Section 13.15 from its successor.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their authorized representatives as of the Effective Date.

 

SPERO TRINEM, INC.

  

VERTEX PHARMACEUTICALS INCORPORATED

By: /s/ Ankit Mahadevia                                    

Name: Ankit Mahadevia

Title:   Director

  

By: /s/ David Altshuler                                             

Name: David Altshuler

Title:   Executive Vice President and Chief

    Scientific Officer

SPERO THERAPEUTICS, INC.

  

By: /s/ Ankit Mahadevia                                    

Name: Ankit Mahadevia

Title:   CEO and Director

  

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT A

Assigned Patents

[***]: covers [***]

[***]: covers [***]

[***]: [***]

[***]: covers [***]

[***]: covers [***]

[***]: covers [***]

[***]: [***].

 

Docket

Number

   Country     Status     Application
Serial No
    Filing
Date
    Patent
Number
    Patent
Issue
Date
    Case
Title
 

[***]

              

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Docket

Number

   Country     Status     Application
Serial No
    Filing
Date
    Patent
Number
    Patent
Issue
Date
    Case
Title
 

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]              

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

              

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Docket

Number

   Country     Status     Application
Serial No
    Filing
Date
    Patent
Number
    Patent
Issue
Date
    Case
Title
 

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

              

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Docket

Number

   Country     Status     Application
Serial No
    Filing
Date
    Patent
Number
    Patent
Issue
Date
    Case
Title
 

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

              

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Docket

Number

   Country     Status     Application
Serial No
    Filing
Date
    Patent
Number
    Patent
Issue
Date
    Case
Title
 

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

              

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

              

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]       [***]       [***]       [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

              

[***]

     [***]       [***]       [***]       [***]           [***]  

[***]

     [***]       [***]       [***]       [***]           [***]  

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Docket

Number

   Country   Status   Application
Serial No
  Filing
Date
  Patent
Number
   Patent
Issue
Date
   Case
Title

[***]

   [***]   [***]   [***]   [***]         [***]

[***]

   [***]   [***]   [***]   [***]         [***]

[***]

   [***]   [***]   [***]   [***]         [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT B

Assigned Know-How

The following Assigned Know-How is located [***]:

 

     Total
Files
  Files
in
Folder
  Size   Last
Modified
Date
  Added
on
Date

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

     Total
Files
  Files
in
Folder
  Size   Last
Modified
Date
  Added
on
Date

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

       [***]   [***]   [***]

[***]

       [***]   [***]   [***]

[***]

       [***]   [***]   [***]

[***]

       [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

     Total
Files
  Files
in
Folder
  Size   Last
Modified
Date
  Added
on
Date

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]   [***]   [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

[***]

   [***]     [***]   [***]   [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT C

Materials

 

Third Party Storage Facility

   Materials

[***]

   [***]

[***]

   [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

Exhibit 10.15

CONFIDENTIAL TREATMENT REQUESTED

LICENSE AGREEMENT

BY AND BETWEEN

MEIJI SEIKA PHARMA CO., LTD.

AND

SPERO OPCO, INC.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.


CONFIDENTIAL TREATMENT REQUESTED

 

TABLE OF CONTENTS

 

ARTICLE 1

  DEFINITIONS      1  

ARTICLE 2

  LICENSE GRANTS      10  

2.1

  Meiji Grant      10  

2.2

  Spero Grant      11  

2.3

  Development and Manufacturing Retained Rights      12  

2.4

  Sublicensing      12  

2.5

  Initial File / Knowledge Transfer and Support      13  

2.6

  Reservation of Rights      13  

2.7

  Non-Competing Product      13  

ARTICLE 3

  Collaboration structure and activities      14  

3.1

  General Responsibilities and Expenses      14  

3.2

  Joint Development Committee      15  

3.3

  Spero Development Plan and Diligence      16  

3.4

  Meiji’s Diligence      17  

3.5

  Meiji Development Plan      18  

3.6

  Ongoing Data Sharing      18  

3.7

  Pharmacovigilance      18  

3.8

  Supply Agreements      19  

3.9

  Joint Commercialization Committee      19  

ARTICLE 4

  ECONOMICS      19  

4.1

  Upfront Payment      19  

4.2

  Milestone Payments      19  

4.3

  Product Royalty      19  

4.4

  Licensee Revenue      20  

4.5

  Payments      20  

4.6

  Audit Rights      21  

ARTICLE 5

  INTELLECTUAL PROPERTY OWNERSHIP, PROTECTION AND RELATED MATTERS      22  

5.1

  Ownership of Intellectual Property and Regulatory Documentation      22  

5.2

  Prosecution and Maintenance of Patent Rights      22  

5.3

  Third Party Infringement      23  

ARTICLE 6

  CONFIDENTIALITY      24  

6.1

  Confidential Information      24  

6.2

  Existence and Terms of Agreement      25  

ARTICLE 7

  REPRESENTATIONS AND WARRANTIES; CERTAIN COVENANTS      25  

7.1

  Representations, Warranties and Covenants of each Party      25  

7.2

  Representations and Warranties of Meiji      26  

7.3

  Representations and Warranties of Spero      27  

7.4

  No Warranties      28  

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

ii


CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 8

  INDEMNIFICATION      28  

8.1

  General Indemnification By Meiji      28  

8.2

  General Indemnification By Spero      28  

8.3

  Pfizer Claim      29  

8.4

  Notice      29  

8.5

  Defense      29  

8.6

  Cooperation      29  

8.7

  Settlement      29  

ARTICLE 9

  TERM AND TERMINATION      30  

9.1

  Term      30  

9.2

  Termination      30  

9.3

  Effects of Expiration or Termination      32  

ARTICLE 10

  MISCELLANEOUS      34  

10.1

  Assignment; Successors      34  

10.2

  Export Control      34  

10.3

  Compliance with Applicable Laws      34  

10.4

  Choice of Law      34  

10.5

  Dispute Resolution      34  

10.6

  Injunctive Relief      35  

10.7

  Notices      36  

10.8

  Severability      36  

10.9

  Integration      36  

10.10

  English Language      37  

10.11

  Section 365(n)      37  

10.12

  Waivers and Amendments      37  

10.13

  Independent Contractors; No Agency      37  

10.14

  Execution in Counterparts; Facsimile Signatures      37  

10.15

  Exclusions and Limitations of Liability      38  

10.16

  Performance by Affiliates      38  

10.17

  Force Majeure      38  

10.18

  No Third Party Beneficiary Rights      38  

10.19

  Non-exclusive Remedy      38  

10.20

  Interpretation      39  

10.21

  Further Assurances      39  

10.22

  Construction      39  

10.23

  Records Generally      39  

10.24

  Press Releases and Publicity      39  

Exhibit A – Key Terms of Clinical Supply Agreement

Exhibit B – Compound

Exhibit C – Selected Items of WLJ Know-How

Exhibit D – Selected Items of Meiji Know-How

Exhibit E – Pfizer Letter

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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LICENSE AGREEMENT

This License Agreement (this “ Agreement ”) is made and effective as of the 14th day of June, 2017 (the “ Effective Date ”) by and between Meiji Seika Pharma Co., Ltd., a Japanese corporation with offices at 2-4-16, Kyobashi, Chuo-ku, Tokyo, 104-8002 Japan (“ Meiji ”) and Spero OpCo, Inc., a Delaware corporation with offices at 675 Massachusetts Avenue, 14 th Floor, Cambridge, MA 20139, USA (“ Spero ”).

INTRODUCTION

WHEREAS, Meiji is the party to that certain license agreement (the “ WLJ Agreement ”) dated as of the [***] day of [***], between Meiji and Pfizer Japan Inc., as successor to Wyeth Lederle Japan, Ltd. (“ Pfizer Japan ”), currently a wholly-owned subsidiary of Pfizer Inc.;

WHEREAS, Meiji owns or has rights to certain WLJ Know-How, Meiji Intellectual Property and Meiji Regulatory Documentation necessary or useful for Spero to Develop, Manufacture and Commercialize the Compound and the Product;

WHEREAS, Spero desires to be granted by Meiji a license in certain countries to use WLJ Know-How, Meiji Intellectual Property and Meiji Regulatory Documentation for the Development, Manufacture and Commercialization of the Compound and the Product in such countries, and Meiji desires to grant such a license to Spero, in each case, subject to the terms and conditions set forth herein; and

WHEREAS, Meiji desires to be granted by Spero a license in certain countries to use Spero Intellectual Property and Spero Regulatory Documentation for the Development, Manufacture and Commercialization of the Compound and the Product in such countries, and Spero desires to grant such a license to Meiji, in each case, subject to the terms and conditions set forth herein.

NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, Meiji and Spero hereby agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following terms shall have the meanings set forth below:

1.1 “ Accounting Standards ” means, to the extent applicable to Spero, United States Generally Accepted Accounting Principles or International Financial Reporting Standards as issued by the International Accounting Standards Board.

1.2 “ Action ” means any claim, audit, examination, action, cause of action or suit (whether in contract or tort or otherwise), litigation (whether at law or in equity, whether civil or criminal), assessment, arbitration, mediation, investigation, hearing, charge, complaint, demand, notice or proceeding.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

1.3 “ Affiliate ” means, with respect to a Person, another Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person; provided , that for purposes of this definition, “control” means, with respect to a Person at the relevant time (whether on the Effective Date or at a relevant time during the Term), the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract, by board of director membership or representation, or otherwise.

1.4 “ Agreement ” is defined in the preamble of this Agreement.

1.5 “ API ” means the Compound having a specific physicochemical property and used as a bulk substance for formulating the Product.

1.6 “ Approval Application ” means new drug application for the Product that is submitted to the FDA pursuant to 21 C.F.R. 314.3 or similar application or submission for the Product filed with a Regulatory Authority in a country or group of countries to obtain Marketing Approval for a pharmaceutical product in that country or group of countries.

1.7 “ Breaching Party ” is defined in Section 9.2.2.

1.8 “ Clinical Supply Agreement ” is defined in Section 3.8.

1.9 “ Combination Product ” means any orally administered pharmaceutical product in finished dosage form for human use containing the Compound in combination with one or more the Other Active Ingredient(s).

1.10 “ Commercialize ” or “ Commercialization ” means to import, export, use, have used, sell, have sold, or offer for sale, commercialize, register, hold, or keep (whether for disposal or otherwise), or otherwise dispose of Products. For clarity, “Commercialize” and “Commercialization” do not include “Manufacture” and “Manufacturing.”

1.11 “ Commercially Reasonable Efforts ” means efforts that are [***].

1.12 “ Compound ” means the carbapenem chemical compound having the generic name, tebipenem pivoxil, the chemical structure of which is set forth in Exhibit B, including [***].

1.13 “ Confidential Information means (a) all technical and business information including trade secrets or confidential or proprietary information or tangible materials of the disclosing Party or its Affiliates provided or disclosed to the other Party or any of its Affiliates pursuant to this Agreement, whether marked as confidential or not, and (b) the terms and conditions of this Agreement; provided, however, that Confidential Information shall not include information that:

(i) has been published by a Third Party or otherwise is or hereafter becomes part of the public domain by public use, publication, general knowledge or the like through no wrongful act, fault or negligence on the part of the receiving Party or its Affiliates;

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(ii) has been in the receiving Party’s or its Affiliates possession prior to disclosure by the disclosing Party without any obligation of confidentiality with respect to such information (as evidenced by the receiving Party’s or such Affiliate’s written records or other competent evidence);

(iii) is subsequently received by the receiving Party or its Affiliate from a Third Party without restriction and without breach of any agreement between such Third Party and the disclosing Party;

(iv) is generally made available to Third Parties by the disclosing Party without restriction on disclosure; or

(v) has been independently developed by or for the receiving Party or its Affiliates without reference to, or use or disclosure of, the disclosing Party’s Confidential Information (as evidenced by the receiving Party’s or such Affiliate’s written records or other competent evidence);

provided, however, that clauses (ii) through (v) above cannot be applied to the terms and conditions of this Agreement.

1.14 “ Control ” or “ Controlled ” means, with respect to any Know-How, Patent Right, other intellectual property right, compound or product, the legal authority or right (whether by ownership, license (other than a license granted pursuant to this Agreement) or otherwise) of a Party or its relevant Affiliate, to grant access, a license or a sublicense of or under such Know-How, Patent Right, intellectual property right, compound or product to the other Party, to the extent contemplated by this Agreement, without breaching the terms of any agreement with a Third Party, or misappropriating the proprietary or trade secret information of a Third Party.

1.15 “ Cover ,” “ Covering ” or “ Covered ” means, when referring to a compound or product, Patent Right or Know-How: (a) with respect to an issued patent included in a Patent Right, that, in the absence of a license granted to a Person under a claim of such Patent Right, the practice by such Person of a specified activity with respect to such compound or product, or the practice by such Person of such Patent Right or the use by such Person of such Know-How, would infringe such claim, or (b) with respect to a patent application included in a Patent Right, that, in the absence of a license granted to a Person under a claim included in such patent application, the practice by such Person of a specified activity with respect to such compound or product, or the practice by such Person of an invention claimed in such Patent Right or the use by such Person of such Know-How, would infringe such claim if such patent application were to issue as a patent.

1.16 “ CTM ” is defined in Exhibit A.

1.17 “ Debarred ” is defined in Section 7.1.1.

1.18 “ Development ” means all activities directed to the development of the Compound and the Product, including GLP toxicology studies and any other pre-clinical or clinical activities and studies, manufacturing and having the Compound and the Product manufactured for purposes of development and regulatory activities conducted with an aim to obtain the Marketing Approval; and the term “ Develop ” shall have correlative meaning.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

1.19 “ Diligence Milestone ” is defined in Section 3.3.2.

1.20 “ Dispute Notice ” is defined in Section 10.5.

1.21 “ Disqualified ” is defined in Section 7.1.1.

1.22 “ Effective Date ” is defined in the Preamble.

1.23 “ Excluded ” is defined in Section 7.1.1.

1.24 “ Executive Officer ” means (a) a senior executive employee or director of Spero designated by Spero (the “Spero Executive Officer ”) or (b) a senior executive employee or director of Meiji designated by Meiji (the “ Meiji Executive Officer ”).

1.25 “ FDA ” means the United States Food and Drug Administration.

1.26 “ Field ” means the treatment, prevention or diagnosis of all diseases in humans.

1.27 “ First Commercial Sale ” means, on a Product-by-Product and country-by-country basis, with respect to a Product in any country, the first sale for monetary value for use or consumption by the end user of such Product in such country after the Marketing Approval for such Product has been obtained in such country.

1.28 “ ICC ” is defined in Section 10.5.

1.29 “ Indemnified Party ” is defined in Section 8.4.

1.30 “ Indemnifying Party ” is defined in Section 8.4.

1.31 “ Intellectual Property ” means any (a) Patent Rights and (b) Know-How.

1.32 “ JCC ” is defined in Section 3.9.

1.33 “ JDC ” is defined in Section 3.2.1.

1.34 “ Jointly-Generated Intellectual Property ” is defined in Section 5.1.2.

1.35 “ Jointly-Generated Patent Rights ” means any Patent Rights that Cover the Jointly-Generated Intellectual Property.

1.36 “ Know-How ” means any and all information comprising or relating to concepts, discoveries, data, designs, formulae, composition, protocols, techniques, ideas, materials, inventions, methods, models, assays, research plans, procedures, designs for experiments and tests and results of experimentation and testing, including results of research or development, together with processes, including manufacturing processes, specifications, techniques, chemical, biological, pharmacological, toxicological, clinical, safety, manufacturing, analytical and quality

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

control data, trial data, case report forms, data analysis, reports or summaries and information contained in submissions to and information from ethical committees and governmental entities, in each case (whether or not confidential, proprietary, patented or patentable) in written, electronic or any other form now known or hereafter developed.

1.37 “ KOLs ” is defined in Section 3.1.1.

1.38 “ Licensee Revenue ” means consideration received by Spero or an Affiliate of Spero from a Sublicensee for the grant of a sublicense under Section 2.4.1, including upfront payments, and development and sales milestone payments. If any milestone payment made by such Sublicensee is payable based on a milestone event set forth in Section 4.2, the Licensee Revenue portion of such milestone payment shall include only the amount of the payment received from such Sublicensee that exceeds the amount due from Spero under Section 4.2. Licensee Revenue excludes (x) any amounts reimbursed to Spero or its Affiliates for patent prosecution and maintenance expenses, and (y) bona fide payments for research and development or other services provided to a Sublicensee by Spero or its Affiliates at commercially reasonable rates. If Spero or its Affiliate receives any non-monetary consideration, including but not limited to shares of stock, share options and any property from such Sublicensee in consideration for the grant of such sublicense, the fair market value of such non-monetary consideration appraised in a manner to be agreed between the Parties shall be deemed to be Licensee Revenue. If Spero or an Affiliate of Spero enters into an agreement with a Sublicensee for the supply of the Compound and/or Product to such Sublicensee, any payment made by such Sublicensee for the Compound and/or Product that exceeds the cost of goods sold plus [***] percent ([***]%) shall be deemed to be the Licensee Revenue. Running royalties paid by such Sublicensee are subject to Section 4.3 and shall not be deemed to be part of the Licensee Revenue.

1.39 “ Licensee Revenue Cap ” is defined in Section 4.4.

1.40 “ Licensee Revenue Share ” is defined in Section 4.4.

1.41 “ Losses ” means any judgments, awards, suits, fines, liabilities, losses, costs, damages, expenses or amounts paid in settlement (in each case, including reasonable attorneys’ and experts’ fees and expenses) arising from a Third Party Claim.

1.42 “ Major Country(ies) ” means [***].

1.43 “ Manufacture ” means the manufacturing of the Compound and/or Product up to and including finished, packed and labeled drug product, and all activities related to such manufacturing of Compound and/or Product, or any ingredient thereof, either directly or through a contract manufacturer, including in-process and semi-finished Product testing, ongoing stability tests and regulatory activities related to any of the foregoing. “Manufactured” or “Manufacturing” and other forms of the word “Manufacture” shall have correlative meaning.

1.44 “ Marketing Approval ” means, with respect to a Product in a particular jurisdiction, all approvals, licenses, registrations or authorizations that are required by the applicable Regulatory Authority for the Commercialization of such Product in such jurisdiction, including, with respect to the United States, approval of an Approval Application for such Product by the FDA. For clarity, Marketing Approval does not include reimbursement authorization or pricing approval determinations.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

1.45 “ Milestone Event ” is defined in Section 4.2.

1.46 “ Milestone Payment ” is defined in Section 4.2.

1.47 “ Meiji ” is defined in the Preamble.

1.48 “ Meiji Development and Manufacturing Retained Rights ” is defined in Section 2.3.1.

1.49 “ Meiji Development Plan ” is defined in Section 3.5.

1.50 “ Meiji Indemnified Parties ” is defined in Section 8.2.

1.51 “ Meiji Intellectual Property ” means all Meiji Know-How and Meiji Patent Rights.

1.52 “ Meiji Know-How ” means all Know-How Controlled by Meiji, its Affiliates or Sublicensees on the Effective Date or during the Term, that is necessary or useful for the Development, Manufacture and Commercialization of the Compound and/or the Product in the Field, but excluding the Meiji Regulatory Documentation and WLJ Know-How. The Meiji Know-How includes, but for clarity is not limited to, the items set forth on Exhibit D hereto.

1.53 “ Meiji Patent Rights ” means any Patent Rights Covering the Compound and/or the Product that are Controlled by Meiji, its Affiliates or Sublicensees on the Effective Date or during the Term.

1.54 “ Meiji Regulatory Documentation ” means all letters, correspondence and other documents and information (in any format) submitted by or on behalf of Meiji, its Affiliates or Sublicensees to Regulatory Authorities in the Meiji Territory, or received from Regulatory Authorities in the Meiji Territory, relating to the Compound and/or the Product including but not limited to Orapenem.

1.55 “ Meiji Territory ” means Japan, Bangladesh, Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

1.56 “ Memorandum ” is defined in Section 10.24.4

1.57 “ Net Sales ” means with respect to a Product for any period, the total amount billed or invoiced on sales of such Product during such period by Spero, its Affiliates, or Sublicensees to Third Parties (including wholesalers or distributors), 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 and not otherwise recovered by or reimbursed to Spero, its Affiliates, or Sublicensees: (a) trade, cash and quantity discounts; (b) price reductions, rebates or charge backs, retroactive or otherwise (including Medicare, Medicaid, managed care and other similar types of rebates and chargebacks); (c) taxes on sales (such as sales, value added, or use taxes, but excluding taxes assessed or assessable against the income

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

derived by Spero, its Affiliates or Sublicensees from such sales) to the extent added to the sale price and set forth separately as such in the total amount invoiced; (d) amounts repaid or credited by reason of rejections, defects or recalls; (e) freight, insurance, and other transportation charges to the extent added to the sale price and set forth separately as such in the total amount invoiced; (f) the portion of administrative fees paid during the relevant time period to group purchasing organizations, pharmaceutical benefit managers and/or Medicare prescription drug plans relating to such Product; (g) any invoiced amounts from a prior period which are not collected and are written off by Spero, its Affiliates or Sublicensees, including bad debts, not to exceed [***] percent ([***]%) of Net Sales; and (h) that portion of the annual fee on prescription drug manufacturers imposed on Spero, its Affiliates or Sublicensees in the USA by the Patient Protection and Affordable Care Act, Pub. L. No. 111-148 (as amended), if any, that is allocable to sales of the Products by Spero, its Affiliates or Sublicensees (it being understood that neither Spero nor any of its Affiliates or Sublicensees shall be permitted to deduct such fees to the extent any other Person has deducted such fees with respect to the sales of the same Product). All of the above deductions shall be consistent with Accounting Standards.

Net Sales shall not include transfers or dispositions of Product without charge for charitable, promotional, pre-clinical, clinical, regulatory, or governmental purposes. Net Sales shall include the amount or fair market value of all other consideration received by Spero, its Affiliates or Sublicensees in respect of the Product, whether such consideration is in cash, payment in kind, exchange or other form, provided that the fair market value of non-monetary consideration shall be appraised in a manner to be agreed between the Parties. Net Sales shall not include sales between or among Spero, its Affiliates or Sublicensees unless such Affiliate or Sublicensee is the end-user of the Product.

In the event that a Product is sold in any country or other jurisdiction in a Combination Product, Net Sales for such Product sold as part of a Combination Product shall be determined by multiplying the net sales of such Combination Product (replacing “Product” with “Combination Product” in the definition of Net Sales above) during the applicable period by the fraction A/(A+B), where A is the average per unit sale price of such Product when sold separately as a standalone Product in finished form in the country in which the Combination Product is sold and B is the average per unit sale price of the Other Active Ingredient(s) contained in the Combination Product when sold separately as standalone products in finished form in the country in which the Combination Product is sold, in each case during the applicable period or, if sales of such standalone Product or Other Active Ingredient(s), as applicable, did not occur in such period, then in the most recent period in which arm’s length fair market sales of such Product or Other Active Ingredient(s), as applicable, occurred. If such average sale price cannot be determined for such Product or any of the Other Active Ingredient(s), the Parties shall negotiate in good faith to determine what portion of the net sales of such Combination Product in such country or other jurisdiction shall be treated as “Net Sales” under this Agreement, which determination shall be based on the value added by the Product in such Combination Product, compared to the value added by such Other Active Ingredient(s) in such Combination Product, to the invoice price of such Combination Product.

1.58 “ Non-Breaching Party ” is defined in Section 9.2.2

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

1.59 “ Orapenem ” means the Product in fine granule formulation which Meiji is commercializing as of the Effective Date.

1.60 “ Other Active Ingredient ” means any component that provides pharmacological activity or other direct therapeutic effect or that therapeutically affects the structure or any function of the body whereby such component is not the Compound.

1.61 “ Party ” means either Meiji or Spero; “ Parties ” means Meiji and Spero, collectively.

1.62 “ Patent Rights ” means any and all (a) national, regional and international patents and patent applications, including provisional patent applications and right to priority to such applications, (b) patent applications filed either from such patents, patent applications or provisional applications (set forth in (a)) or from an application claiming priority from either of these, including divisionals, continuations, continuations-in-part, provisionals, converted provisionals and continued prosecution applications, (c) patents that have issued or in the future issue from the foregoing patent applications (set forth in (a) and (b)), including utility models, petty patents and design patents and certificates of invention, (d) extensions or restorations by existing or future extension or restoration mechanisms, including revalidations, reissues, re-examinations and extensions (including any supplementary protection certificates and the like) of the foregoing patents or patent applications (set forth in (a), (b), and (c)), and (e) similar rights, including so-called pipeline protection or any importation, revalidation, confirmation or introduction patent or registration patent or patent of additions to any of such foregoing patent applications and patents.

1.63 “ Person ” means an individual, corporation, company, partnership, limited liability company, joint venture, association, trust, business trust, governmental entity, unincorporated organization, a division or operating group of any of the foregoing or any other entity or organization.

1.64 “ Personnel ” is defined in Section 7.1.1.

1.65 “ Pharmacovigilance Agreement ” is defined in Section 3.7.2.

1.66 “ Pfizer Claim ” is defined in Section 8.3.

1.67 “ Pfizer Japan ” is defined in the Preamble.

1.68 “ Pfizer Letter ” means the letter between Meiji and Pfizer Japan dated January 9, 2016, the complete copy of which is attached on Exhibit E hereto.

1.69 “ Product ” means any orally administered pharmaceutical product in finished dosage form containing the API for human use including but not limited to the Spero New Formulation Product and Orapenem.

1.70 “ Regulatory Authority ” means any national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity with authority over the Development, Manufacture or Commercialization of the Compound and/or the Product.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

1.71 “ Regulatory Exclusivity ” means, with respect to any country or other jurisdiction, an additional market protection, other than patent protection, granted by the Regulatory Authority in such country or other jurisdiction which confers an exclusive commercialization period during which a Party or its Affiliates or Sublicensees have the exclusive right to manufacture, market or sell a Product in such country or other jurisdiction through a regulatory exclusivity right ( e.g. , new chemical entity or biologic exclusivity, new use or indication exclusivity, new formulation exclusivity, orphan drug exclusivity or pediatric exclusivity).

1.72 “ Royalties ” is defined in Section 4.3.

1.73 “ Royalty Term ” means, on a Product-by-Product and country-by-country basis, the period beginning on the date of the First Commercial Sale of such Product in such country and ending on the latest of (i) the date when Regulatory Exclusivity of such Product ends in such country, (ii) the date when all Meiji Know-How, Meiji Regulatory Documentation and WLJ Know-How have become generally available to the public or ten (10) years from the date of First Commercial Sale of such Product in such country, whichever is earlier or (iii) the date when the last to expire Valid Claim within the Meiji Patent Rights expires in such country.

1.74 “ Spero ” is defined in the Preamble.

1.75 “ Spero Indemnified Parties ” is defined in Section 8.1.

1.76 “ Spero Intellectual Property ” means all Spero Know-How, Spero Patent Rights.

1.77 “ Spero Know-How ” means all Know-How Controlled by Spero, its Affiliates or Sublicensees, on the Effective Date or during the Term, that is necessary or useful for the Development, Manufacture and Commercialization of the Compound and/or the Product in the Field, but excluding the Spero Regulatory Documentation.

1.78 “ Spero Development and Manufacturing Retained Rights ” is defined in Section 2.3.2.

1.79 “ Spero New Formulation Product ” means the Product in a formulation which Spero, directly or indirectly through its Affiliates or Sublicensees, is developing as of the Effective Date or develops during the Term.

1.80 “ Spero Patent Rights ” means any Patent Rights Covering the Compound and/or the Product that are Controlled by Spero, its Affiliates or Sublicensees on the Effective Date or during the Term.

1.81 “ Spero Regulatory Documentation ” means all letters, correspondence and other documents and information (in any format) submitted by or on behalf of Spero or its Affiliates or Sublicensees to Regulatory Authorities in the Spero Territory, or received from Regulatory Authorities in the Spero Territory, relating to the Compound and/or the Product including but not limited to Spero New Formulation Product.

1.82 “ Spero Territory ” means worldwide excluding the Meiji Territory.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

1.83 “ Sublicensee ” means, with respect to a Party or its Affiliate, a Third Party sublicensee of the rights granted to such Party under this Agreement pursuant to Section 2.4.1 and Section 2.4.2 hereof.

1.84 “ Term ” is defined in Section 9.1.

1.85 “ Third Party ” means any person or entity other than Spero, Meiji and their respective Affiliates.

1.86 “ Third Party Claim ” is defined in Section 8.1.

1.87 “ United States ,” “ U.S .” “ US ” or “ US Territory ” means the United States of America and its territories and possessions.

1.88 “ Valid Claim ” means a claim of any issued and unexpired patent whose validity, enforceability, or patentability has not been affected by any of the following: (a) irretrievable lapse, abandonment, revocation, dedication to the public, or disclaimer; or (b) a holding, finding, or decision of invalidity, unenforceability, or non-patentability by a court, governmental agency, national or regional patent office, or other appropriate body that has competent jurisdiction, such holding, finding, or decision being final and unappealable or unappealed within the time allowed for appeal.

1.89 “ WLJ Agreement ” is defined in the Preamble.

1.90 “ WLJ Know-How ” means all Know-How relating to the Compound and/or the Product disclosed and provided by Pfizer Japan (or its predecessor) to Meiji under the WLJ Agreement, including all such Know-How that is available to Meiji on the Effective Date or made available to Meiji during the Term. The WLJ Know-How includes, but for clarity is not limited to, the items set forth on Exhibit C hereto.

ARTICLE 2

LICENSE GRANTS

2.1 Meiji Grant . Subject to the terms and conditions of this Agreement, Meiji hereby grants to Spero, under the Meiji Intellectual Property, Meiji Regulatory Documentation and WLJ Know-How, a royalty-bearing and exclusive (even as to Meiji) license (but subject to (i) the Meiji Development and Manufacturing Retained Rights set forth in Section 2.3.1, (ii) the non-exclusive and sublicensable license granted to Pfizer Japan for the Meiji Intellectual Property and Meiji Regulatory Documentation under the WLJ Agreement and (iii) all rights retained by Pfizer Japan with respect to the WLJ Know-How [***] the Pfizer Letter), with the right to sublicense subject to Section 2.4.1, to Develop, Manufacture and Commercialize the Compound and the Product in the Field in the Spero Territory. For clarity, the foregoing license includes the right to use, cross-reference, file or incorporate by reference any information and data within the Meiji Regulatory Documentation to support any regulatory filings in the Spero Territory relating to the Compound and/or the Product. Without limiting the foregoing, Spero hereby agrees to Commercialize the Product solely in the Spero Territory and shall not, and shall not permit its Affiliates, Sublicensees or distributors to, distribute, market, promote, offer for sale or sell the Product (a) to any Third Party outside the Spero Territory or (b) to any Third Party inside the Spero Territory that Spero, or its Affiliates, Sublicensees or distributors, as applicable, knows is reasonably likely to distribute, market, promote, offer for sale or sell such Product outside the Spero Territory.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

2.2 Spero Grant .

2.2.1 Subject to the terms and conditions of this Agreement, Spero hereby grants to Meiji, under Spero Intellectual Property and Spero Regulatory Documentation, (i) a royalty-free and exclusive (even as to Spero) license but subject to the Spero Development and Manufacturing Retained Rights set forth in Section 2.3.2, with the right to sublicense in accordance with Section 2.4.2, to Develop, Manufacture and Commercialize the Compound and the Product in the Field in the Meiji Territory, and (ii) a royalty-free and non-exclusive license, with the right to sublicense in accordance with Section 2.4.2, to Develop and Manufacture the Compound and the Product in the Spero Territory solely for the purpose of furthering Development, Manufacturing and Commercialization of the Compound and/or the Product in the Field in the Meiji Territory. For clarity, the foregoing license includes the right to use, cross-reference, file or incorporate by reference any information and data within the Spero Regulatory Documentation to support any regulatory filings in the Meiji Territory relating to the Compound and/or the Product. Without limiting the foregoing, Meiji hereby agrees to Commercialize the Product solely in the Meiji Territory and shall not, and shall not permit its Affiliates, Sublicensees or distributors to, distribute, market, promote, offer for sale or sell the Product (a) to any Third Party outside the Meiji Territory or (b) to any Third Party inside the Meiji Territory that Meiji, or its Affiliates, Sublicensees or distributors, as applicable, knows is reasonably likely to distribute, market, promote, offer for sale or sell such Product outside the Meiji Territory.

2.2.2 Subject to the terms and conditions of this Agreement, Spero hereby grants to Meiji a royalty-free, fully paid-up and perpetual (except as expressly provided in Section 3.4(i)(a)) license, with the right to sublicense in accordance with Section 2.4.2, to use the Jointly-Generated Intellectual Property for the development, manufacture and commercialization of any compound or product (including the Compound and the Product) in and outside the Field in the Meiji Territory and the Spero Territory, except for the Development, Manufacture and Commercialization of the Compound and the Product in the Field in the Spero Territory (other than the Development, Manufacture and having Manufactured of the Compound and the Product in the Spero Territory solely for the purpose of furthering Development, Manufacture and Commercialization thereof in the Field in the Meiji Territory). The license set forth in this Section 2.2.2 shall be (a) exclusive (even as to Spero) as to (i) the Development, Manufacture and Commercialization of the Compound and the Product in the Field in the Meiji Territory (but subject to the Spero Development and Manufacturing Retained Rights set forth in Section 2.3.2) and (ii) the development, manufacture and commercialization of any compound or product (including the Compound and the Product) outside the Field in the Meiji Territory and (b) non-exclusive in all other respects.

Notwithstanding the foregoing, in the event that Meiji desires to use the Jointly-Generated Intellectual Property to (x) Develop, Manufacture and/or Commercialize the Spero New Formulation Product outside the Field in the Meiji Territory or (y) Develop, Manufacture and/or Commercialize the Compound and/or the Product outside the Field in the Spero Territory, Meiji shall inform Spero of its intended activities with such use of the Jointly-Generated

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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Intellectual Property outside the Field and shall discuss the same with Spero through JDC in advance. Spero shall give due consideration to Meiji’s reasons for such use desired by Meiji. Meiji shall give due consideration to the potential effects of such use on the general clinical utility and commercial potential of the Spero New Formulation Product in the Spero Territory, as well as then-current ethical and stewardship considerations as generally accepted in the anti-bacterial segment of the pharmaceutical industry. Following such discussion in good faith, if such use is, in Spero’s reasonable opinion supported with justifiable reasons, likely to have a material adverse effect on the Commercialization of the Spero New Formulation Product by Spero in the Field in the Spero Territory, Meiji shall refrain from such use.

2.3 Development and Manufacturing Retained Rights.

2.3.1 Meiji Development and Manufacturing Retained Rights . Meiji shall retain the right under Meiji Intellectual Property, Meiji Regulatory Documentation and WLJ Know-How, to Develop, Manufacture and have Manufactured the Compound and the Product in the Spero Territory solely for the purpose of furthering Development, Manufacturing and Commercialization thereof in the Field in the Meiji Territory (the “ Meiji Development and Manufacturing Retained Rights ”). When Meiji desires to conduct any clinical trial of the Product in the Spero Territory by exercising the Meiji Development and Manufacturing Retained Rights, Meiji shall provide Spero with an advance notice via the JDC.

2.3.2 Spero Development and Manufacturing Retained Rights . Spero shall retain the right under Spero Intellectual Property, Spero Regulatory Documentation and Jointly-Generated Intellectual Property to Develop, Manufacture and have Manufactured the Compound and the Product in the Meiji Territory solely for the purpose of furthering Development, Manufacturing and Commercialization thereof in the Field in the Spero Territory (the “ Spero Development and Manufacturing Retained Rights ”). When Spero desires to conduct any clinical trial of the Product in the Meiji Territory by exercising the Spero Development and Manufacturing Retained Rights, Spero shall provide Meiji with an advance notice via the JDC.

2.4 Sublicensing.

2.4.1 By Spero . Spero shall have the right to grant sublicenses with the right to grant further sublicenses under the rights granted to Spero pursuant to Section 2.1 to its Affiliates and any Sublicensee; provided that (i) the terms of any sublicense by Spero to its Affiliates and/or Sublicensee shall be in a written agreement and consistent with the terms of this Agreement, (ii) Spero’s grant of any sublicense shall not relieve Spero from any of its obligations under this Agreement, (iii) Spero shall remain responsible for its Affiliates’ and/or Sublicensees’ performance under this Agreement, and (iv) Spero shall notify Meiji of the identity of any Affiliate or Sublicensee that receives a sublicense and the territory in which it will grant such sublicense in advance to entering into any such sublicense agreement; and, provided further, that if such sublicense by Spero involves the grant of a sublicense of the WLJ Know-How to a Sublicensee, prior written consent of Pfizer Japan to such sublicense must be obtained and Meiji and Spero shall [***] to seek such consent of Pfizer Japan, it being understood that Meiji shall in no event guarantee that such consent can be obtained from Pfizer Japan. For clarity, if Pfizer Japan refuses consent to the sublicense of the WLJ Know-How, (x) Section 9.2.4 shall apply,

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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and (y) regardless of whether Spero exercises its termination rights under Section 9.2.4, Spero shall not grant any sublicense under the WLJ Know-How but Spero shall be free to proceed with the sublicense under the Meiji Know-How, Meiji Patent Rights and the Meiji Regulatory Documentation, subject to the terms and conditions set forth in the first sentence and the following sentence of this Section 2.4.1. Except for the sublicense from Spero solely under the data sets, reports, and other documents listed on Exhibit D, prior to disclosing any Meiji Know-How to a Sublicensee, the following procedures shall apply: if Spero desires to proceed with sublicensing a particular data set, report or other document other than those set forth in Exhibit D, Spero shall consult with Meiji whether such specific data set, report, or other document qualifies as WLJ Know-How or Meiji Know-How and shall abide by Meiji’s determination of such qualification. Meiji represents that the data sets, reports, and other documents listed on Exhibit D are not combined with any items of the WLJ Know-How.

2.4.2 By Meiji . Meiji shall have the right to grant sublicenses with the right to grant further sublicenses under the rights granted to Meiji pursuant to Section 2.2 to its Affiliates and any Sublicensee; provided that (i) the terms of any sublicense by Meiji to its Affiliates and/or Sublicensee shall be in a written agreement and consistent with the terms of this Agreement, (ii) Meiji’s grant of any sublicense shall not relieve Meiji from any of its obligations under this Agreement, (iii) Meiji shall remain responsible for its Affiliates’ and/or Sublicensees’ performance under this Agreement, and (iv) Meiji shall notify Spero of the identity of any Affiliate or Sublicensee that receives a sublicense and the territory in which it will grant such sublicense in advance to entering into any such sublicense.

2.5 Initial File / Knowledge Transfer and Support . Upon Spero’s request with at least [***] notice, the Parties will meet on-site at Meiji’s head office in Kyobashi, Tokyo to conduct in-person knowledge transfer relating to the Compound or Product as reasonably requested by Spero. Within [***] after the Effective Date, Meiji will transfer, on an “as is” basis, copies of all existing WLJ Know-How, Meiji Know-How and Meiji Regulatory Documentation in electronic format, if currently available, or such other form as mutually agreed by the Parties, including all of the reports and other documents listed on Exhibit C and Exhibit D. Meiji shall provide Spero with reasonable transition support by Meiji personnel with expertise in the Meiji Know-How at no cost for activities related to the knowledge transfer described in this Section 2.5.

2.6 Reservation of Rights . No rights, other than those expressly set forth in this Agreement are granted to either Party hereunder, and no additional rights shall be deemed granted to either Party by implication, estoppel or otherwise, with respect to any Intellectual Property rights. All rights not expressly granted by either Party or its Affiliates to the other hereunder are reserved.

2.7 Non-Competing Product . From the Effective Date until the [***] anniversary of the date of the First Commercial Sale of the first Product in the United States, Spero and its Affiliates and Sublicensees shall not (i) develop, manufacture or commercialize in the Spero Territory any oral dosage formulation of any carbapenem in the Field other than the Compound and the Product pursuant to this Agreement, and (ii) develop and manufacture for any Third Party, or assist any Third Party in developing, or manufacturing, any oral dosage formulation of

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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any carbapenem in the Field for commercialization thereof in the Spero Territory other than the Compound and the Product pursuant to this Agreement. Further, in Japan and any country in the Meiji Territory where Meiji commercializes Orapenem, Spero and its Affiliates and Sublicensees shall not develop, manufacture or commercialize any oral dosage formulation of any carbapenem which has the same indication as Orapenem in such countries during the Term as long as Meiji commercializes Orapenem in such country(ies).

ARTICLE 3

COLLABORATION STRUCTURE AND ACTIVITIES

3.1 General Responsibilities and Expenses .

3.1.1 Spero Territory . Except as expressly set forth in this Agreement or as may be otherwise agreed in writing by a duly authorized representative of Meiji, Spero shall be solely responsible for the Development, Manufacture and Commercialization of the Compound and the Product in the Spero Territory, including obtaining all necessary Marketing Approvals, and for all costs associated with the foregoing. Furthermore, Spero shall be free to attend and present at medical and scientific conferences and meetings, including meetings with key opinion leaders (“KOLs”), in the Meiji Territory for purposes of furthering the Development, Manufacture and Commercialization of the Spero New Formulation Product in the Spero Territory, unless such attendance is, in Meiji’s reasonable opinion, likely to have a material adverse effect on the Commercialization of Orapenem by Meiji in the Meiji Territory. Spero shall notify Meiji in advance through the JDC (or, if appropriate, the JCC) of Spero’s planned attendance at such conferences and meetings in the Meiji Territory to the extent relating to the Compound and/or the Product.

3.1.2 Meiji Territory . Except as expressly set forth in this Agreement or as may be otherwise agreed in writing by a duly authorized representative of Spero, Meiji shall be solely responsible for Development, Manufacture and Commercialization of the Compound and the Product in the Meiji Territory, including obtaining all necessary Marketing Approvals, and for all costs associated with the foregoing. Furthermore, Meiji shall be free to attend and present at medical and scientific conferences and meetings, including meetings with KOLs, in the Spero Territory for purposes of furthering the Development, Manufacture and Commercialization of the Compound and the Product in the Meiji Territory, unless such attendance is, in Spero’s reasonable opinion, likely to have a material adverse effect on the Commercialization of the Spero New Formulation Product by Spero in the Spero Territory. Meiji shall notify Spero in advance through the JDC (or, if appropriate, the JCC) of Meiji’s planned attendance at such conferences and meetings in the Spero Territory to the extent relating to the Compound and/or the Product.

3.1.3 Cross-Territory Studies . If a Party desires to conduct jointly a clinical study with sites in both the Spero Territory and the Meiji Territory, the Party shall inform the other Party via the JDC. The JDC will discuss any such proposed joint cross-territory study, including the out-of-pocket financial contributions of each Party, allocation of internal resources, access to data arising therefrom, sponsorship of the study and management of clinical sites, and other matters. If the JDC reaches agreement in principle on a plan for such a cross-territory study, the senior management of each Party shall review the plan proposed by the JDC, and if

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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both Parties wish to proceed, the Parties shall negotiate in good faith a written agreement with respect to such cross-territory study. Notwithstanding anything herein, neither Party shall have any obligation under this Agreement to perform, pay for or contribute to any cross-territory study except as may be set forth in a definitive written agreement that has received all necessary senior management and board approvals and has been executed by duly authorized representatives of the Parties.

3.2 Joint Development Committee .

3.2.1 Formation and Role of Joint Development Committee . The Parties shall, within [***] of the Effective Date, establish a Joint Development Committee (the “JDC”), comprised of [***] representatives of Spero and [***] representatives of Meiji, at least one of whom from each Party, who shall serve as [***], shall have experience and seniority sufficient to enable him or her to make decisions on behalf of the Party he or she represents concerning issues within the remit of the JDC.

3.2.2 Responsibilities . The JDC shall be responsible for: (i) confirming and preparing annual (or, if needed, more frequent) updates and revisions to the Spero Development Plan for the Spero Territory prepared by Spero and approved by Meiji pursuant to Section 3.3 and the Meiji Development Plan for the Meiji Territory prepared by Meiji and approved by Spero pursuant to Section 3.3; (ii) monitoring activities and progress under the Spero Development Plan and the Meiji Development Plan, including the preparation and submission of Approval Applications in the Spero Territory and the Meiji Territory; (iii )  overseeing the maintenance of all Marketing Approval of the Spero New Formulation Product in the Spero Territory and the Meiji Territory, including the performance of post-approval commitments in the Spero Territory and the Meiji Territory; (iv) overseeing the sharing of regulatory correspondence and other regulatory information relevant to the Development and Commercialization of the Spero New Formulation Product in the Spero Territory and the Meiji Territory, and overseeing planning and submissions for Marketing Approval in the Spero Territory and the Meiji Territory that are filed; (v) overseeing clinical trials, investigator-initiated trials, post-hoc data analyses, and sponsored research arrangements for the Spero Territory and the Meiji Territory; (vii) discussing attendance by either or both Parties at medical and scientific conferences and meetings, including meetings with KOLs, in both the Spero Territory and the Meiji Territory; (viii) overseeing medical affairs activities for the Spero Territory and the Meiji Territory; (ix) developing a publication strategy in the Spero Territory and review procedures for such publications; (x) discussing and determining the details of proposed joint cross-territory studies; and (xi) assuming such other responsibilities as are set forth in this Agreement, or as mutually agreed in writing by duly authorized representatives of the Parties from time to time.

3.2.3 Schedule and Minutes . The representatives of the JDC shall mutually agree on the schedule for meetings, provided that there shall be at least one (1) meeting every [***]. An emergency meeting of the JDC may be held whenever both Parties agree on its necessity. A representative of the Party hosting a meeting of the JDC shall serve as secretary of that meeting. The secretary of the meeting shall prepare and distribute to all members of the JDC: (a) agenda items at least [***] in advance of the applicable meeting and (b) draft minutes of the meeting within [***] following the meeting to allow adequate review and comment. Such minutes shall provide a description in reasonable detail of the discussions held at the meeting and

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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a list of any actions, decisions or determinations approved by the JDC. Minutes of the JDC meeting shall be approved or disapproved, and revised as necessary, within [***] after their initial circulation in draft form. The final minutes approved by all members of the JDC shall be signed by the representatives of both Parties. Minutes for any subcommittees shall be prepared in the same manner and in accordance with the same timelines. The final minutes of any subcommittee shall be provided to the JDC.

3.2.4 Location and Attendance . The location of JDC meetings shall [***], or as otherwise agreed by the Parties. The JDC may also meet by means of telephone conference call or videoconference, provided that at least [***] per calendar year shall be held in person. Each Party shall use reasonable efforts to cause its representatives to attend JDC meetings. If a Party’s representative to the JDC or any subcommittee is unable to attend a meeting, such Party may designate an alternate to attend such meeting in place of the absent representative. In addition, each Party may, at its discretion, invite non-voting employees, and, with the consent of the other Party, consultants or scientific advisors, to attend the meetings of the JDC.

3.2.5 Decision-making . The representatives of each Party shall [***]. The JDC shall [***]. If the Parties are unable to [***], except as set forth in [***] and as set forth in [***], [***], provided that (i) such decision is consistent with the terms and conditions of this Agreement, and (ii) [***]. For clarity, the JDC shall not [***] this Agreement.

3.3 Spero Development Plan and Diligence .

3.3.1 Spero’s Diligence . Spero shall use Commercially Reasonable Efforts to (i) pursue the Development of, (ii) obtain Marketing Approval of, and (iii) Commercialize [***] in the Spero Territory.

3.3.2 Diligence Milestones . Spero shall use Commercially Reasonable Effort to achieve, by itself or through its Affiliates or Sublicensees, the following diligence milestone targets (the “ Diligence Milestones ”) with respect to the Product:

(a) Initiate the first Phase 1 clinical trial for a Product on or before [***]

(b) [***] on or before [***]

(c) [***] on or before [***].

If Spero reasonably believes that it will not achieve a Diligence Milestone, it may notify Meiji in writing [***] the relevant deadline together with reasons for not achieving the Diligence Milestone. Spero shall include with such notice a [***] extended and/or amended date for achieving the Diligence Milestone. If Spero so notifies Meiji and provides Meiji with a [***] extended and/or amended date for achieving the Diligence Milestone, then this Section 3.3.2 shall be amended automatically to incorporate the extended and/or amended Diligence Milestone set forth in the notice. For clarity, if Spero fails to achieve a Diligence Milestone then, so long as Spero has used and continues to use Commercially Reasonable Efforts to achieve the Diligence Milestones, Meiji shall have no right to terminate this Agreement as a result of such failure.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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3.3.3 Spero Development Plan . Spero shall prepare and submit to the JDC, for its review and approval, a development plan with respect to the Development of the Product in the Spero Territory (once approved by the JDC, the “ Spero Development Plan ”). The Spero Development Plan shall [***] unless Meiji expressly agrees in writing, in its sole discretion. The Spero Development Plan shall be updated by Spero and submitted to the JDC at least annually. The Spero Development Plan shall include [***]. In the event that the JDC does not approve the Spero Development Plan as provided in Section 3.2.5, Spero shall have final decision-making authority with respect thereto, including with respect to any activity or other matter that is included in the Spero Development Plan unless Meiji reasonably determines that the activity or other matter is likely to [***], in which case the activity or matter shall [***].

3.4 Meiji’s Diligence . Meiji shall have a period of [***] after the receipt of the final study report on the first pivotal study of each Spero New Formulation Product that is the basis for an Approval Application in any of the Major Countries (whether such pivotal study is a Phase 3 clinical trial or a Phase 2 clinical trial that is the basis for an Approval Application; provided that if the relevant Regulatory Authority requires an additional pivotal study prior to submitting an Approval Application, the latest clinical trial shall apply) to evaluate, on a formulation-by-formulation basis, (via the JDC) the data generated by Spero relating to such Spero New Formulation Product. On or before the expiration of such [***] period, Meiji shall provide to Spero a written notice confirming whether Meiji intends to progress the Development, Manufacture and Commercialization of such Spero New Formulation Product on a country-by-country basis in the Meiji Territory:

(i) If Meiji fails to provide written notice by such date, or if Meiji informs Spero that Meiji does not intend to progress the Development, Manufacture and Commercialization of such Spero New Formulation Product (on a formulation-by-formulation and country-by-country basis) in any country in the Meiji Territory, (a) the licenses granted to Meiji set forth in Section 2.2.1 and Section 2.2.2 shall immediately terminate only with respect to the Development, Manufacture and Commercialization of the Spero New Formulation Product in a country(ies) for which Meiji did not notify Spero of its intention to Develop, Manufacture and Commercialize the Spero New Formulation Product; provided, however, that all other licenses set forth in Section 2.2.1 and Section 2.2.2 shall remain in effect; and (b) at Spero’s request, Meiji shall grant to Spero, separately from this Agreement, under terms and conditions to be agreed by the Parties through good faith negotiation the licenses under Meiji Intellectual Property, Meiji Regulatory Documentation and WLJ Know-How, with respect to the Spero New Formulation Product in a country(ies) for which Meiji did not notify Spero of its intention to Develop, Manufacture and Commercialize the Spero New Formulation Product.

(ii) If Meiji’s written notice confirms that Meiji does intend to progress the Development, Manufacture and Commercialization of such Spero New Formulation Product in any country in the Meiji Territory, Meiji shall subsequently use Commercially Reasonable Efforts to Develop and Commercialize such Spero New Formulation Product in such country in the Meiji Territory. If, following the provision of such notice, Meiji fails to use Commercially Reasonable Efforts to Develop and Commercialize such Spero New Formulation Product in any of the countries designated in such notice, and such failure persists for a period of [***] Meiji’s rights in such country shall revert to Spero and the provisions of Section 3.4(i) shall apply.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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3.5 Meiji Development Plan . In the event that Meiji confirms that it does intend to progress the Development, Manufacture and Commercialization of a Spero New Formulation Product in any country(ies) of the Meiji Territory as contemplated in Section 3.4, Spero and Meiji shall use good faith efforts to agree, through the JDC, upon a development plan with respect to the Development of the Spero New Formulation Product with use of Spero Intellectual Property, Jointly-Generated Intellectual Property and/or Spero Regulatory Documentation in such country(ies) of the Meiji Territory (once approved by the JDC, the “ Meiji Development Plan ”). The Meiji Development Plan shall [***] unless Spero expressly agrees in writing, in its sole discretion. The Meiji Development Plan shall be updated by Meiji and submitted to the JDC at least annually. The Meiji Development Plan shall include [***]. In the event that the JDC does not approve the Meiji Development Plan, Meiji shall have final decision-making authority with respect thereto, including with respect to any activity or other matter that is included in the Meiji Development Plan unless Spero reasonably determines that the activity or other matter is likely to [***], in which case the activity or matter shall [***]. For the avoidance of doubt, except as required pursuant to Section 2.2.2, Meiji shall not be required to report any Development, Manufacture and Commercialization plan and/or activities on the Compound and/or the Product other than the Spero New Formulation Product.

3.6 Ongoing Data Sharing . The Parties, through the JDC, shall exchange the Meiji Intellectual Property, Spero Intellectual Property, Meiji Regulatory Documentation and Spero Regulatory Documentation throughout the Term in accordance with procedures and timing determined by the JDC, provided that such exchanges shall take place at least biannually.

3.7 Pharmacovigilance .

3.7.1 Spero shall own and manage the global safety database for the Product. Spero or its Affiliates shall be responsible for the timely reporting in the Spero Territory of all relevant adverse drug reactions/experiences, including those associated with Product quality complaints, and aggregate safety data relating to the Product, in accordance with local pharmacovigilance legislation within the Spero Territory. Meiji shall be responsible for the timely reporting in the Meiji Territory of all relevant adverse drug reactions/experiences, including those associated with Product quality complaints, and aggregate safety data relating to the Product, in accordance with local pharmacovigilance legislation within the Meiji Territory. The Parties shall exchange safety data described above throughout the Term.

3.7.2 Further details of the Parties’ respective pharmacovigilance obligations and responsibilities shall be set forth in a pharmacovigilance agreement that will be agreed to by the Parties (and their respective Affiliate(s), as appropriate) within [***] after the Effective Date (as it may be amended from time to time, the “ Pharmacovigilance Agreement ”). In the event of a conflict between the terms of the Pharmacovigilance Agreement and the terms of this Agreement, the provisions of this Agreement shall govern; provided, however, that the Pharmacovigilance Agreement shall govern in respect of pharmacovigilance, including safety and risk management matters.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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3.8 Supply Agreements . The Parties agree to negotiate in good faith within [***] after the Effective Date a new agreement concerning the Development, manufacture and supply of the Spero New Formulation Product for clinical use incorporating the terms set forth on Exhibit A hereto (the “ Clinical Supply Agreement ”). Meiji shall have a non-exclusive right to negotiate with Spero for a supply agreement for the Spero New Formulation Product for commercial use in the Spero Territory. No later than [***], the Parties shall initiate a good faith discussion with respect to a non-exclusive commercial supply agreement for the Spero New Formulation Product, and shall negotiate in good faith to agree on commercially reasonable terms for such commercial supply agreement.

3.9 Joint Commercialization Committee . The Parties shall, within [***] after the first filing by Spero of an Approval Application for the Product in the Spero Territory, establish a Joint Commercialization Committee (the “ JCC ”), comprised of [***] representatives of Spero and [***] representatives of Meiji, at least one of whom from each Party, who shall serve as [***], shall have experience and seniority sufficient to enable him or her to make decisions on behalf of the Party he or she represents concerning issues within the remit of the JCC. The JCC shall be responsible for sharing information relating to the Parties’ respective Commercialization plans in accordance with a JCC charter to be negotiated in good faith by the Parties prior to the establishment of the JCC. For clarity, subject to the other terms and conditions of this Agreement, each Party shall have sole control over Commercialization in its Territory except as may otherwise be expressly agreed by the Parties in a writing signed by their respective duly authorized representatives.

ARTICLE 4

ECONOMICS

4.1 Upfront Payment . In consideration of the rights granted by Meiji to Spero under Section 2.1, within [***] of the Effective Date, Spero shall pay to Meiji a one-time, non-refundable, non-creditable upfront fee of five hundred thousand US dollars ($500,000).

4.2 Milestone Payments . In consideration of the rights granted by Meiji to Spero under Section 2.1, Spero shall pay to Meiji the following milestone payments (each, a “ Milestone Payment ”) set forth in this Section 4.2 within [***] after occurrence of the corresponding milestone event (each, a “ Milestone Event ”). Each Milestone Payment is payable only once, regardless of the number of Products (or formulations) that achieve the relevant Milestone Event or the number of times Product(s) (or formulations) achieve such Milestone Event, and shall be non-refundable and non-creditable.

 

Milestone
Number
   Milestone Event    Milestone
Payment
 
1    Enrollment of the first patient or subject in the first Clinical Trial of a Product in the Spero Territory    $ 1,000,000  
2    [***]    $ [***]  
3    [***]    $ [***]  

4.3 Product Royalty . In consideration of the rights granted by Meiji to Spero under Section 2.1, Spero shall pay to Meiji a royalty on Net Sales of the Products (“ Royalties ”) at a royalty rate equal to [***] percent ([***]%) on a Product-by-Product and country-by-country basis during the Royalty Term. Upon the expiration of the Royalty Term for a given Product in a given country, no further royalties shall be payable on Net Sales of such Product in such country.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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4.4 Licensee Revenue . Spero shall pay to Meiji [***] percent ([***]%) of all Licensee Revenue in US dollars upon Spero’s receipt thereof (the “ Licensee Revenue Share ”), up to an aggregate amount of seven million five hundred thousand dollars ($7,500,000) (the “ Licensee Revenue Cap ”). For clarity, once the Licensee Revenue Cap has been reached, no further Licensee Revenue Share payments shall be due, regardless of the number of Products that have been sublicensed.

4.5 Payments .

4.5.1 Royalties shall become due and payable in US dollars [***] following the end of the calendar quarter during which Net Sales first occur, and within [***] of the end of each calendar quarter thereafter for Net Sales generated during each such calendar quarter.

4.5.2 Within [***] after the end of each calendar quarter following Regulatory Approval of a Product, Spero shall (i) pay, or cause to be paid, to Meiji an aggregate amount in cash equal to the amount of the Royalties for such calendar quarter and (ii) furnish to Meiji a written report showing in reasonably specific detail, on a Product-by-Product and country-by-country basis the calculation of Net Sales of a Product sold by Spero and its Affiliates and Sublicensees during such calendar quarter and the calculation of Royalties for such calendar quarter. Spero shall keep complete and accurate records in sufficient detail to enable the Royalties under this Article 4 to be determined.

4.5.3 When Spero receives the Licensee Revenue, Spero shall (i) pay to Meiji the Licensee Revenue Share on such Licensee Revenue and (ii) furnish to Meiji a written report showing details of such Licensee Revenue and the calculation of the Licensee Revenue Share within [***] after receipt by Spero of such Licensee Revenue or, as the case may be, completion of the appraisal of the fair market value of such Licensee Revenue if such Licensee Revenue is non-monetary consideration. Spero shall keep complete and accurate records with respect to the Licensee Revenue in sufficient detail to enable the Licensee Revenue Share to be determined.

4.5.4 In the event that Spero fails to pay to Meiji the upfront payment, Milestone Payment, Royalties and Licensee Revenue Share by the due date, Spero shall pay to Meiji overdue interest at the rate of [***] percent ([***]%) per annum from the due date until completion of the payment in full. Each payment of the upfront payment, Milestone Payment, Royalties and Licensee Revenue Share due from Spero to Meiji shall be made without any deduction, withholding or offset, except for the withholding tax if withholding tax is required by applicable tax laws.

4.5.5 Meiji shall provide such information and documentation to Spero as are reasonably requested by Spero that are necessary for Spero to determine if any withholding taxes apply to any payments to be made by Spero to Meiji. Spero shall only make such withholding tax payments to the extent required by applicable laws and shall subtract such required withholding tax payments that are actually paid by Spero to the appropriate governmental authority responsible for the collection of such withholding tax from the payments due to Meiji.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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Spero shall promptly submit to Meiji appropriate proof of payment by Spero to the appropriate tax authority of the required withholding taxes. At the request of Meiji, Spero shall give Meiji such reasonable assistance, which shall include the provision of appropriate certificates of such deductions and withholding tax payments made, together with other supporting documentation as may be required by the relevant tax authority, to enable Meiji to claim exemption from such withholding tax or to obtain a repayment thereof or a reduction thereof, and shall provide such additional documentation from time to time as is reasonably requested by Meiji in connection with any of the foregoing.

4.5.6 All payments hereunder including upfront payment, Milestone Payments, Royalties and Licensee Revenue Share shall be payable in US dollars. For Licensee Revenues which Spero receives in any currencies other than US dollars, they shall be translated to US dollars by using the interbank exchange rate on the date of such receipt quoted by the Wall Street Journal (or any successor publication thereto). For calculation of Royalties, Net Sales shall be first determined in the currency of the countries in which they are earned and then translated to US dollars by using the interbank exchange rate on the last business day of each calendar quarter quoted by the Wall Street Journal (or any successor publication thereto).

4.6 Audit Rights .

4.6.1 Upon [***] advance written notice by Meiji and not more than once in each calendar year, Spero, its Affiliates and Sublicensees shall permit an independent certified public accounting firm of nationally recognized standing, selected by Meiji and reasonably acceptable to Spero, to have access (including electronic access, to the extent available and customary for audit purposes) during normal business hours to such of the records of Spero and its Affiliates and Sublicensees as may be reasonably necessary to verify the accuracy of the reports on the Royalties and Licensee Revenue Share hereunder for the [***] calendar years immediately prior to the date of such request. No calendar year may be audited more than once. The accounting firm will enter a confidentiality agreement reasonably acceptable to Spero governing the use and disclosure of Spero’s information disclosed to such firm, and such firm shall disclose to Meiji only whether the reports on the Royalties and Licensee Revenue Share are correct or not and the specific details concerning any discrepancies. Meiji shall treat all financial information disclosed by its accounting firm pursuant to this Section 4.6.1 as Confidential Information of Spero for purposes of Section 6.1 of this Agreement, and shall cause its accounting firm to do the same.

4.6.2 The written report provided by the accounting firm shall be binding on the Parties absent manifest error. If such accounting firm concludes that the Royalties and/or Licensee Revenue Share paid during the audited period were more or less than the actual Royalties and/or Licensee Revenue Share due, Spero shall pay any additional amounts due within [***] after the date the written report of the accounting firm so concluding is delivered to Spero, and Spero shall be permitted to deduct any amounts overpaid from the Royalties and/or Licensee Revenue Share due in the next calendar quarter. The fees charged by such accounting firm shall be paid by Meiji; provided , that if the audit discloses that the Royalties and/or Licensee Revenue Share payable by Spero for the applicable period have been underpaid by more than [***] percent ([***]%), then Spero shall pay the reasonable fees and expenses charged by such accounting firm.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 5

INTELLECTUAL PROPERTY OWNERSHIP, PROTECTION AND RELATED MATTERS

5.1 Ownership of Intellectual Property and Regulatory Documentation .

5.1.1 Ownership of Solely Generated Intellectual Property . As between the Parties, each Party shall solely own any Intellectual Property that is made or generated solely by employees or contractors of such Party or its Affiliates or Sublicensees.

5.1.2 Ownership of Jointly-Generated Intellectual Property . As between the Parties, any Intellectual Property that is made or generated jointly by Meiji, its Affiliates or Sublicensees and Spero, its Affiliates or Sublicensees during the Term (“ Jointly-Generated Intellectual Property ”) shall be solely owned by Spero. Meiji hereby assigns and agrees to make any assignments in the future necessary to accomplish the ownership provisions of this Sections 5.1.2. Meiji has and will keep in force appropriate agreements with all of its employees and contractors necessary to fully effect this Section 5.1.2, and will impose equivalent obligations on its Affiliates and Sublicensees. Meiji shall execute all documents reasonably requested by Spero to further evidence, record and perfect the assignments under this Section 5.1.2, and will impose equivalent obligations on its Affiliates and Sublicensees.

5.1.3 Inventorship . As to the determination on whether any invention is solely generated or jointly generated, the rules of inventorship under the U.S. Patent Law shall apply.

5.1.4 Ownership of Regulatory Documentation .

(i) As between the Parties, Spero shall exclusively own all Spero Regulatory Documentation (excluding any data generated by or on behalf of Meiji that is incorporated in the Spero Regulatory Documentation (directly or by cross-reference) from Meiji Regulatory Documentation). Meiji shall have no rights, title or interest in or to the Spero Regulatory Documentation except for the license and right of reference set forth in Section 2.2.

(ii) As between the Parties, Meiji shall exclusively own all Meiji Regulatory Documentation (excluding any data generated by or on behalf of Spero that is incorporated in the Meiji Regulatory Documentation (directly or by cross-reference) from Spero Regulatory Documentation). Spero shall have no rights, title or interest in or to the Meiji Regulatory Documentation except for the license and right of reference set forth in Section 2.1.

5.2 Prosecution and Maintenance of Patent Rights .

5.2.1 Spero shall solely control the preparation, filing, prosecution and maintenance of the Spero Patent Rights at its sole expense on a global basis.

5.2.2 Meiji shall solely control the preparation, filing, prosecution and maintenance of the Meiji Patent Rights at its sole expense on a global basis.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

5.2.3 Spero and Meiji shall in good faith discuss and decide whether a patent application or similar protection shall be filed for each invention within the Jointly-Generated Intellectual Property. Spero shall control the preparation, filing, prosecution and maintenance of the Jointly-Generated Patent Rights at its sole expense on a global basis. Spero shall keep Meiji reasonably apprised of material developments regarding the preparation, filing, prosecution and maintenance of Jointly-Generated Patent Rights, and shall provide Meiji with a reasonable opportunity to comment and make requests regarding the same. Meiji shall provide any comments and make any requests promptly and Spero shall take account of Meiji’ comments and requests in good faith. Meiji shall cooperate with Spero to the extent reasonably necessary for Spero to prepare, file, prosecute and maintain the Jointly-Generated Patent Rights, including the execution and delivery of documents at no cost to Spero.

In the event Spero decides that it no longer wishes to prosecute or maintain any particular Jointly-Generated Patent Right in a specific country, Spero shall notify Meiji and provide Meiji with an opportunity to take over control of the prosecution and/or maintenance of such Jointly-Generated Patent Right in such country at Meiji’ sole expense; provided, however, that if Spero ceases to prosecute or maintain a Jointly-Generated Patent Right for strategic purposes, as set forth below, Meiji will not be granted the right to take over such activities. A decision to cease prosecution and/or maintenance of a Jointly-Generated Patent Right in a country shall be deemed to be “strategic” if it is made for reasons that in light of the likely outcomes of prosecution and/or maintenance of such Jointly-Generated Patent Right, cessation of prosecution and/or maintenance of such Jointly-Generated Patent Right will, in the opinion of Spero and Meiji or, if Spero and Meiji do not reach consensus, in the opinion of outside patent counsel selected by Spero and Meiji, likely be more beneficial for the protection, validity or enforceability of another Jointly-Generated Patent Right, Spero Patent Rights and/or Meiji Patent Rights in such country or other countries. In the event that Meiji takes over prosecution and maintenance of a Jointly-Generated Patent Right under this Section 5.2.3(i), Spero shall assign its joint ownership interest to Meiji, free of charge, and such Jointly-Generated Patent Right so assigned shall no longer be deemed to be a Jointly-Generated Patent Right and shall become a Patent Right owned by Meiji but shall not be deemed to be a Meiji Patent Right licensed to Spero under this Agreement.

5.3 Third Party Infringement .

5.3.1 Notice . If, during the Term, either Party learns of any actual, alleged or threatened infringement by a Third Party of the Spero Patent Rights, the Meiji Patent Rights or Patent Rights in the Jointly-Generated Intellectual Property, such Party shall promptly notify the other Party and shall provide such other Party with available evidence of such infringement.

5.3.2 Enforcement of Patent Rights .

(i) Spero shall have the sole right (but not obligation) to institute any infringement Action under Spero Patent Rights in the Spero Territory and the first right (but not obligation) to institute any infringement Action under Meiji Patent Rights and the Jointly-Generated Patent Rights in the Spero Territory at its expense. In the event that Spero does not exercise the first right to institute any infringement Action under Meiji Patent Rights and the Jointly-Generated Patent Rights in the Spero Territory, then Meiji shall have the right (but not obligation) to institute any infringement Action under Meiji Patent Rights and the Jointly-Generated Patent Rights in the Spero Territory at its expense.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(ii) Meiji shall have the sole right (but not obligation) to institute any infringement Action under Meiji Patent Rights in the Meiji Territory and the first right (but not obligation) to institute any infringement Action under Spero Patent Rights and the Jointly-Generated Patent Rights in the Meiji Territory at its expense. In the event that Meiji does not exercise the first right to institute any infringement Action under Spero Patent Rights and the Jointly-Generated Patent Rights in the Meiji Territory, then Spero shall have the right (but not obligation) to institute any infringement Action under Meiji Patent Rights and the Jointly-Generated Patent Rights in the Meiji Territory at its expense.

5.3.3 Cooperation . In any infringement Action brought by each Party pursuant to Section 5.3.2, the other Party shall, and shall cause its Affiliates to, reasonably cooperate with the Party bringing such infringement Action.

5.3.4 Orange Book Listings . Spero shall have the sole right to determine which Patent Rights that Cover a Product to list in the Orange Book in the U.S. or other foreign equivalents in the Spero Territory and shall, at its discretion, undertake, at its costs and expense, to file any relevant information in order to ensure appropriate listing in the Orange Book relating to a Product.

ARTICLE 6

CONFIDENTIALITY

6.1 Confidential Information .

6.1.1 Obligations .

(a) During the Term and for a period of [***] after any termination or expiration of this Agreement, each Party agrees to, and shall cause its Affiliates to, keep in confidence and not to disclose to any Third Party (except as expressly set forth elsewhere in Section 6.1), or use for any purpose, except to exercise its rights or perform its obligations under this Agreement, any Confidential Information of the other Party.

(b) Each Party agrees that it and its Affiliates shall provide or permit access to the other Party’s Confidential Information to the receiving Party’s directors, officers, employees, consultants, advisors and Sublicensees, and to the directors, officers, employees, consultants and advisors of the receiving Party’s Affiliates, in each case who are subject to obligations of confidentiality and non-use with respect to such Confidential Information no less stringent than the obligations of confidentiality and non-use of the receiving Party pursuant to this Section 6.1; provided, that each Party shall remain responsible for any failure by its Affiliates and Sublicensees, and its and its Affiliates’ respective directors, officers, employees, consultants and advisors, to treat such Confidential Information as required under this Section 6.1 (as if such Affiliates, directors, officers, employees, consultants, advisors and Sublicensees were parties directly bound to the requirements of this Section 6.1).

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

6.1.2 Permitted Disclosures .

(a) Notwithstanding anything to the contrary herein, a receiving Party may disclose the other Party’s Confidential Information to the extent such disclosure is reasonably necessary to (i) apply for Approval Applications and obtain and/or maintain Marketing Approvals, (ii) file and prosecute patent applications or maintain patents which are filed or prosecuted in accordance with the provisions of this Agreement, (iii) file, prosecute or defend litigation in accordance with the provisions of this Agreement, (iv) comply with applicable laws, regulations or court orders; provided, however, that if a receiving Party is required to make any such disclosure, it shall provide prior written notice to the disclosing Party and will use reasonable efforts to assist the disclosing Party in its efforts to secure confidential treatment or a protective order or to otherwise limit disclosure, or (v) to the extent such disclosure is reasonably necessary, in complying with the terms of agreements with Third Parties related to Products that are entered into after the Effective Date.

6.2 Existence and Terms of Agreement . Subject to Section 10.24 ( Press Releases and Publicity) , neither Party may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed; provided, however , that either Party may make such a disclosure (i) to Affiliates, (ii) to potential and actual Sublicensees, investors or sources of financing (in each case who are subject to obligations of confidentiality and non-use with respect to such Confidential Information no less stringent than the obligations of confidentiality and non-use of the receiving Party pursuant to Section 6.1), (iii) in case of Meiji, to Pfizer Japan and its parent company Pfizer Inc. to the extent that such disclosure is necessary (x) to seek Pfizer Japan’s consent pursuant to Section 2.4.1, 10.1 or 10.24.4 or Pfizer Japan’s [***] to Spero or (y) to comply with the terms of the WLJ Agreement (in each case, with imposing on Pfizer Japan and Pfizer Inc. the obligation of confidentiality and non-use no less stringent than the obligations of confidentiality and non-use of Meiji pursuant to Section 6.1) and (iv) to the extent required by law or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which such Party has its securities listed or traded. In the event that any such disclosure is required, discloser shall make reasonable efforts to provide the other Party with prior notice and to coordinate with the other Party with respect to the wording and timing of any such disclosure.

ARTICLE 7

REPRESENTATIONS AND WARRANTIES; CERTAIN COVENANTS

7.1 Representations, Warranties and Covenants of each Party .

7.1.1 Each Party represents and warrants to the other Party that as of the Effective Date, it and its contractors, and its and their respective directors, officers and employees who are involved in the performance of any activities under this Agreement relating to the Product (collectively, “ Personnel ”) have never been and are not currently debarred pursuant to the US Generic Drug Enforcement Act of 1992, 21 U.S.C. §335(a), as amended, or any similar law or regulation (collectively “ Debarred ”), excluded by the US Office of Inspector General pursuant to 42 U.S.C. § 1320a-7, et seq. or any agency from participation in any health care program (collectively “ Excluded ”) or otherwise disqualified or restricted by the US FDA pursuant to 21 C.F.R. 312.70, or Regulatory Authority (collectively “ Disqualified ”).

7.1.2 Each Party covenants to the other Party that it shall not employ any Debarred, Excluded or Disqualified Personnel or allow any Debarred, Excluded or Disqualified entity to be involved in any activities relating to this Agreement. Each Party shall notify the other Party promptly if its Personnel are threatened to become Debarred, Excluded or Disqualified.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

7.2 Representations and Warranties of Meiji . Meiji represents and warrants to Spero that, as of the Effective Date:

7.2.1 The execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Meiji corporate action.

7.2.2 This Agreement is a legal and valid obligation binding upon Meiji and enforceable against Meiji in accordance with its terms, subject to the effects of bankruptcy, insolvency or other laws of general application affecting the enforcement of creditor rights, judicial principles affecting the availability of specific performance and general principles of equity (whether enforceability is considered a proceeding at law or equity), and the execution, delivery and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Meiji is a party or by which it is bound.

7.2.3 With respect to the Meiji Intellectual Property (for clarity, other than any WLJ Know-How that is inseparably combined with Meiji Know-How, which shall be covered by the representation and warranty set forth in Section 7.2.4) and the Meiji Regulatory Documentation, Meiji has the full right and legal capacity to grant the rights granted to Spero hereunder without violating the right of any Third Party.

7.2.4 Meiji has obtained Pfizer Japan’s written consent to Meiji’s entering into an agreement with Spero for Meiji to, and Pfizer Japan’s [***] to (i) supply the Compound to Spero and its Affiliates, (ii) help develop the Product for Spero and its Affiliates, (iii) supply the Product to Spero and its Affiliates and (iv) assist Spero and its Affiliates with the transfer or license of the WLJ Know-How in the Spero Territory as more fully set forth in the Pfizer Letter, a copy of which has been provided to Spero.

7.2.5 Neither Meiji nor any of its Affiliates is a party to or otherwise bound by any oral or written contract or agreement that will result in any Person obtaining any interest in, or that would give to any Person any right to assert any claim in or with respect to, any rights granted by Meiji to Spero under this Agreement.

7.2.6 Meiji does not own or Control any Intellectual Property that would prevent Spero from exercising the rights granted to it by Meiji under this Agreement.

7.2.7 Neither Meiji nor any of its Affiliates (i) has granted or will during the Term grant any right, license, encumbrance, consent or privilege that is inconsistent with the rights granted to Spero hereunder or (ii) has entered into or will during the Term enter into any agreements, whether oral or written, that are inconsistent with its obligations under this Agreement.

7.2.8 Meiji is not aware of any Third Party’s Patent Right that would be infringed by making, using, offering for sale, selling or importing the Compound or the Products. Meiji is not aware of any infringement or misappropriation by a Third Party of any Intellectual Property Controlled by Meiji.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

7.2.9 The WLJ Agreement is valid and in full force and effect as of the Effective Date, and neither Meiji nor, to Meiji’s knowledge, Pfizer Japan, is in breach, or has delivered to the other party thereto a notice of breach, of the WLJ Agreement.

7.2.10 There are no claims, judgments, or settlements against Meiji or any of its Affiliates relating to the WLJ Know-How or Meiji Know-How. No claim or litigation has been brought or, to Meiji’s knowledge, threatened against Meiji by any Person alleging the misappropriation of the WLJ Know-How or Meiji Know-How.

7.2.11 To Meiji’s knowledge, no material breach of confidentiality vis-à-vis Meiji has been committed by any Third Party with respect to the Meiji Know-How or WLJ Know-How and Meiji has used reasonable measures to protect the confidentiality thereof.

7.2.12 To Meiji’s knowledge, all written data, results and other information disclosed by Meiji to Spero at any time prior to the Effective Date relating to the Compound, the Product or the Meiji Intellectual Property or, assuming WLJ Know-How obtained from Pfizer Japan is true and accurate, WLJ Know-How is true and accurate in all material respects, and did not omit important information known to Meiji that would be required to be disclosed in order to make such data, results and other information that was disclosed to Spero not misleading in any material respect.

7.3 Representations and Warranties of Spero . Spero represents and warrants to Meiji that, as of the Effective Date:

7.3.1 The execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Spero corporate action.

7.3.2 This Agreement is a legal and valid obligation binding upon Spero and enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency or other laws of general application affecting the enforcement of creditor rights, judicial principles affecting the availability of specific performance and general principles of equity (whether enforceability is considered a proceeding at law or equity), and the execution, delivery and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Spero is a party or by which it is bound.

7.3.3 Spero has the full right and legal capacity to grant the rights granted to Meiji hereunder without violating the rights of any Third Party.

7.3.4 Neither Spero nor any of its Affiliates (i) has granted or will during the Term grant any right, license, encumbrance, consent or privilege that is inconsistent with the rights granted hereunder or (ii) has entered into or will during the Term enter into any agreements, whether oral or written, that are inconsistent with its obligations under this Agreement.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

7.3.5 Spero does not own or Control any Intellectual Property that would prevent Meiji from exercising the rights granted to it by Spero under this Agreement.

7.3.6 Spero is not aware of any Third Party’s Patent Right that would be infringed by making, using, offering for sale, selling or importing the Compound or the Products. Spero is not aware of any infringement or misappropriation by a Third Party of any of the Spero Intellectual Property.

7.3.7 There are no claims, judgments, or settlements against Spero or any of its Affiliates relating to the Spero Know-How. No claim or litigation has been brought or, to Spero’s knowledge, threatened against Spero by any Person alleging the misappropriation of the Spero Know-How.

7.3.8 To Spero’s knowledge, no material breach of confidentiality has been committed by any Third Party with respect to the Spero Know-How and Spero has used reasonable measures to protect the confidentiality thereof.

7.4 No Warranties . Except as expressly set forth in this Agreement, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR OF NON-INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OF THIRD PARTIES, OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES.

ARTICLE 8

INDEMNIFICATION

8.1 General Indemnification By Meiji . Meiji shall defend, indemnify and hold harmless Spero, its Affiliates and their respective directors, officers, employees and agents (collectively, the “ Spero Indemnified Parties ”), from, against and in respect of any and all Actions brought by a Third Party (a “ Third Party Claim ”) and Losses incurred or suffered by any Spero Indemnified Party to the extent such Third Party Claims and Losses arise from: (a) any breach of, or inaccuracy in, any representation or warranty made by Meiji in this Agreement, or any breach or violation by Meiji of any covenant or agreement in this Agreement; (b) the negligence or intentional misconduct of, or violation of law by, Meiji, any of its Affiliates or Sublicensees, or any of their respective directors, officers, employees and agents, in performing Meiji’s obligations or exercising Meiji’s rights under this Agreement; (c) the Development, Manufacture or Commercialization of a Compound or a Product by Meiji or any of its Affiliates or Sublicensees; or (d) the development, manufacture or commercialization of a compound or a product that is developed or manufactured using any Jointly-Generated Intellectual Property by Meiji or any of its Affiliates or Sublicensees.

8.2 General Indemnification By Spero . Spero shall defend, indemnify and hold harmless Meiji, its Affiliates and their respective directors, officers, employees and agents (collectively, the “ Meiji Indemnified Parties ”), from, against and in respect of any and all Third Party Claims and Losses incurred or suffered by any Meiji Indemnified Party to the extent such

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Third Party Claims and Losses arise from: (a) any breach of, or inaccuracy in, any representation or warranty made by Spero in this Agreement or any breach or violation by Spero of any covenant or agreement in this Agreement; (b) the negligence or intentional misconduct of, or violation of law by, Spero, any of its Affiliates or Sublicensees, or any of their respective directors, officers, employees and agents, in performing Spero’s obligations or exercising Spero’s rights under this Agreement; or (c) the Development, Manufacture or Commercialization of a Compound or a Product by Spero or any of its Affiliates or Sublicensees.

8.3 Pfizer Claim . Each Party’s indemnification obligations set forth in Section 8.1 and Section 8.2 shall not apply to any Actions brought by Pfizer Japan (“ Pfizer Claim ”) and Losses incurred or suffered by a Spero Indemnified Party or a Meiji Indemnified Party, as applicable, as a result of the Pfizer Claim, except in case where the Pfizer Claim arises from or is attributable to any event set forth in item (a) or (b) of Section 8.1 or item (a) or (b) of Section 8.2, in which case each Party’s indemnification obligations shall apply to the Pfizer Claim in accordance with item (a) or (b) of Section 8.1 or item (a) or (b) of Section 8.2, as applicable.

8.4 Notice . A Spero Indemnified Party or Meiji Indemnified Party, as applicable, (the “ Indemnified Party ”) shall give prompt written notification to the Party from whom indemnification is sought (the “ Indemnifying Party ”) of the commencement of Third Party Claim or, if earlier, upon the assertion of such Third Party Claim by a Third Party; provided, however, that failure by the Indemnified Party to give notice of a Third Party Claim as provided in this Section 8.4 shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement, except and only to the extent that the Indemnifying Party is actually prejudiced as a result of such failure to give notice.

8.5 Defense . Within [***] after delivery of a notice of any Third Party Claim in accordance with Section 8.4, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such Third Party Claim with counsel reasonably satisfactory to the Indemnified Party. If the Indemnifying Party does not assume control of such defense, the Indemnified Party shall control such defense. The Party not controlling such defense may participate therein at its own expense, unless the Indemnifying Party has not assumed control of such Third Party Claim, in which case such expenses shall be borne by the Indemnifying Party.

8.6 Cooperation . The Party controlling the defense of any Third Party Claim shall keep the other Party advised of the status of such Third Party Claim and the defense thereof and shall reasonably consider recommendations made by the other Party with respect thereto. The other Party shall reasonably cooperate with the Party controlling such defense and its Affiliates and agents in defense of the Third Party Claim, with all out-of-pocket costs of such cooperation to be borne by the Indemnifying Party.

8.7 Settlement . The Indemnified Party shall not agree to any settlement of such Third Party Claim without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld, agree to any settlement of such Third Party Claim or consent to any judgment in respect thereof that does not include a complete and unconditional release of the Indemnified Party from all liability with respect thereto or that imposes any liability or obligation on the Indemnified Party.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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ARTICLE 9

TERM AND TERMINATION

9.1 Term . Unless terminated earlier in accordance with this Article 9, this Agreement becomes effective as of the Effective Date and shall continue in effect until, and expire upon, on a country-by-country basis, the later of (i) the end of the Royalty Term in such country or (ii) if Spero is still receiving Licensee Revenue from a Sublicensee in such country at the end of the Royalty Term and the Licensee Revenue Cap has not been reached, the date upon which the Licensee Revenue Cap has been reached (the “ Term ”).

9.2 Termination .

9.2.1 Voluntary Termination . Spero may, after [***] Meiji, terminate this Agreement, by providing Meiji with notice in writing that Spero intends to abandon all the Development and Commercialization of the Compound and the Product in any countries in the Spero Territory because efficacy, safety, unanticipated regulatory requirements or restrictions, or business factors (such as, but not limited to, higher-than-anticipated costs of Development, Manufacture or Commercialization; unfavorable reimbursement projections; or the likelihood of competition from products being developed or commercialized by third parties) do not justify Spero’s continued Development or Commercialization of the Compound and/or the Product in the Spero Territory. If Spero provides such notice of termination, (i) this Agreement shall remain in full force and effect until the effective date of such termination, and (ii) at Meiji’s request, Spero shall [***] the transfer of the Spero Regulatory Documentation to Meiji [***].

9.2.2 Termination for Material Breach . Upon any material breach of this Agreement by either Party (the “ Breaching Party ”), the other Party (the “ Non-Breaching Party ”) shall have the right, but not the obligation, to terminate this Agreement in its entirety by providing [***] written notice to the Breaching Party, which notice shall, in each case (a) expressly reference this Section 9.2.2, (b) reasonably describe the alleged breach which is the basis of such termination, and (c) clearly state the Non-Breaching Party’s intent to terminate this Agreement if the alleged breach is not cured within the applicable cure period. The termination shall become effective at the end of the notice period unless the Breaching Party cures such breach during such notice period; provided , that, the Non-Breaching Party may, by notice to the Breaching Party, designate a later date for such termination. Notwithstanding the foregoing, (1) if such material breach, by its nature, is curable, but is not reasonably curable within the applicable cure period, then such cure period shall be extended if the Breaching Party provides a written plan for curing such breach to the Non-Breaching Party and uses diligent efforts to cure such breach in accordance with such written plan; provided , that no such extension shall exceed [***] without the consent of the Non-Breaching Party. If the Breaching Party fails to cure such material breach within such [***] period, or such longer period of time as the Parties may agree, then the Non-Breaching Party may terminate this Agreement upon written notice to the Breaching Party as provided in this Section 9.2.2.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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9.2.3 Termination for Insolvency . In the event that either Party (a) files for protection under bankruptcy or insolvency laws, (b) makes an assignment for the benefit of creditors, (c) appoints or suffers appointment of a receiver or trustee over substantially all of its property that is not discharged within ninety (90) days after such filing, (d) proposes a written agreement of composition or extension of its debts, (e) proposes or is a party to any dissolution or liquidation, (f) files a petition under any bankruptcy or insolvency act or has any such petition filed against it that is not discharged within sixty (60) days of the filing thereof, or (g) admits in writing its inability generally to meet its obligations as they fall due in the general course, then the other Party may terminate this Agreement in its entirety effective immediately upon written notice to such Party. In the event Meiji terminates this Agreement pursuant to this Section 9.2.3 and if legally permissible, Spero shall, at Meiji’s request, transfer to Meiji the Spero Regulatory Documentation for reasonable monetary consideration to be agreed by the Parties through good faith negotiation.

9.2.4 Spero Termination Rights Relating to WLJ Agreement . Spero shall have the right, in its sole discretion, to terminate this Agreement and return to Meiji all WLJ Know-How in Spero’s possession that constitutes Meiji’s Confidential Information, if any of the following circumstances arise:

(i) Either the WLJ Agreement or the Pfizer Letter is validly terminated by Pfizer Japan, except in case where such termination is due to any event set forth in item (a) or (b) of Section 8.2;

(ii) If a Pfizer Claim is made against Spero or any of its Affiliates or Sublicensees for reasons of this Agreement except in case where such Pfizer Claim arises or is attributable to any event set forth in item (a) or (b) of Section 8.2;

(iii) If the WLJ Agreement [***] in any material respect, or otherwise [***] which have a material impact on Development or Commercialization of the Compound and/or the Product by Spero or its Affiliates, provided that Spero gives Meiji written notice of such termination [***], provided that [***];

(iv) Pfizer Japan refuses a request made pursuant to Section 2.4.1, 10.1, or 10.24.4, and such refusal has a material impact on Development or Commercialization of the Compound or the Product by Spero under this Agreement; or

(v) Meiji cannot [***], no later than [***] after the Effective Date or [***] before the implementation of the due diligence requirements described in this Section 9.2.4(v), whichever comes first, (a) to Spero, its Affiliates and potential and actual Sublicensees, investors or sources of financing or their counsel (subject to confidentiality obligations consistent with this Agreement) to satisfy the due diligence requirements of Spero’s potential and actual Sublicensees, investors or sources of financing or their counsel, or (b) to the extent required by applicable law, rule or regulation or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which Spero or a relevant Affiliate of Spero has its securities listed or traded, or proposed to be listed or traded, provided that [***].

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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For the avoidance of doubt, any of the above circumstances shall not be deemed to constitute a breach of this Agreement by Meiji, and (a) Meiji shall not be required to reimburse any payments made by Spero hereunder prior to the date of such termination and (b) Meiji shall not owe any liability to Spero due to such termination, except to the extent that such liability arises under a provision of this Agreement other than this Section 9.2.4.

9.3 Effects of Expiration or Termination . In the event of expiration or termination of this Agreement for any reason, the provisions of this Section 9.3 shall apply.

9.3.1 Effects of Expiration on Licenses . Upon the expiration of the Term of this Agreement in accordance with Section 9.1, all licenses granted by Spero to Meiji under Section 2.2.1, and all licenses granted by Meiji to Spero under Section 2.1, shall survive and become fully-paid up and perpetual.

9.3.2 Return of Confidential Information . Within [***] after the effective date of expiration or termination of this Agreement in its entirety, or earlier if requested by a Party, each Party shall, and shall cause its Affiliates to (a) destroy, all tangible items solely comprising, bearing or containing any Confidential Information of the other Party that are in such first Party’s or its Affiliates’ possession or control, and provide written certification of such destruction, or (b) prepare such tangible items of the other Party’s Confidential Information for shipment to such other Party, as such other Party may direct, at the first Party’s expense; provided , that, in any event, each Party may retain one copy of the Confidential Information of the other Party to the extent necessary to exercise its rights or perform its obligations that survive expiration or termination of this Agreement.

9.3.3 Effects of Termination on Licenses .

(a) In the event of any termination of this Agreement by Meiji under Section 9.2.2 or 9.2.3, (i) all licenses granted by Meiji to Spero under Section 2.1 shall terminate, and (ii) all licenses granted by Spero to Meiji under Section 2.2.1 shall survive and become fully-paid up and perpetual . In the event of any such termination, at Meiji’s request, and subject to any continuing rights of Spero’s Sublicensees, Spero shall negotiate in good faith for the transfer of the Regulatory Documentation to Meiji and the possible expansion of the licenses granted to Meiji beyond the scope set forth in the preceding sentence.

(b) In the event of any termination of this Agreement by Spero under Section 9.2.1, (i) all licenses granted by Spero to Meiji under Section 2.2.1 shall survive and become fully-paid up and perpetual, and (ii) all licenses granted by Meiji to Spero under Section 2.1 shall terminate. In the event of any such termination, at Meiji’s request, and subject to any continuing rights of Spero’s Sublicensees, Spero shall negotiate in good faith for the transfer of to Meiji and the possible expansion of the licenses granted to Meiji beyond the scope set forth in the preceding sentence.

(c) In the event of any termination of this Agreement by Spero under Section 9.2.2 or 9.2.3, (i) all licenses granted by Spero to Meiji under Section 2.2.1 shall terminate, and (ii) all licenses granted by Meiji to Spero under Section 2.1 shall survive and become fully-paid up and perpetual.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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(d) In the event of any termination of this Agreement by Spero under Section 9.2.4, (i) all licenses granted by Spero to Meiji under Section 2.2.1 shall survive and become fully-paid up and perpetual, subject to the last sentence of Sections 2.2.1 and (ii) all licenses granted by Meiji to Spero under Section 2.1 shall survive and become perpetual and freely sublicensable but be limited to exclude the WLJ Know-How. Following such termination, so long as Spero or its Affiliates or Sublicensees continue to exercise the licenses granted to Spero under Section 2.1, Spero shall continue to pay royalties, Licensee Revenue Share and milestone payments to Meiji subject to, and in accordance with, the provisions of Article 4.

9.3.4 Non-Exclusive Remedy . Notwithstanding anything herein to the contrary, termination of this Agreement shall be without prejudice to other remedies any Party may have at law or equity.

9.3.5 Survival . Termination or expiration of this Agreement shall not relieve either Party of any obligation accruing prior to expiration or termination. Section 4.5 ( Payments ) shall survive only until all obligations under Sections 4.1, 4.2, 4.3 and 4.4 that accrued prior to the date of expiration or termination have been satisfied, or in the case of termination by Spero pursuant to Section 9.2.4, until any surviving payment obligations have been satisfied. Articles and Sections 1 ( Definitions ), 2.2.2, 4.6 ( Audit Rights ), 5.1 ( Ownership of Intellectual Property and Regulatory Documentation ), 5.2 (Prosecution and Maintenance of Patent Rights), 6 ( Confidentiality ), 8 ( Indemnification ), 9.3 ( Effects of Expiration or Termination ), and 10 ( Miscellaneous ) shall survive and continue in full force and effect after expiration or termination of this Agreement. Except as otherwise provided in this Section 9, all rights and obligations of the Parties under this Agreement shall terminate upon expiration or termination of this Agreement in its entirety or solely with respect to the terminated country, as the case may be, for any reason.

9.3.6 Survival of Sublicenses . In the event of a termination of this Agreement by Spero pursuant to Section 9.2.1 or by Meiji pursuant to Section 9.2.2 or 9.2.3 while a sublicense of rights granted by Spero is in effect, the terms of this Section 9.3.6 shall apply, provided , that, the applicable Sublicensee is not in material breach of the applicable sublicense agreement. In such event, (a) all of such Sublicensee’s obligations under the applicable sublicense agreement to Spero shall remain in effect as obligations to Meiji and shall be enforceable solely by Meiji as a third party beneficiary, (b) all of such Sublicensee’s rights against Spero under the sublicense agreement that do not exceed and are not inconsistent with Meiji’s obligations to Spero under this Agreement, whether in scope, duration, nature or otherwise, shall remain in effect and may be enforced against Spero subject to the terms of the sublicense agreement; provided , that the foregoing shall in no way be interpreted to increase the scope, duration, territory or other aspect of the rights sublicensed to such Sublicensee and (c) all of Spero’s rights under the sublicense agreement shall remain in effect, may be exercised solely by Meiji as a third party beneficiary and shall inure to the exclusive benefit of Meiji. For clarity, the termination of this Agreement by Spero pursuant to Section 9.2.2, 9.2.3 or 9.2.4 shall have no effect on any sublicense agreement between Spero or its Affiliates and any Sublicensee, provided that in the event of termination of this Agreement pursuant to Section 9.2.4, the WLJ Know-How shall be deemed to be excluded from such sublicense agreement.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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ARTICLE 10

MISCELLANEOUS

10.1 Assignment; Successors . Neither this Agreement nor any right or obligation hereunder may be assigned, in whole or in part, by operation of law or otherwise by any Party without the prior written consent of the other Party, except that either Party may, without the written consent of the other, assign this Agreement in its entirety (i) to an Affiliate, or (ii) in connection with the transfer or sale of all or substantially all of such Party’s assets or business related to this Agreement, or in the event of its merger, consolidation or similar transaction, provided that prior written consent of Pfizer Japan to the assignment shall be obtained. In the event that such consent is sought, but not obtained, from Pfizer Japan, Spero shall have the right to assign all of its rights and delegate its obligations hereunder other than those specifically relating to the WLJ Know-How in connection with such transfer or sale of all or substantially all of Spero’s assets or business related to this Agreement, or in the event of Spero’s merger, consolidation or similar transaction; provided that if Spero desires to proceed with the assignment of any data set, report or other document other than those set forth in Exhibit D, Spero shall consult with Meiji whether such data set, report, or other document qualifies as WLJ Know-How or Meiji Know-How and shall abide by Meiji’s determination of such qualification. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by, the Parties hereto and their respective successors and assigns.

10.2 Export Control . This Agreement is made subject to any restrictions concerning the export of products or technical information from the United States or other countries that may be imposed on the Parties from time to time. Each Party agrees that it shall not export, directly or indirectly, any technical information acquired from the other Party under this Agreement or any products using such technical information to a location or in a manner that at the time of export requires an export license or other governmental approval, without first obtaining the written consent to do so from the appropriate agency or other governmental entity in accordance with applicable law.

10.3 Compliance with Applicable Laws . In the performance of its obligations hereunder, each Party shall comply and shall cause its Affiliates, employees and contractors involved in the performance of this Agreement to comply with all applicable laws, including all applicable anti-corruption laws and privacy and data protection laws.

10.4 Choice of Law . This Agreement shall be governed by, and construed in accordance with, the substantive law of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof. The UN Convention on the International Sale of Goods is hereby excluded by the Parties.

10.5 Dispute Resolution .

(a) Scope . Unless otherwise expressly provided for herein, any claim or controversy between the Parties arising out of, or relating to, the execution, interpretation and performance of this Agreement (including the breach, termination or validity thereof, and the scope and enforceability of this provision) shall be identified in writing and presented to the other Party (“Dispute Notice”). A Dispute Notice must set forth the details of the dispute and the notifying Party’s position.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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(b) Settlement Negotiation . Promptly after receipt of a Dispute Notice by a Party, the Parties shall attempt to resolve the dispute through good faith discussions.

(c) Escalation . If the Parties are unable to resolve a dispute within [***] after receipt of the Dispute Notice by a Party, the Parties shall escalate the dispute to the Spero Executive Officer and the Meiji Executive Officer, each having the authority to resolve the dispute, who shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute in good faith.

(d) Arbitration . Any dispute arising out of or relating to this Agreement, including the breach, termination or validity thereof, and the scope and enforceability of this provision, which cannot be resolved amicably pursuant to Section 10.5(b) and Section 10.5 (c), shall be finally resolved by arbitration in accordance with the arbitration rules of the International Chamber of Commerce (“ ICC ”), in effect at the time of the arbitration, except as otherwise mutually agreed by the Parties. Arbitration shall be conducted by a single arbitrator to be agreed upon by the Parties. If the Parties are unable to agree, the arbitrator shall be appointed in accordance with ICC rules. The arbitrator must have at least ten (10) years of experience in the pharmaceutical industry. The arbitrator shall have the authority to decide the arbitrability of the dispute and to award fees and expenses, including reasonable attorney’s fees, to a Party. The arbitrator shall not have the authority to award any damages that are expressly limited or excluded by this Agreement. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. The arbitration shall be conducted in Singapore in the English language. The arbitration shall be completed and the award issued within [***] of the appointment of the arbitrator.

(e) Confidentiality . The Parties agree that all negotiations for dispute resolution shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. The Parties further agree that the arbitration shall be kept confidential and that the existence of the arbitration proceeding and any element of it (including but not limited to any pleadings, briefs or other documents submitted or exchanged, any testimony or other oral submissions, and any awards) shall not be disclosed beyond the arbitration tribunal, the ICC, the Parties, their counsel, accountants and auditors, insurers and re-insurers, and any person or entity necessary to the conduct of the proceeding. The confidentiality obligations in this Section 10.5(e) shall not apply (i) if disclosure is required by law, or in judicial or administrative proceedings, or (ii) as far as disclosure is necessary to enforce the rights arising out of the arbitration award.

10.6 Injunctive Relief . Notwithstanding Section 10.5 (Dispute Resolution) or anything to the contrary in this Agreement, either Party may seek immediate injunctive or other interim equitable relief as necessary in the event of a breach or threatened breach of a Party’s obligations under Article 5 (Intellectual Property Rights) or Article 6 (Confidentiality) of this Agreement, or as otherwise may be required in order to prevent imminent irreparable harm, damage or injury to a Party.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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10.7 Notices . All notices, requests, claims, demands, waivers and other communications under this Agreement shall be in writing and shall be by registered airmail, postage prepaid, courier services or personal delivery to the following addresses, or to such other addresses as shall be designated from time to time by a Party in accordance with this Section 10.7. The addresses and other contact information for the Parties are as follows:

 

If to Meiji:   

Meiji Seika Pharma Co., Ltd.

Attention: Yuji Sasaki, Managing Executive Officer

2-4-16, Kyobashi, Chuo-ku

Tokyo 104-8002, Japan

Tel: [***]

With a copy to:   

Meiji Seika Pharma Co., Ltd.

Attention: Kenshi Murase, General Manager, Partnering Strategy and Business Development

2-4-16, Kyobashi, Chuo-ku

Tokyo 104-8002, Japan

Tel: [***]

If to Spero:   

Spero OpCo, Inc.

675 Massachusetts Avenue, 14 th Floor

Cambridge, MA 02139, USA

Attention: Ankit Mahadevia

Tel: 857-242-1600

With a copy to:   

Mintz Levin

Attention: Lewis J. Geffen

One Financial Center

Boston, MA 02111, USA

Tel: (617) 348-1834

10.8 Severability . Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. The Parties shall use all reasonable efforts to replace such invalid or unenforceable provision of this Agreement with a valid and enforceable provision that shall achieve, to the greatest extent possible, the economic, business and other purposes of such invalid or unenforceable provision.

10.9 Integration . This Agreement together with all schedules and exhibits attached hereto, constitutes the entire agreement between the Parties with respect to the subject matter of this Agreement and supersedes all previous agreements, whether written or oral. Each Party confirms that it is not relying on any representations or warranties of the other Party except as specifically set forth in this Agreement.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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10.10 English Language . This Agreement shall be written and executed in and all other communications under or in connection with this Agreement shall be in, the English language. Any translation into any other language shall not be an official version thereof, and in the event of any conflict in interpretation between the English version and such translation, the English version shall control.

10.11 Section 365(n) . All licenses granted under this Agreement are deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined in Section 101 of such Code. The Parties agree that each Party may fully exercise all of its rights and elections under the U.S. Bankruptcy Code, regardless of whether either Party files for bankruptcy in the United States. The Parties further agree that, in the event either Party elects to retain its rights under such Code, such Party shall be entitled to complete access to any technology licensed to it hereunder and all embodiments of such technology. Such embodiments of the technology shall be delivered to the non-bankrupt Party not later than: (a) the commencement of bankruptcy proceedings against the bankrupt Party, upon written request, unless the bankrupt Party elects to perform its obligations under the Agreement, or (b) if not delivered as set forth above, upon the rejection of this Agreement by or on behalf of the non-bankrupt Party, upon written request. The Parties acknowledge that the foregoing provisions of this Section 10.11 shall apply only when the bankruptcy proceedings with respect to either Party are conducted in the United States under the U.S. Bankruptcy Code and shall not apply when the bankruptcy or similar proceedings with respect to either Party are conducted in other jurisdiction where the mandatory laws governing bankruptcy or similar proceedings in such jurisdiction shall apply.

10.12 Waivers and Amendments . The failure of any Party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other Party. No waiver shall be effective unless it has been given in writing and signed by the Party giving such waiver, and no provision of this Agreement may be amended or modified other than by a written document signed by authorized representatives of each Party.

10.13 Independent Contractors; No Agency . Neither Party shall have any responsibility for the hiring, firing or compensation of the other Party’s or such other Party’s Affiliates’ employees or for any employee benefits with respect thereto. No employee or representative of a Party or its Affiliates shall have any authority to bind or obligate the other Party for any sum or in any manner whatsoever, or to create or impose any contractual or other liability on such other Party, without such other Party’s written approval. For all purposes, and notwithstanding any other provision of this Agreement to the contrary, each Party’s legal relationship under this Agreement to the other Party shall be that of independent contractor, and the relationship between the two (2) Parties shall not constitute a partnership, joint venture, or agency, including for all tax purposes.

10.14 Execution in Counterparts; Facsimile Signatures . This Agreement may be executed in any number of counterparts and by the Parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Agreement may be executed by facsimile, pdf or other electronically transmitted signatures and such signatures shall be deemed to bind each Party hereto as if they were the original signatures.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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10.15 Exclusions and Limitations of Liability .

10.15.1 SUBJECT TO SECTIONS 10.15.2 AND 10.15.3, NEITHER PARTY NOR ANY OF ITS AFFILIATES SHALL BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE OR MULTIPLE DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, OR FOR ANY LOSS OR INJURY TO A PARTY’S OR ITS AFFILIATES’ PROFITS, BUSINESS (INCLUDING BUSINESS INTERRUPTION) OR GOODWILL ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, IN EACH CASE HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER IN CONTRACT, TORT, NEGLIGENCE, BREACH OF STATUTORY DUTY OR OTHERWISE, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES.

10.15.2 THE LIMITATIONS AND DISCLAIMERS SET FORTH IN SECTION 10.15.1 SHALL NOT APPLY TO A CLAIM (I) FOR WILLFUL MISCONDUCT OR GROSS NEGLIGENCE; (II) DAMAGES RESULTING FROM A BREACH OF ARTICLE 6.

10.15.3 NOTHING IN THIS SECTION 10.15 IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY WITH RESPECT TO THIRD PARTY CLAIMS.

10.16 Performance by Affiliates . To the extent that this Agreement imposes obligations on Affiliates or Sublicensees of a Party, such Party shall cause its Affiliates and shall use diligent efforts to cause its Sublicensees to perform such obligations. Either Party may use one or more of its Affiliates to perform its obligations and duties hereunder; provided , that each such Affiliate shall be bound by the corresponding obligations of the applicable Party and provided, further, that, subject to such Party’s assignment to an Affiliate pursuant to Section 10.1, such Party shall remain liable hereunder for the prompt payment and performance of all of its obligations hereunder.

10.17 Force Majeure . Neither Party shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes beyond the reasonable control of such Party. In event of such force majeure, the Party affected thereby shall use reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder.

10.18 No Third Party Beneficiary Rights . This Agreement is not intended to and shall not be construed to give any Third Party any interest or rights (including any third party beneficiary rights) with respect to or in connection with any agreement or provision contained herein or contemplated hereby, other than, to the extent provided in Article 8, the Indemnified Parties.

10.19 Non-exclusive Remedy . Except as expressly provided herein, the rights and remedies provided herein are cumulative and each Party retains all remedies at law or in equity, including the Parties’ ability to receive legal damages or equitable relief, with respect to any breach of this Agreement. Neither Party shall be required to terminate this Agreement due to a breach of this Agreement by the other Party.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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10.20 Interpretation . The Article and Section headings used herein are for reference and convenience only, and will not enter into the interpretation of this Agreement. The word “including” and similar words and phrases mean including without limitation, whether or not expressly stated. The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Articles or other subdivision. References to the singular include the plural and vice versa . References to one gender include all genders. References to any law, regulation, statute or statutory provision includes a reference to the law, regulation, statute or statutory provision as from time to time amended, extended or re-enacted. References to “dollars” or “$” are to US dollars, unless otherwise specified.

10.21 Further Assurances . Each Party agrees to execute, acknowledge and deliver such further instructions, and to do all such other acts, as may be reasonably necessary or appropriate in order to carry out the purposes and intent of this Agreement.

10.22 Construction . The Parties hereto acknowledge and agree that: (a) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (b) the rule of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement; and (c) the terms and provisions of this Agreement shall be construed fairly as to all Parties hereto and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.

10.23 Records Generally . Without limiting any of the Party’s obligations set forth in any other provision of this Agreement, each Party shall keep or shall cause its Affiliates to keep records as are appropriate to document such Party’s, and its Affiliates’, compliance with its obligations hereunder and under applicable law in a manner consistent with this Agreement for those periods applicable to such records in accordance with applicable law.

10.24 Press Releases and Publicity .

10.24.1 Each Party may issue a press release at a time reasonably acceptable to the Parties.

10.24.2 Each Party shall be free to make public disclosures concerning its own activities and the results of the Development and Commercialization of the Compound and the Product in its respective Territory so long as (i) such Party shall comply with its confidentiality obligations set forth in Article 6 ( Confidentiality ) and (ii) such Party complies with Section 10.24.3, and in Spero’s case, Section 10.24.4.

10.24.3 If either Party wishes to make any public disclosure concerning its own activities and the results of the Development and Commercialization of the Compound and the Product in its respective Territory, it shall first notify the other Party of such planned press release or public announcement, including any oral presentation or abstract, and provide a draft for review no less than [***] in advance of issuing such press release or making such public announcement

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

39


CONFIDENTIAL TREATMENT REQUESTED

 

(or, with respect to press releases and public announcements that are required by applicable laws, with as much advance notice as possible under the circumstances if it is not possible to provide notice no less than [***] in advance). Each Party shall have the right to review and approve any such planned press release or public announcement proposed by the other Party that contains clinical data or pertains to results of clinical studies or other studies with respect to the Compound and/or the Product, or that includes Confidential Information of the other Party; provided, however , that (a) the reviewing Party shall attempt to provide such approval as soon as reasonably possible and will not unreasonably withhold such approval; (b) the reviewing Party shall provide explanations of its disapproval of such press release or public announcement; and (c) a Party desiring to make such press release or public announcement may issue such press release or public announcement without such prior review by the other Party if (i) the entire contents of such press release or public announcement have previously been made public other than through a breach of this Agreement by such Party, and (ii) such press release or public announcement does not materially differ from a previously issued press release or other publicly available information; and provided, further, that the other Party shall have the right to review, but not approve, any press release or public announcement that the proposing Party determines is required by applicable laws based on the advice of counsel. The Party reviewing a press release or public announcement provided under this Section 10.24.3 shall review and approve or disapprove such press release or public announcement within [***] after its receipt thereof.

10.24.4 Spero acknowledges that the [***] in connection with the WLJ Agreement provides Pfizer Japan certain review rights that may extend to public announcements that Spero wishes to make concerning its Development and Commercialization of the Compound and the Product. Spero agrees that Meiji may disclose to Pfizer Japan the proposed public announcements disclosed by Spero to Meiji pursuant to Section 10.24.3, solely during such time that Pfizer Japan’s review rights under the [***] remain in effect. Meiji agrees to use its Commercially Reasonable Efforts to submit Spero’s proposed public disclosures to Pfizer Japan in a timely manner to meet Meiji’s obligations under the [***] and to incorporate any comments from Pfizer Japan into Meiji’s comments pursuant to Section 10.24.3, consistent with the timeframes set forth in Section 10.24.3. In no event shall this Section 10.24.4 prevent Spero from timely making any public disclosure that Spero has determined is required by applicable laws based on the advice of counsel.

[Remainder of this page intentionally blank.]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

40


CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, each Party has caused this Agreement to be duly executed by its authorized representative under seal, in duplicate on the Effective Date.

 

SPERO OPCO, INC.

/s/ Ankit Mahadevia

Name: Ankit Mahadevia
Title: Chief Executive Officer
MEIJI SEIKA PHARMA CO., LTD.

/s/ Daikichiro Kobayashi

Name: Daikichiro Kobayashi
Title: President and Representative Director

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT A

Key Terms of Clinical Supply Agreement

 

    Form of Product for clinical use: [***] and meeting the specifications agreed upon by the Parties (the “ CTM ”).

 

    Quantity: a quantity of [***] to be specified in the Clinical Supply Agreement for delivery at the Supply Price by [***]. The quantity and supply date shall be [***].

 

    Meiji shall [***], and Spero shall [***].

 

    Spero shall, [***] for Meiji to [***]; provided, however, that both Parties may renegotiate the [***] after reasonable [***].

 

    Supply Price: [***]

 

    If Spero decides to [***], Spero shall[***].

 

    Spero shall own all Intellectual Property generated by Meiji or its contractors under the Clinical Supply Agreement, excluding any Intellectual Property generated solely by Meiji or its contractors that is generated without the use of the Meiji Intellectual Property, Spero Intellectual Property or Jointly-Generated Intellectual Property, and Meiji shall make all assignments necessary to perfect Spero’s rights in such new Intellectual Property.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT B

Compound

[***]

[***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT C

Selected Items of WLJ Know-How

1. [***]

(1) [***]

 

Study No.    [***]    Title of the Study Report
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]

(2) [***]

 

Study No.

   [***]   

Title of the Study Report

—  

   —      [***]

(3) [***] Studies

 

Study No.    [***]    Title of the Study Report
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]

   —     

[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

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[***]

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[***]

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[***]

[***]

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[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

   —     

[***]

[***]

   —     

[***]

[***]

   —     

[***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]

   —     

[***]

[***]

   —     

[***]

[***]

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[***]

[***]

   —     

[***]

[***]

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[***]

[***]

   —     

[***]

[***]

   —     

[***]

[***]

   —     

[***]

2. [***] Studies

(1) [***]

 

Study No.    [***]    Title of the Study Report
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]       [***]
[***]    —      [***]
[***]    —      [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]

(2) [***]

 

Study No.

   [***]   

Title of the Study Report

[***]

   —     

[***]

(3) [***] Studies [***]

 

Study No.    [***]    Title of the Study Report
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]

   —     

[***]

[***]

   —     

[***]

[***]

   —     

[***]

[***]

   —     

[***]

[***]

   —     

[***]

[***]

   —     

[***]

[***]

   —     

[***]

[***]

   —     

[***]

(3) [***] Studies [***]

 

Study No.

   [***]   

Title of the Study Report

[***]

   —     

[***]

[***]

   —     

[***]

[***]

   —     

[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

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[***]

[***]

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[***]

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[***]

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[***]

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[***]

[***]

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[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

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[***]

[***]

   —     

[***]

[***]

   —     

[***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]       [***]
[***]    —      [***]

(5) [***] Studies

 

Study No.    [***]    Title of the Study Report
     
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]       [***]

(6) [***] Studies

 

Study No.    [***]    Title of the Study Report
     
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
[***]    —      [***]
—      —      [***]

3. [***] Studies

 

Study No.    [***]    Title of the Study Report
—      [***]    [***]
—      [***]    [***]
—      [***]    [***]
—      [***]    [***]
—      [***]    [***]
—      [***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT D

Selected Items of Meiji Know-How

 

Study No.    Title of the Study Report
[***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
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[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***] Studies
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***] Studies

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***] Studies
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***] Studies
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

[***]    [***]
[***]    [***]
[***] Studies
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT E

Pfizer Letter

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Meiji Seika Pharma Co., Ltd.

2-4-16, Kyobashi, Chuo-ku, Tokyo, 104-8002 Japan

Tel: [***] / Fax: [***]

9 January 2016

Pfizer Japan Inc.

3-22-7, Yoyogi,

Shibuya-ku,

Tokyo, 151-8589

Japan

Re: Carbapenem/Tebipenem and Spero Therapeutics

Ladies and Gentlemen:

We refer to that certain License Agreement (the “ Wyeth Agreement ”) dated as of the [***] day of [***], between Meiji Seika Pharma Co., Ltd. (“ Meiji ”) and Pfizer Japan Inc., as successor to Wyeth Lederle Japan, Ltd. (“ Pfizer Japan ”), currently a wholly-owned subsidiary of Pfizer Inc. (“ Pfizer ”).

The capitalized terms used in this letter and not otherwise defined in this letter have the meanings given in the Wyeth Agreement.

Meiji is contemplating entering into an agreement with Spero Therapeutics LLC (together with its affiliates, “ Spero ”) pursuant to which, among other things, Meiji would supply the Compound and the API to Spero, help develop the Product for Spero and supply the Product to Spero, and otherwise assist Spero with the transfer or license of the WLJ Know How and MS Know How outside the Territory (such development of the Product, supply of the Compound, the API and/or the Product and transfer or license of the WLJ Know Know and the MS Know How outside the Territory being the “ Transaction ”).

[***].

[***] with Spero, we are seeking your consent to our proposed Transaction with Spero, [***] to (i) supply the Compound and the API to Spero, (ii) help develop the Product for Spero, (iii) supply the Product to Spero and (iv) assist Spero with the transfer or license of the WLJ Know How and MS Know How outside the Territory.

By executing and returning a signed copy of this letter, you hereby agree and consent to our proposed Transaction with Spero and [***] in the foregoing paragraph. This letter supersedes all prior written agreements between the parties with respect to the subject matter hereof.

 

Sincerely,

Meiji Seika Pharma Co., Ltd.

By:  /s/ Yuji Sasaki                                                                  

Name: Yuji Sasaki

Title: Managing Executive Officer, Member of the  Board

 

Agreed and Accepted as of the date written above:

Pfizer Japan Inc.

By: [Seal]                                                       

Name: Ichiro Umeda

Title: President and Representative Director

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

ADDENDUM TO LICENSE AGREEMENT

This Addendum (this “ Addendum ”) is made and effective as of the 14th day of June, 2017 (the “ Effective Date ”) by and between Meiji Seika Pharma Co., Ltd., a Japanese corporation with offices at 2-4-16, Kyobashi, Chuo-ku, Tokyo, 104-8002 Japan (“ Meiji ”) and Spero OpCo, Inc., a Delaware corporation with offices at 675 Massachusetts Avenue, 14th Floor, Cambridge, MA 20139, USA (“ Spero ”).

INTRODUCTION

WHEREAS, Meiji and Spero entered into a License Agreement dated June 14, 2017 (the “ License Agreement ”) pursuant to which Meiji has granted to Spero an exclusive license to use Meiji Intellectual Property, Meiji Regulatory Documentation and WLJ Know-How for the Development, Manufacture and Commercialization of the Compound and the Product in the Field in the Spero Territory; and

WHEREAS, in addition to the license granted under the License Agreement, Spero desires to be granted further by Meiji a license to use Meiji Intellectual Property, Meiji Regulatory Documentation and WLJ Know-How for the Development and Manufacture of the Compound and the Product in the Field in the Meiji Territory solely for the purpose of furthering Development, Manufacture and Commercialization of the Compound and/or the Product in the Field in the Spero Territory, and Meiji desires to grant such a license to Spero, subject to the terms and conditions set forth herein.

NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, Meiji and Spero hereby agree as follows:

1. Definitions . All the capitalized terms used and not otherwise defined in this Addendum shall have the same meanings as ascribed to them in the License Agreement.

2. License Grant . Subject to the terms and conditions of this Addendum, Meiji hereby grants to Spero, under the Meiji Intellectual Property, Meiji Regulatory Documentation and WLJ Know-How, a non-exclusive right and license, with the right to sublicense subject to the same conditions as set forth in Section 2.4.1 of the License Agreement, to Develop and Manufacture the Compound and the Product in the Field in the Meiji Territory solely for the purpose of furthering Development, Manufacture and Commercialization of the Compound and/or the Product in the Field in the Spero Territory. Without limiting the foregoing, Spero hereby agrees to Commercialize the Product solely in the Spero Territory and shall not, and shall not permit its Affiliates, Sublicensees or distributors to, distribute market, promote, offer for sale or sell the Product (a) to any Third Party outside the Spero Territory or (b) to any Third Party inside the Spero Territory that Spero, or its Affiliates, Sublicensees or distributors, as applicable, knows is reasonably likely to distribute, market, promote, offer for sale or sell such Product outside the Spero Territory.

3. Financial Terms . In consideration of the right and license granted by Meiji to Spero under Section 2 above, within [***] of the Effective Date, Spero shall pay to Meiji a one-time, non-refundable, non-creditable upfront fee of one hundred thousand US dollars ($100,000 USD). The Parties acknowledge that the upfront payment, Milestone Payments, Royalties and Licensee

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

Revenue Share set forth in Article 4 of the License Agreement shall be the consideration for the rights and licenses granted by Meiji to Spero under the License Agreement without this Addendum and shall not be the consideration for the right and license granted by Meiji to Spero under Section 2 above.

4. Term and Termination .

4.1 Unless terminated earlier pursuant to Section 4.2 below, this Addendum shall become effective as of the Effective Date and shall terminate upon the expiration of the Term or termination of the License Agreement in its entirety.

4.2 In the event of any material breach of this Addendum by either Party, the other Party may terminate this Addendum pursuant to the same procedures as set forth in Section 9.2.2 of the License Agreement.

5. Effect of Termination on License .

5.1 In the event of termination of this Addendum due to the expiration of the Term of the License Agreement in its entirety in accordance with Section 9.1 thereof, the right and license granted by Meiji to Spero under Section 2 above shall survive and become fully paid-up and perpetual.

5.2 In the event of any termination of this Addendum by Meiji under Section 4.2 above or due to the termination of the License Agreement by Spero under Section 9.2.1 thereof or by Meiji under Section 9.2.2 or 9.2.3 thereof, the right and license granted by Meiji to Spero under Section 2 above shall immediately terminate.

5.3 In the event of any termination of this Addendum by Spero under Section 4.2 above or due to the termination of the License Agreement by Spero under Section 9.2.2 or 9.2.3 thereof, the right and license granted by Meiji to Spero under Section 2 above shall survive and become fully paid-up and perpetual.

5.4 In the event of any termination of this Addendum due to the termination of the License Agreement by Spero under Section 9.2.4 thereof, the right and license granted by Meiji to Spero under Section 2 above shall survive and become fully paid-up and perpetual but be limited to exclude the WLJ Know-How.

6. Other Conditions . Unless this Addendum is terminated prior to the expiration of the Term or termination of the License Agreement in its entirety, this Addendum constitutes a part of the License Agreement and all applicable terms and conditions of the License Agreement shall apply to this Addendum.

[Remainder of this page intentionally blank]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, each Party has caused this Addendum to be duly executed by its authorized representative under seal, in duplicate on the Effective Date.

 

SPERO OPCO, INC.

/s/ Ankit Mahadevia

Name: Ankit Mahadevia
Title: Chief Executive Officer
MEIJI SEIKA PHARMA CO., LTD

/s/ Daikichiro Kobayashi

Name: Daikichiro Kobayashi
Title: President and Representative Director

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

Exhibit 10.16

CONFIDENTIAL TREATMENT REQUESTED

Execution Version

AMENDED AND RESTATED LICENSE AGREEMENT

This Amended and Restated License Agreement (this “Agreement”), dated as of June 28, 2017 (the “Effective Date”), is made by and between Northern Antibiotics Oy (Ltd.), a corporation organized under the laws of Finland (“Northern”), and Spero Potentiator, Inc., a Delaware corporation (“Spero”). Northern and Spero are sometimes hereinafter referred to each as a “Party” and collectively as the “Parties.”

WHEREAS, the parties previously entered into that certain License Agreement (the “Prior Agreement”), dated as of February 16, 2015 (the “Initial Effective Date”), pursuant to which Spero acquired exclusive rights under the Northern Patent Rights (as defined) and Northern Know-How (as defined) in order to develop and commercialize Licensed Compounds (as defined) and Licensed Products (as defined); and

WHEREAS, the Parties now desire to amend and restate the Prior Agreement in the form of this Agreement.

NOW, THEREFORE, the Parties hereby agree as follows:

Section 1. Definitions .

For the purpose of this Agreement, the following words and phrases shall have the meanings set forth below:

1.1 “ Affiliate ” of an entity means any other entity which (directly or indirectly) is controlled by, controls or is under common control with such entity. 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 an entity means (i) in the case of a corporate entity, direct or indirect ownership of voting securities entitled to cast at least fifty percent (50%) of the votes in the election of directors or (ii) in the case of a non-corporate entity, direct or indirect ownership of at least fifty percent 50%) of the equity interests with the power to direct the management and policies of such entity, provided that if local law restricts foreign ownership, control shall be established by direct or indirect ownership of the maximum ownership percentage that may, under such local law, be owned by foreign interests.

1.2 “ Confidential Information ” means all Technology, chemical or biological materials, marketing plans, strategies and customer lists, and other information that are disclosed or provided by such Party or its Affiliates to the other Party or its Affiliates, regardless of whether any of the foregoing are marked “confidential” or “proprietary” or communicated to the other by the disclosing Party or its Affiliates in oral, written, graphic, or electronic form.

1.3 “ Confidentiality Agreement ” means that certain Confidential Disclosure Agreement, dated [***], by and between Northern and Spero Therapeutics, Inc.

1.4 “ Controlled ” or “ Controls ”, when used in reference to patent or other intellectual property rights or Technology, means the legal authority or right of a person or entity to grant a license or sublicense of intellectual property rights to another person or entity, or to otherwise disclose or provide Technology to such other person or entity, without breaching the terms of any agreement with a different person or entity.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.


CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

1.5 “ Improvements ” means all Technology that amount to improvements to any of the inventions related to the Licensed Compounds and claimed by the Northern Patent Rights or to the Northern Know-How related to the Licensed Compounds and made, developed, conceived, owned or otherwise Controlled by Northern or any of its Affiliates after the date hereof, whether or not patentable or patented.

1.6 “ Licensed Compound ” means (a) the compounds described in Exhibit A and (b) any [***] of any compounds covered by the foregoing clause (a) or this clause (b).

1.7 “ Licensed Product ” means any pharmaceutical product containing a Licensed Compound (alone or with other active ingredients), in all forms, presentations, formulations and dosage forms.

1.8 “ Northern Know-How ” means all Technology, now existing or hereafter arising during the time the license grant set forth in Section 2.1 is in effect, owned or otherwise Controlled by Northern or any of its Affiliates, that is related to the Northern Patent Rights and that is reasonably necessary or useful for the manufacture, use, sale, offer for sale, importation, research, development or commercialization or other exploitation of any Licensed Compounds or Licensed Products or Improvements. Exhibit B attached hereto lists specific Northern Know-How.

1.9 “ Northern Patent Rights ” means the patents and patent applications that claim any Licensed Compounds, listed in Exhibit C attached hereto, and (a) any foreign counterparts thereof, (b) all divisionals, continuations, continuations-in-part thereof or any other patent application claiming priority directly or indirectly to (i) any of the patents or patent applications identified on Exhibit C or (ii) any patent or patent application from which the patents or patent applications identified on Exhibit C claim direct or indirect priority, and (c) all patents issuing on any of the foregoing, and any foreign counterparts thereof, together with all registrations, reissues, reexaminations, renewals, supplemental protection certificates, or extensions of any of the foregoing, and any foreign counterparts thereof, plus the Northern Improvement Patents. For avoidance of any doubt, Northern Patent Rights do also claim or cover other compounds than Licensed Compounds (hereafter called as “Other Compounds”). Furthermore, Northern may in the future also have patent applications or patents that claim or cover Other Compounds only, i.e. no Licensed Compounds at all, such patent applications and patents being totally excluded from Northern Patent Rights and consequently also from Exhibit C .

1.10 “ Northern Improvement Patents ” means all patents and patent applications owned or otherwise Controlled by Northern during the term of this Agreement that claim any Improvements or their manufacture or use, which shall be listed in Exhibit C as contemplated by Section 5.1.

1.11 “ Technology ” means know-how, trade secrets, chemical and biological materials, formulations, information, documents, studies, results, data and regulatory approvals, filings and correspondence (including DMFs), including biological, chemical, pharmacological, toxicological, pre-clinical, clinical and assay data, manufacturing processes and data, specifications, sourcing information, assays, and quality control and testing procedures, whether or not patented or patentable.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

2


CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

1.12 “ Third Party ” means any person or entity other than Spero or Northern or any of their Affiliates.

Section 2. License Grants by Northern .

2.1 Exclusive License . Northern, for itself and on behalf of its Affiliates, hereby grants to Spero a non-transferable (except in accordance with Section 9.1), exclusive (even as to Northern and its Affiliates), worldwide license, with the right to sublicense in accordance with Section 2.2, under the Northern Patent Rights and Northern Know-How, to make, have made, use, sell, offer to sell, import, research, develop, commercialize and otherwise exploit Licensed Compounds and Licensed Products and Improvements. For avoidance of any doubt, it is understood and accepted that Northern Patent Rights and Northern Know-How also claim, cover or relate to Other Compounds, and that this Exclusive License to Spero does not include any rights whatsoever to said Other Compounds. Nothing in this Agreement prevents Northern from granting to Third Parties, on an exclusive and worldwide basis, Northern Patent Rights, Northern Know-How or Improvements claiming, covering or related to Other Compounds (but unequivocally excluding any rights whatsoever to any and all Licensed Compounds), without any obligations whatsoever to Spero or its Affiliates.

2.2 Sublicenses . The licenses granted in Section 2.1 include the right to grant sublicenses (through multiple tiers) to sublicensees (each, a “Sublicensee”); provided that Spero shall remain responsible for the performance of its Sublicensees hereunder. Spero shall provide Northern with a copy of the sublicense agreement for its Sublicensees within [***] of execution, which copy shall be treated as Confidential Information of Spero hereunder.

2.3 Consideration . As remuneration for the exclusive license under Section 2.1:

(a) Spero will pay to Northern up to an aggregate of $2,500,000 (the “Near Term Milestone Payment”) in one or more payments upon achievement of the “Near Term Milestone Events” as follows, regardless of whether the relevant Near Term Milestone Events listed below are achieved by Spero, one of its Affiliates or a Sublicensee:

 

   

Near Term Milestone Event

   Near Term Milestone
Payment Amount
1   [***] if no more than one Near Term Milestone Event has previously been achieved but the aggregate Near Term Milestone Payment paid or payable at such time is $[***].    $[***]
2   [***] if no more than one Near Term Milestone Event has previously been achieved but the aggregate Near Term Milestone Payment paid or payable at such time is $[***].    $[***]
3   [***] and no other Near Term Milestone Event has previously been achieved.    $[***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

3


CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

4   Within [***] days after the closing of an IPO by Spero (or an Affiliate of Spero or any successor to Spero or its Affiliate) if no other Near Term Milestone Event has previously been achieved.    2,500,000
5   Within [***] days after the closing of an IPO by Spero (or an Affiliate of Spero or any successor to Spero or its Affiliate) if no more than one Near Term Milestone Event has previously been achieved but the aggregate Near Term Milestone Payment paid or payable at such time is $1,250,000.    $1,250,000

For clarity, each Near Term Milestone Payment is payable only once, regardless of the number of Combination Products that achieve the relevant Near Term Milestone Event or the number of times a Combination Product achieves such Near Term Milestone Event, and in no event will aggregate Near Term Milestone Payments exceed $2,500,000.

(b) Spero will, in addition to the Near Term Milestone Events, pay to Northern an aggregate of $4,500,000 (the “Marketing Milestone Payment”) upon receipt of Marketing Approval for a Combination Product, regardless of whether the Marketing Approval is achieved by Spero, one of its Affiliates or a Sublicensee.

(c) As used in this Section 2.3, the following terms shall have the following respective meanings:

“Combination Product” means any product, process or service which incorporates one or more therapeutically active ingredients, other than a Licensed Compound, in combination or co-formulation, regardless whether administered separately or together, with a Licensed Compound.

IPO ” means either (i) the initial public offering by Spero Therapeutics, LLC (or any other Affiliate of Spero, or any successor to Spero or its Affiliate) of its or its Affiliate’s securities (or their successor’s securities), or (ii) [***].

“Marketing Approval” means, with respect to a Combination Product, in a particular jurisdiction, the receipt of all approvals, licenses, registrations or authorizations necessary for the sale and marketing of such Combination Product in such jurisdiction, including, with respect to the United States, approval of NDA for such Combination Product by the FDA. For clarity, Marketing Approval does not include reimbursement authorization or pricing approval determinations.

“[***]” means [***].

“[***]” means [***].

“[***]” means [***].

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

4


CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

Section 3. Transfer of Northern Know-How .

3.1 Documentation . During the [***] period following the Initial Effective Date, Northern shall provide to Spero one (1) electronic copy of all documents, data or other information in Northern’s or its Affiliates’ possession or control as of the Initial Effective Date to the extent that such documents, data and information describe or contain Northern Know-How. Northern shall provide and transfer to Spero in the same manner all additional Northern Know-How that may from time to time become available to Northern (and in any event at least semi-annually), including that concerning any Improvements.

3.2 Technical Assistance . Northern shall reasonably collaborate with Spero in the further development of the Licensed Compounds. Such collaboration shall include Northern providing Spero with reasonable access by teleconference or in-person at Northern’s facilities to Northern personnel who have been involved in the research and development of the Licensed Compounds to provide Spero with a reasonable level of technical assistance and consultation in connection with the transfer of Northern Know-How.

Section 4. Development and Commercialization; Joint Steering Committee .

4.1 Responsibilities and Costs . Spero shall have sole responsibility for, and shall bear all its costs of conducting, all development and commercialization of Licensed Compounds and Licensed Products (including manufacturing all required materials and filing for and obtaining all required regulatory approvals). Spero shall own the results of all such activities, and as between the Parties, all such regulatory approvals shall be obtained by and in the name of Spero (or its Affiliates or Sublicensees).

4.2 Reporting. Spero shall provide to Northern a written report for each calendar quarter, which shall adequately describe the status of the development and commercialization of the Licensed Compounds and Licensed Products (including for the avoidance of doubt any Combination Product), including at a minimum: results and data of any clinical or non-clinical studies and [***] . All such reports and their contents shall constitute Confidential Information of Spero.

4.3 Joint Steering Committee . Promptly following the Effective Date, the Parties shall establish a joint steering committee (the “JSC”) to provide for the exchange of information and ideas regarding the continued research and development of the Licensed Compounds, to plan and monitor the conduct of such research and activities during the Term and to provide and receive updates regarding the invention or development of any Improvements. The JSC shall not have any decision-making authority and is not authorized to [***] or to [***]. Each of the Parties shall designate in writing [***] representatives to the JSC. Each Party shall have the right at any time to substitute individuals, on a permanent or temporary basis, for any of its previously designated representatives to the JSC by giving written notice to the other Party. The JSC shall establish a schedule of times for regular meetings to be conducted by teleconference or in person as it shall determine. The Parties shall each bear all expenses of their respective JSC representatives related to their participation on the JSC and attendance at JSC meetings; provided that if Spero reimburses any of its, or its Affiliates, officers, directors or employees for such participation it shall so notify Northern and it shall reimburse Northern for the participation of any of its, or its Affiliates, officers, directors or employees for such participation on the same terms.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

5


CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

Section 5. Patent Prosecution, Infringement and Extensions .

5.1 Appointment and Cooperation . With respect to all of the rights and activities of Spero set forth in this Section 5, Northern hereby appoints Spero as its agent for such purposes with the authority to act on Northern’s behalf with respect to the Northern Patent Rights. Northern shall cooperate with Spero in the exercise of Spero’s authority granted herein, and shall execute such documents and take such additional action as Spero may request in connection therewith. The Parties shall promptly update Exhibit C to list all Northern Patent Rights (including Northern Improvement Patents).

5.2 Prosecution and Mainte nance.

(a) By Spero . Within [***] of the Effective Date, Northern shall mandate its patent attorneys ([***], and [***]) to provide Spero, at Spero’s cost, with copies of the complete prosecution files for all patents and patent applications listed on Exhibit C . Spero shall be solely responsible for the preparation, prosecution (including any interferences, oppositions, reissue proceedings and reexaminations) and maintenance of the Northern Patent Rights, and all filing, prosecution, and maintenance decisions with respect to the Northern Patent Rights shall be made by Spero, provided Northern shall retain the right to give comments to Spero on material aspects of those activities. Spero shall be responsible for all its costs incurred for such preparation, prosecution and maintenance. Each Party shall provide to the other Party copies of any papers relating to the filing, prosecution or maintenance of Northern Patent Rights promptly upon receipt. Northern shall not take any action with respect to the prosecution or maintenance of any Northern Patent Rights without the prior written consent of Spero, except as contemplated by Section 5.2(b). In addition to the foregoing, promptly following the Effective Date, Spero and Northern shall use reasonable best efforts to work together to prepare and file, where permitted under applicable laws and regulations, continuation applications, divisional applications or such other applications or filings related to the Northern Patent Rights that claim solely Other Compounds and their uses (such applications or filings and any patents issuing therefrom are the “OC Patents”). Spero shall pay the first [***] dollars ($[***]) in out-of-pocket expenses incurred in connection with the preparation and filing of such patent applications and filings and thereafter the Parties shall [***] such costs and expenses. The OC Patents shall not be included in the Northern Patent Rights for any other purposes under this Agreement. For avoidance of doubt, as between the Parties, Northern and its designees shall have sole authority to pursue the further prosecution, maintenance and enforcement of the OC Patents. Furthermore, in an identical fashion, following the Effective Date, Spero and Northern shall use reasonable best efforts to work together, at Spero’s sole expense, to prepare and file, where permitted under applicable laws and regulations, continuation applications, divisional applications or such other applications or filings related to the Northern Patent Rights that do not claim any Other Compounds or their uses (such applications or filings and any patents issuing therefrom are the “SC Patents”. For avoidance of doubt, as between the Parties, Spero and its designees shall have sole authority to pursue the further prosecution, maintenance and enforcement of the SC Patents.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

(b) By Northern . Spero shall not knowingly permit any of the Northern Patent Rights to be abandoned in any country or their scope to be unreasonably limited (for example, to exclude Other Compounds) without Northern first being given an opportunity to assume full responsibility for the continued prosecution and maintenance of same. In the event that Spero decides not to continue the prosecution or maintenance of a patent application or patent within Northern Patent Rights in any country, Spero shall provide Northern with notice of this decision at least [***] prior to any pending lapse or abandonment thereof. Northern shall have the right to assume control of the continued prosecution or maintenance of any such patent application or patent (excluding any SC Patents) provided that Northern shall, if so requested by Spero, take such actions as may be reasonably requested by Spero to amend such patent applications or patents, to the extent feasible under applicable laws and regulations, to narrow the scope thereof so that such patent applications and patents no longer claim Licensed Compounds if such amendment is feasible without excluding Other Compounds from being so claimed. In the event that Northern elects to assume responsibility for such prosecution and maintenance within [***] of Spero’s notice, Section 5.2(a) shall thereafter apply to such patent application(s) and patent(s) except that the role of Spero and Northern shall be reversed thereunder, including that Northern shall be solely responsible for all costs arising from those activities and hence it shall be also deemed that the exclusive, even as to Spero, rights to said patent(s) and patent application(s) return to the full discretion of Northern and Northern shall redeem all its rights back to its ownership with the purchase price of one US dollar.

5.3 Enforcement and Defense . In the event that Northern or Spero becomes aware of a suspected infringement of any Northern Patent Right, or any such Northern Patent Right is challenged in any action or proceeding (other than any interferences, oppositions, reissue proceedings or reexaminations, which are addressed above), such Party shall notify the other Party promptly, and following such notification, the Parties shall confer. Except as otherwise provided below, Spero shall have the right, but shall not be obligated, to defend any such action or proceeding or bring an infringement action with respect to such infringement at its own expense, in its own name and entirely under its own direction and control, or settle any such action or proceeding by sublicense; provided that, if there exists an issued SC Patent to serve as the basis of the infringement action in connection with such Third Party activities, Spero will limit its enforcement action to such SC Patent if so doing does not materially decrease Spero’s likelihood of success. Prior to initiating an enforcement action that uses a Northern Patent Right other than an SC Patent as the basis for the claim of infringement, Spero shall meet with Northern to discuss ways to manage the potential risk to such Northern Patent Right in connection with such enforcement action, including limiting the number and scope of claims that are asserted in connection with such action. Spero shall use good faith efforts to employ any reasonable measures agreed to by the Parties to manage such potential risk. Northern shall reasonably assist Spero in any action or proceeding being defended or prosecuted if so requested, and shall join such action or proceeding if reasonably requested by Spero or required by applicable law at Spero’s expense. After Spero has recovered an amount equal to the cost it incurred in connection with any such action or proceeding, any remaining and received amounts of compensation and/or damages paid by a third party as awarded to Spero due to the above action or proceeding shall be shared [***] percent ([***]%) to Spero and [***] percent ([***]%) to Northern. With respect to infringements arising out of the activities of a Third Party with a compound that is an Other Compound, Northern shall have the right, but shall not be obligated, to defend any such action or proceeding or bring an infringement action with respect to such

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

7


CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

infringement at its own expense, in its own name and entirely under its own direction and control, or settle any such action or proceeding by sublicense; provided that, if there exists an issued OC Patent to serve as the basis of the infringement action in connection with such Third Party activities, Northern will limit its enforcement action to such OC Patent if so doing does not materially decrease Northern’s likelihood of success and the roles of the Parties under this Section 5.3 shall be reversed, solely with respect to such action. Prior to initiating an enforcement action that uses a Northern Patent Right other than an OC Patent as the basis for the claim of infringement, Northern shall meet with Spero to discuss ways to manage the potential risk to such Northern Patent Right in connection with such enforcement action, including limiting the number and scope of claims that are asserted in connection with such action. Northern shall use good faith efforts to employ any reasonable measures agreed to by the Parties to manage such potential risk.

5.4 Patent Extensions; Orange Book Listings; Patent Certifications .

(a) Patent Term Extension . If elections with respect to obtaining patent term extension or supplemental protection certificates or their equivalents in any country with respect to Northern Patent Rights or other patent rights covering Licensed Products or their manufacture or use are available, Spero shall have the sole right to make any such elections. In case Spero decides not to make such election with respect to a Licensed Product, Northern has the right but no obligation to do so in its own name and at its own expense with respect to a product containing an Other Compound (but not with respect to a Licensed Product).

(b) Data Exclusivity and Orange Book Listings . With respect to data exclusivity periods (such as those periods listed in the FDA’s Orange Book (including any available pediatric extensions) or periods under national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83, and all equivalents in any country), Spero shall have the sole right to seek and maintain all such data exclusivity periods available for the Licensed Products.

(c) Notification of Patent Certification . Northern shall notify and provide Spero with copies of any allegations of alleged patent invalidity, unenforceability or non-infringement of a Northern Patent Right pursuant to a Paragraph IV Patent Certification by a Third Party filing an Abbreviated New Drug Application, an application under §505(b)(2) or any other similar patent certification by a Third Party, and any foreign equivalent thereof. Such notification and copies shall be provided to Spero within [***] after Northern receives such certification, and shall be sent to the address set forth in Section 9.4.

Section 6. Confidential Information and Publicity .

(a) Confidential Information . Except as expressly provided herein, each of the Parties agrees that, for itself and its Affiliates, and for as long as this Agreement is in effect and for a period of [***] years thereafter, a Party and its Affiliates (the “Receiving Party”) receiving Confidential Information of the other Party or its Affiliates (the “Disclosing Party”) shall (i) not disclose such Confidential Information to any Third Party without the prior written consent of the Disclosing Party, except for disclosures expressly permitted below, and (ii) not use such Confidential Information for any purpose except those licensed or otherwise authorized or permitted by this Agreement. For clarity, all Confidential Information of Spero received by or disclosed to Northern hereunder shall be used by Northern only for ensuring that Spero complies with its obligations hereunder and for no other purposes.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

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(b) Exceptions . The obligations in Section 6.1(a) shall not apply with respect to any portion of the Confidential Information that the Receiving Party can show by competent proof:

(i) is publicly disclosed by the Disclosing Party, either before or after it is disclosed to the Receiving Party hereunder;

(ii) was known to the Receiving Party or any of its Affiliates, without any obligation to keep it confidential or any restriction on its use, prior to disclosure by the Disclosing Party;

(iii) is subsequently disclosed to the Receiving Party or any of its Affiliates by a Third Party lawfully in possession thereof and without any obligation to keep it confidential or any restriction on its use;

(iv) is published by a Third Party or otherwise becomes publicly available or enters the public domain, either before or after it is disclosed to the Receiving Party; or

(v) has been independently developed by employees or contractors of the Receiving Party or any of its Affiliates without the aid, application or use of Confidential Information of the Disclosing Party.

(c) Authorized Disclosures . The Receiving Party may disclose Confidential Information belonging to the Disclosing Party to the extent (and only to the extent) such disclosure is reasonably necessary in the following instances:

(i) subject to Section 6.2, by either Party in order to comply with applicable non-patent law (including any securities law or regulation or the rules of a securities exchange) and with judicial process, if in the reasonable opinion of the Receiving Party’s counsel, such disclosure is necessary for such compliance;

(ii) by either Party, in connection with prosecuting or defending litigation, making regulatory filings, and filing, prosecuting and enforcing patent applications and patents;

(iii) by Spero, to its Affiliates, potential and future collaborators (including Sublicensees), permitted acquirers or assignees under Section 9.1, research collaborators, subcontractors, investment bankers, investors, lenders, and their and each of Spero and its Affiliates’ respective directors, employees, contractors and agents; and

(iv) by Northern to its Affiliates, permitted acquirers or assignees under Section 9.1, investment bankers, investors, lenders, and their and Northern and its Affiliates’ respective directors, employees, contractors and agents,

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

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provided that (1) with respect to Section 6.1(c)(i) or 6.1(c)(ii), where reasonably possible, the Receiving Party shall notify the Disclosing Party of the Receiving Party’s intent to make any disclosure pursuant thereto sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information to be disclosed, and (2) with respect to Sections 6.1(c)(iii) and 6.1(c)(iv), each of those named people and entities must be bound prior to disclosure by confidentiality and non-use restrictions at least as restrictive as those contained in this Section 6 (other than investment bankers, investors and lenders, who must be bound prior to disclosure by commercially reasonable obligations of confidentiality). In addition to the foregoing, Spero and its Affiliates and Sublicensees may make such disclosures of Northern Know-How specifically concerning the Licensed Compound and its use as any of them may deem reasonably necessary for their business.

6.2 Terms of this Agreement; Publicity . The Parties agree that the terms of this Agreement shall be treated as Confidential Information of both Parties, and thus may be disclosed only as permitted by Section 6.1(c), with the exception, however, that, in order to comply with the stipulations in the Sections 5.2 through 5.4 of this Agreement, Northern shall be allowed to disclose the terms of this Agreement to bone fide potential licensee of the Northern Patent Rights covering Other Compounds. Each Party agrees not to issue any press release or other public statement disclosing information relating to this Agreement or the transactions contemplated hereby or the terms hereof without the prior written consent of the other Party or as permitted by Section 6.1(c).

6.3 Relationship to the Confidentiality Agreement . This Agreement supersedes the Confidentiality Agreement, provided that all “Confidential Information” disclosed or received by the Parties thereunder shall be deemed “Confidential Information” hereunder and shall be subject to the terms and conditions of this Agreement.

Section 7. Warranties; Limitations of Liability; Indemnification

(a) Northern Representations and Warranties . Northern covenants, represents and warrants to Spero that as of the Effective Date (unless another date is set forth below): Northern is a corporation duly organized, validly existing and in good standing under the laws of state or jurisdiction in which it is incorporated, and it has full right and authority to enter into this Agreement and to grant the licenses and other rights to Spero as herein described.

(b) This Agreement has been duly authorized by all requisite corporate action, and when executed and delivered will become a valid and binding contract of Northern enforceable against Northern in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other law affecting creditors’ rights generally from time to time if effect, and to general principles of equity.

(c) The execution, delivery and performance of this Agreement does not conflict with any other agreement, contract, instrument or understanding, oral or written, to which Northern is a party, or by which it is bound, nor will it violate any law applicable to Northern.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

10


CONFIDENTIAL TREATMENT REQUESTED

 

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(d) All necessary consents, approvals and authorizations of all regulatory and governmental authorities and other persons or entities required to be obtained by Northern in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained.

(e) Attached hereto as Exhibit C is a complete and accurate list of all patents and patent applications owned (in whole or in part) or otherwise Controlled by Northern or any of its Affiliates that the manufacture, use, sale, offer for sale or importation of any Licensed Compounds would infringe on the Initial Effective Date. To the knowledge of Northern on the Initial Effective Date, the issued claims included in the Northern Patent Rights were valid and enforceable, and no written claim had been made (except by a patent examiner during prosecution of the patent application(s) that resulted in any such issued patent claims), and no action or proceeding had been commenced or threatened, alleging to the contrary. Northern was on the Initial Effective Date and the Effective Date, the sole and exclusive owner of all right, title and interest in and to the Northern Patent Rights. None of the Northern Patent Rights or Northern Know-How was on the Initial Effective Date or Effective Date, subject to any lien, security interest or other encumbrance created by Northern. To Northern’s knowledge on the Initial Effective Date, the conception and reduction to practice of the Northern Patent Rights have not constituted or involved the misappropriation of trade secrets or other rights or property of any Third Party. There were on the Initial Effective Date, no claims, judgments or settlements against or amounts with respect thereto owed by Northern or any of its Affiliates relating to the Northern Patent Rights. To Northern’s knowledge on the Initial Effective Date, there has been no infringement by any Third Party of any Northern Patent Rights. Apart from the financial obligations listed in Exhibit D , the use or practice of the license grants contained in Section 2 shall not trigger any payment obligation by Northern or any of its Affiliates to any Third Party.

(f) On the Initial Effective Date, there was no pending action or proceeding alleging, or, to Northern’s knowledge on the Initial Effective Date, any written communication alleging, that the manufacture, use, sale, offer for sale or importation of any Licensed Compounds, the activities of Northern or any of its Affiliates or any of their licensees with respect to any such Licensed Compounds, or the practice or use of the Northern Patent Rights or Northern Know-How, had or would infringe or misappropriate any patent or other intellectual property rights of any Third Party. Northern had on the Initial Effective Date notified Spero of all such rights of any Third Party of which Northern was aware that are related to the foregoing activities.

(g) On the Initial Effective Date, Northern did not have any knowledge of any scientific or clinical facts or circumstances that would materially and adversely affect the safety, efficacy or market performance of any Licensed Compounds that had not been communicated to Spero.

(h) Northern covenants that it will provide prompt written notice to Spero if Northern receives or sends any notice relating to an actual or purported breach of that certain Intellectual Property Rights Purchase Agreement between [***] and Northern dated on or about [***], or if Northern becomes aware of any reasonable basis for such a claim.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

11


CONFIDENTIAL TREATMENT REQUESTED

 

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7.2 Spero Representations and Warranties . Spero covenants, represents and warrants to Northern that as of the Effective Date:

(a) Spero is a corporation duly organized, validly existing and in good standing under the laws of state in which it is incorporated, and it has full right and authority to enter into this Agreement and to accept the rights and licenses granted as herein described.

(b) This Agreement has been duly authorized by all requisite corporate action, and when executed and delivered will become a valid and binding contract of Spero enforceable against Spero in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights generally from time to time if effect, and to general principles of equity.

(c) The execution, delivery and performance of this Agreement does not conflict with any other agreement, contract, instrument or understanding, oral or written, to which Spero is a party, or by which it is bound, nor will it violate any law applicable to Spero.

(d) All necessary consents, approvals and authorizations of all regulatory and governmental authorities and other persons or entities required to be obtained by Spero in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained.

(e) Spero covenants that it will [***] to make commercial use of the Northern Patent Rights and to prosecute, maintain and/or defend the Northern Patent Rights in accordance with bona fide strategic reasons intended to support the development and commercialization of the Licensed Products and not otherwise for the benefit of any Third Parties.

7.3 DISCLAIMER . EXCEPT AS PROVIDED IN SECTION 7.1, NORTHERN, TO THE FULLEST EXTENT PERMITTED BY LAW, EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF THE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY, SAFETY, EFFICACY, APPROVABILITY BY REGULATORY AUTHORITIES, TIME AND COST OF DEVELOPMENT, PATENTABILITY AND/OR BREADTH OF THE PATENT COVERAGE, AND INFRINGEMENT. EXCEPT AS PROVIDED IN SECTION 7.1, NORTHERN MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED COMPOUNDS OR LICENSED PRODUCTS.

7.4 Indemnification . Except to the extent arising out of a breach of this Agreement by Northern or the gross negligence or intentional misconduct of an Indemnitee, Spero shall indemnify, defend and hold harmless Northern and its directors, officers, employees, agents and the successors and assignees of any of the foregoing (collectively, the “Indemnitees”) from and against any and all judgments, out of pocket losses, expenses, actual damages and/or liabilities (including, without limitation, any and all reasonable attorney’s fees), that an Indemnitee may incur from any and all Third Party claims, suits, actions and/or proceedings arising out of, relating to, or incidental to the design, manufacture, distribution or use of Licensed Compounds or Licensed Products. This indemnification obligation shall be limited as and to the extent that

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

12


CONFIDENTIAL TREATMENT REQUESTED

 

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an Indemnitee failure to give prompt written notice of such a Third Party claim, suit, action and/or proceeding to Spero causes the loss of a defense that otherwise would have been available in connection with such Third Party claim, suit, action and/or proceeding. Spero shall control the defense of any such Third Party claims, suits, actions and/or proceedings.

Section 8. Term, Termination and Survival .

8.1 Term . This Agreement shall commence as of the Effective Date and the license grants contained in Section 2 are perpetual, irrevocable and fully paid up.

8.2 Survival . The following provisions shall survive expiration or termination of this Agreement for any reason, as well as any other provision which by its terms or by the context thereof, is intended to survive such termination: Sections 6, 7, 8 and 9. Expiration or termination of this Agreement for any reason shall not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination or expiration, nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity, subject to Section 9.5, with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation.

Section 9. General Provisions .

9.1 Assignment . Neither Party may assign this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld; provided that either party may transfer or assign this Agreement, in whole or in part, to an Affiliate, or in connection with a merger, consolidation, or a sale or transfer of all or substantially all of the assets to which this Agreement relates, provided that all obligations of such party are assumed by the assignee. Any assignment or transfer in violation of this Section 9.1 shall be void. This Agreement shall inure to the benefit of, and be binding upon, the legal representatives, successors and permitted assigns of the Parties. In the event that [***], Spero or any of its Affiliates or successors, is acquired [***], the Parties agree that if, at the time of such acquisition, Spero, or any of its Affiliates or successors, is continuing to research, develop or commercialize one or more Licensed Compounds or Licensed Products, then [***].

9.2 Severability . If any one or more of the provisions contained in this Agreement is held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affects the substantive rights of the Parties. The Parties shall in such an instance use their reasonable best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement.

9.3 Amendment; Waiver . This Agreement may not be modified, amended or rescinded, in whole or part, except by a written instrument signed by the Parties; provided that any unilateral undertaking or waiver made by one Party in favor of the other shall be enforceable if undertaken in a writing signed by the Party to be charged with the undertaking or waiver. No delay or omission by either Party hereto in exercising any right or power occurring upon any noncompliance or default by the other Party with respect to any of the terms of this Agreement

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

13


CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

shall impair any such right or power or be construed to be a waiver thereof. A waiver by either of the Parties of any of the covenants, conditions or agreements to be performed by the other shall not be construed to be a waiver of any succeeding breach thereof or of any other covenant, condition or agreement herein contained.

9.4 Notices . Except as otherwise provided herein, all notices under this Agreement shall be sent by certified mail or by overnight courier service, postage prepaid, to the following addresses of the respective Parties:

 

If to Spero, to:

   Spero Potentiator, Inc.
   675 Massachusetts Avenue, 14 th floor
   Cambridge, MA 02139
   Attention: Chief Executive Officer

With a required copy to:

   Mintz Levin
   One Financial Center, 40 th Floor
   Boston, MA 02111
   Attention: Lewis Geffen, Esq.

If to Northern, to:

   Northern Antibiotics Oy (Ltd.)
   Tekniikantie 14 (Technopolis, Innopoli 2) A111
   FIN-02150 Espoo, Finland
   Attention: Martti Vaara

With a required copy to:

   Borenius Attorneys Ltd
   Eteläesplanadi 2
   FIN-00130 Helsinki Finland
   Attention: Ben Rapinoja

or to such address as each Party may hereafter designate by notice to the other Party. A notice shall be deemed to have been given on the date it is received by all required recipients for the noticed Party.

9.5 Dispute Resolution . Disputes arising under or in connection with this Agreement shall be resolved pursuant to this Section 9.5; provided, however, that in the event a dispute cannot be resolved without an adjudication of the rights or obligations of a Third Party, the dispute procedures set forth in this Section 9.5 shall be inapplicable as to such dispute.

(a) In the event of a dispute between the Parties, the Parties shall first attempt in good faith to resolve such dispute by negotiation and consultation between themselves. In the event that such dispute is not resolved on an informal basis within [***], any Party may, by written notice to the other, have such dispute referred to each of the Parties’ respective CEOs or his or her designee (who shall be a senior executive), who shall attempt in good faith to resolve such dispute by negotiation and consultation for a [***] period following receipt of such written notice.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

14


CONFIDENTIAL TREATMENT REQUESTED

 

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(b) In the event the Parties’ CEOs (or designees) are not able to resolve such dispute, either Party may at any time after such [***] period submit such dispute to be finally settled by arbitration administered in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) in effect at the time of submission. The arbitration shall be heard and determined by three (3) arbitrators. Spero and Northern shall each appoint one arbitrator and the third arbitrator shall be selected by the two Party-appointed arbitrators, or, failing agreement within [***] following the date of receipt by the respondent of the claim, by the AAA. Such arbitration shall take place in Boston, MA. The arbitration award so given shall be a final and binding determination of the dispute, shall be fully enforceable in any court of competent jurisdiction.

(c) Costs of arbitration are to be divided by the Parties in the following manner: Spero shall pay for the arbitrator it chooses, Northern shall pay for the arbitrator it chooses, and the costs of the third arbitrator shall be divided equally between the Parties. Except in a proceeding to enforce the results of the arbitration or as otherwise required by law, neither Party nor any arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of both Parties.

9.6 Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflicts of law provisions.

9.7 Further Assurances . Each Party agrees to do and perform all such further acts and things and shall execute and deliver such other agreements, certificates, instruments and documents necessary or that the other Party may deem advisable in order to carry out the intent and accomplish the purposes of this Agreement and to evidence, perfect or otherwise confirm its rights hereunder.

9.8 Relationship of the Parties . Each Party is an independent contractor under this Agreement. Nothing contained herein is intended or is to be construed so as to constitute Northern and Spero as partners, agents or joint venturers. Neither Party shall 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 contract, agreement or undertaking with any Third Party. There are no express or implied third party beneficiaries hereunder.

9.9 Entire Agreement . Save for the certain Exchange Agreement entered into between the Parties on June 28, 2017, this Agreement (along with the Exhibits) contains the entire understanding of the Parties with respect to the subject matter hereof and supersedes and replaces any and all previous arrangements and understandings, including the Confidentiality Agreement, whether oral or written, between the Parties with respect to the subject matter hereof.

9.10 Headings . The captions to the several Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Sections hereof.

9.11 Waiver of Rule of Construction . Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed against the drafting party shall not apply.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

15


CONFIDENTIAL TREATMENT REQUESTED

 

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9.12 Interpretation . Whenever any provision of this Agreement uses the term “including” (or “includes”), such term shall be deemed to mean “including without limitation” (or “includes without limitations”). “Herein,” “hereby,” “hereunder,” “hereof” and other equivalent words refer to this Agreement as an entirety and not solely to the particular portion of this Agreement in which any such word is used. All definitions set forth herein shall be deemed applicable whether the words defined are used herein in the singular or the plural. Unless otherwise provided, all references to Sections and Exhibits in this Agreement are to Sections and Exhibits of this Agreement.

9.13 Counterparts . 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 and the same instrument.

[ Remainder of this Page Intentionally Left Blank ]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

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CONFIDENTIAL TREATMENT REQUESTED

Execution Version

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the Effective Date.

 

NORTHERN ANTIBIOTICS OY (LTD.)
By:  

/s/ Martti Vaara

  (Signature)
Name:   Martti Vaara
Title:   CEO
Date:   June 28, 2017
SPERO POTENTIATOR, INC.
By:  

/s/ Ankit Mahadevia

  (Signature)
Name:   Ankit Mahadevia
Title:   Chief Executive Officer
Date:   June 28, 2017

SIGNATURE PAGE TO

LICENSE AGREEMENT

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 


CONFIDENTIAL TREATMENT REQUESTED

Execution Version

 

EXHIBIT A

LICENSED COMPOUNDS

Any and all compounds [***] and claimed or covered by Northern Patent Rights (listed in Exhibit C). For avoidance of any doubt, Licensed Compounds include e.g. [***] and exclude Other Compounds such as e.g. [***].

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

Exhibit A-1


CONFIDENTIAL TREATMENT REQUESTED

Execution Version

 

EXHIBIT B

SPECIFIC NORTHERN KNOW-HOW

The know-how in the documents below covers both Licensed Compounds and Other Compounds; for the purposes of this Agreement, only the know-how covering Licensed Compounds shall be regarded as Northern Know-How.

Publications :

[***].

[***].

[***].

[***]

[***].

[***].

[***].

[***].

[***].

[***].

[***].

[***].

Poster :

[***]

[***].

Specific documents :

[***]

[***]

[***]

[***]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

Exhibit B-1


CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

[***]

[***]

[***]

[***]

[***]

[***]

 

Email messages sent to Spero:

 

  
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]    [***]
[***]   
[***]   
[***]   
[***]   
[***]   
[***]   
[***]   

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

Exhibit B-2


CONFIDENTIAL TREATMENT REQUESTED

Execution Version

 

EXHIBIT C

NORTHERN PATENT RIGHTS

For avoidance of any doubt, it is understood and accepted that Northern Patent Rights claim, cover or relate to both Licensed Compounds and Other Compounds, and that the Exclusive License to Spero granted above does not include any rights whatsoever to said Other Compounds.

Any and all patent applications and patents derived from [***];

currently including the patent applications [***],

[***],

[***]; and

issued patents [***],

[***].

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

Exhibit C-1


CONFIDENTIAL TREATMENT REQUESTED

Execution Version

 

EXHIBIT D

FINANCIAL OBLIGATIONS

See attached.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

Exhibit D-1


CONFIDENTIAL TREATMENT REQUESTED

 

CONFIDENTIAL EXECUTION COPY    LICENSE AGREEMENT

 

Northern Antibiotics Ltd

Proprietary and confidential

IPR-related financial obligations on Northern Antibiotics *

 

Agreement

  

Partner

  

Effective

date

  

Financial obligation

1 [***]    [***]    [***]    [***]
2a [***]    [***]    [***]    [***]
2b [***]    [***]    [***]    [***]
3 [***]    [***]    [***]    [***]

 

* This is a summary to be used as general guidance only, and the agreements referred to herein above dominate this summary

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

Exhibit D-2

Exhibit 16.1

[KPMG LOGO]

KPMG LLP

One Broadway, 15 th Floor

Cambridge, MA 02142

August 25, 2017

Securities and Exchange Commission

Washington, D.C. 20549

Ladies and Gentlemen:

We were previously principal accountants for Spero Therapeutics, Inc. and, under the date of March 14, 2016, we reported on the consolidated financial statements of Spero Therapeutics, Inc. as of and for the year ended December 31, 2014. On June 30, 2016, we were dismissed. We have read Spero Therapeutics, Inc.’s statements included under the heading “Changes in Certifying Accountants” of its draft registration statement and Form S-1 dated August 25, 2017, and we agree with such statements, except that we are not in a position to agree or disagree with Spero Therapeutics, Inc.’s statements that: 1) the change was approved by the board of directors; 2) Spero Therapeutics, Inc. engaged PricewaterhouseCoopers LLP as its independent registered public accounting firm on June 30, 2016, and 3) PricewaterhouseCoopers LLP was not engaged prior to June 30, 2016 regarding the application of accounting principles to a specified transaction or the type of audit opinion that might be rendered on Spero Therapeutics, Inc.’s consolidated financial statements.

Very truly yours,

/s/ KPMG LLP

Exhibit 21.1

SUBSIDIARIES OF SPERO THERAPEUTICS, INC.

 

Subsidiary

 

Jurisdiction

New Pharma License Holdings

  Malta

Spero Cantab, Inc.

  Delaware

Spero Cantab UK Limited

  England and Wales

Spero Europe, Ltd.

  England and Wales

Spero Gyrase, Inc.

  Delaware

Spero Legacy STI, Inc.

  Delaware

Spero Potentiator, Inc.

  Delaware

Spero Potentiator PTY LTD

  Australia

Spero Trinem, Inc.

  Delaware

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-1 of Spero Therapeutics, Inc. of our report dated August 25, 2017 relating to the financial statements, which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

October 6, 2017