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As filed with the Securities and Exchange Commission on November 15, 2017

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

Neothetics, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   2834   20-8527075

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

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

 

 

Susan A. Knudson

Chief Financial Officer

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

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

 

 

Copies to:

 

Michael S. Kagnoff, Esq.

Patrick J. O’Malley, Esq.

DLA Piper LLP (US)

4365 Executive Drive, Suite 1100

San Diego, CA 92121

Tel: (858) 677-1400

Fax: (858) 677-1401

 

Alexander A. Fitzpatrick, Esq.

General Counsel

Evofem Biosciences, Inc.

12400 High Bluff Drive, Suite 600

San Diego, CA 92130

Tel: (858) 559-1900

Fax: (858) 677-1401

 

Adam C. Lenain, Esq.

Melanie Ruthrauff Levy, Esq.

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

3580 Carmel Mountain Road, Suite 300

San Diego, CA 92130

Tel: (858) 314-1500

Fax: (858) 314-1501

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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, 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 statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 13(a) of the Exchange Act.  ☒

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Security Being Registered

  Amount
to be
Registered (1)
  Proposed
Maximum
Offering Price
Per Share
  Proposed
Maximum
Aggregate
Offering Price (2)
  Amount of
Registration Fee (3)

Common stock, $0.0001 par value per share

  84,900,000   N/A   $5,017,000   $625

 

 

(1) Relates to common stock, $0.0001 par value per share, of Neothetics, Inc., a Delaware corporation (“Neothetics”), issuable to holders of capital stock, $0.0001 par value per share, and warrants and options of Evofem Biosciences, Inc., a Delaware corporation (“Evofem”), in the proposed merger of Nobelli Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Neothetics, with and into Evofem. The amount of Neothetics common stock to be registered is based on the estimated number of shares of Neothetics common stock that are expected to be issued pursuant to the merger, assuming (1) an exchange ratio of 0.1515 shares of Neothetics common stock for each outstanding share of Evofem common stock (on an as-converted basis and for each option and warrant exercisable for shares of Evofem common stock) and (2) an exchange ratio of 515,616.2625 shares of Neothetics common stock for each outstanding share of Evofem Series D Preferred Stock, each without giving effect to a reverse stock split of Neothetics common stock immediately prior to the merger and each as subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement described below. The estimated exchange ratio calculations contained herein is based upon Neothetics’ capitalization immediately prior to the date of this proxy statement/prospectus/information statement, and will be further adjusted as necessary to account for the issuance of any additional shares of Neothetics common stock prior to the consummation of the merger.
(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f) of the Securities Act of 1933, as amended, based upon the estimated book value of the Evofem securities to be exchanged in the merger, as of October 20, 2017. Evofem is a private company, and no market exists for its securities.
(3) This fee has been calculated pursuant to Section 6(b) of the Securities Act of 1933, as amended, at a rate equal to $124.50 per $1,000,000 of the proposed maximum aggregate offering price.

 

 

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

 

 

 


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The information in this proxy statement/prospectus/information statement is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED NOVEMBER 15, 2017

 

LOGO   

LOGO

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

 

 

To the Stockholders of Neothetics, Inc. and Evofem Biosciences, Inc.:

Neothetics, Inc., or Neothetics, and Evofem Biosciences, Inc., or Evofem, have entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, pursuant to which a wholly owned subsidiary of Neothetics will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics, or the merger. The merger will result in a clinical-stage speciality biopharmaceutical committed to improving the health and well-being of women throughout the world by addressing women’s unmet medical needs through the discovery, development and commercialization of innovative, next generation women’s healthcare products.

Immediately prior to the effective time of the merger, each share of Evofem capital stock will be converted into shares of Neothetics common stock. Evofem’s authorized capitalization currently consists of shares of (i) Evofem common stock, (ii) Evofem Series A Preferred Stock, (iii) Evofem Series B Preferred Stock, (iv) Evofem Series C Preferred Stock, (v) Evofem Series C-1 Preferred Stock and (vi) Evofem Series D Preferred Stock. Immediately prior to the merger, each share of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C Preferred Stock and Evofem Series C-1 Preferred Stock will convert into one share of Evofem common stock. At the effective time of the merger, each share of Evofem common stock (including shares issued upon conversion of shares of Evofem preferred stock and, upon exercise of the Investor Warrants described below), will be converted into the right to receive approximately 0.1515 pre-split shares of Neothetics common stock, or the common stock exchange ratio, and each share of Evofem Series D Preferred Stock will be converted into the right to receive approximately 515,616.2625 pre-split shares of Neothetics common stock, or the Series D Preferred Stock exchange ratio, subject to adjustment to account for the effect of a reverse stock split of Neothetics common stock in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, and approved by the Neothetics board of directors, within a range of one share of Neothetics common stock for every [●] to [●] shares of Neothetics common stock (or any number in between), or the Reverse Stock Split, to be implemented prior to the consummation of the merger as discussed in this proxy statement/prospectus/information statement. The common stock exchange ratio and the Series D Preferred Stock exchange ratio are determined pursuant to formulas described in more detail in the Merger Agreement and in the attached proxy statement/prospectus/information statement, and the pre-split figures are estimates and subject to adjustment as provided in Section 1.12(b) of the Merger Agreement.

Neothetics will assume options to purchase Evofem common stock that are outstanding and unexercised as of immediately prior to the effective time of the merger, and they will be converted into options to purchase Neothetics common stock. Neothetics will assume warrants to purchase Evofem capital stock that are outstanding and unexercised as of immediately prior to the effective time of the merger, and these warrants will be amended and restated to be exercisable for up to an aggregate of 12,000,000 shares of Neothetics common stock, subject to adjustment for the Reverse Stock Split, immediately following the merger as is further discussed in this proxy statement/prospectus/information statement.

Neothetics stockholders will continue to own and hold their existing shares of Neothetics common stock. Conditioned upon and immediately following the merger, Neothetics will issue and sell in a private placement transaction, or the Financing, $20 million of Neothetics common stock to existing Evofem Investors at a price per share equal to $2.0677, subject to adjustment as provided in Section 1.12(b) of the Merger Agreement and to account for the Reverse Stock Split, and, immediately prior to the effective time of the merger, Evofem will issue warrants to purchase 158,999,371 shares, subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement, of Evofem common stock, or the Investor Warrants. The Investor Warrants will be automatically exercised on a cashless basis at the effective time of the merger, and the shares of Evofem common stock issued upon exercise of the Investor Warrants will be eligible to receive shares of the Neothetics common stock in an amount equal to the common stock exchange ratio upon completion of the merger. Immediately after the merger and the Financing, Evofem stockholders will own approximately 87% of the issued and outstanding common stock of Neothetics, with Neothetics stockholders, whose Neothetics equity will remain outstanding after the merger, holding approximately 13% of the issued and outstanding common stock of Neothetics.


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Shares of Neothetics common stock are currently listed on The NASDAQ Capital Market equities market under the symbol “NEOT.” Prior to consummation of the merger, Neothetics intends to file an initial listing application for the combined company with The NASDAQ Capital Market. In connection with the merger, Neothetics will be renamed “Evofem Biosciences, Inc.” and expects to trade on The NASDAQ Capital Market or another national securities exchange under the symbol “EVFM.” On November 14, 2017, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Neothetics common stock was $1.25 per share.

Neothetics is holding a special meeting of stockholders to obtain the stockholder approvals necessary to complete the merger, the Financing and related matters. At the Neothetics special meeting, which will be held at [●], local time, on [●], 2017 at the offices of DLA Piper LLP (US) located at 4365 Executive Drive, Suite 1100, San Diego, CA 92121, unless postponed or adjourned to a later date, Neothetics will ask its stockholders to, among other things, adopt the Merger Agreement thereby approving the merger and the issuance of Neothetics common stock in connection with the merger, approve the issuance of Neothetics common stock in the Financing, approve an amendment of the Neothetics amended and restated certificate of incorporation in order to (i) effect the Reverse Stock Split, (ii) cause the post-merger combined entity not to be governed by or subject to Section 203 of the Delaware General Corporation Law and (iii) change the Neothetics corporate name to “Evofem Biosciences, Inc.,” approve the issuance of Neothetics common stock in the Financing, and, on a non-binding advisory vote basis, approve compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger, each as described in the accompanying proxy statement/prospectus/information statement.

As described in the accompanying proxy statement/prospectus/information statement, certain Evofem stockholders who in the aggregate beneficially own or control approximately 68% of the outstanding shares of Evofem capital stock, are parties to support agreements with Evofem, or the Support Agreements, whereby such stockholders agreed to vote in favor of the adoption of the Merger Agreement and the transactions contemplated by the Merger Agreement, respectively, subject to the terms of the Support Agreements. In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the U.S. Securities and Exchange Commission and pursuant to the conditions of the Merger Agreement, the Evofem stockholders who are party to the Support Agreements will each execute an action by written consent of the Evofem stockholders, referred to herein as the written consent, adopting the Merger Agreement and approving the merger and the transactions contemplated by the Merger Agreement. No meeting of Evofem stockholders to adopt the Merger Agreement and approve the merger and related transactions will be held; however, all Evofem stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the merger and related transactions, by signing and returning to Evofem a written consent.

After careful consideration, each of the Neothetics strategic transactions committee of the board of directors, or the Strategic Committee, and Evofem boards of directors has unanimously approved the Merger Agreement, and each of the Neothetics Strategic Committee and Evofem boards of directors has unanimously determined that it is advisable to enter into the merger. The board of directors of Neothetics unanimously recommends that its stockholders vote “FOR” the proposals described in the accompanying proxy statement/prospectus/information statement, and the board of directors of Evofem unanimously recommends that its stockholders sign and return the written consent indicating their approval of the merger and adoption of the Merger Agreement and related transactions to Evofem.

 

 

More information about Neothetics, Evofem and the proposed transaction is contained in this proxy statement/prospectus/information statement. Neothetics and Evofem urge you to read the accompanying proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “ RISK FACTORS ” BEGINNING ON PAGE 23.

 

 

Neothetics and Evofem are excited about the opportunities the merger brings to both Neothetics and Evofem stockholders, and thank you for your consideration and continued support.

 

Susan Knudson

   Saundra Pelletier

Chief Financial Officer

   Chief Executive Officer

Neothetics, Inc.

   Evofem Biosciences, Inc.

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

The accompanying proxy statement/prospectus/information statement is dated                    , 2017, and is first being mailed to Neothetics and Evofem stockholders on or about                    , 2017.


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LOGO

NEOTHETICS, INC.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On [ ], 2017

Dear Stockholders of Neothetics:

On behalf of the board of directors of Neothetics, Inc., a Delaware corporation, or Neothetics, Neothetics is pleased to deliver this proxy statement/prospectus/information statement for the proposed merger between Neothetics and Evofem Biosciences, Inc., a Delaware corporation, or Evofem, pursuant to which Nobelli Merger Sub, Inc., a wholly owned subsidiary of Neothetics, or Merger Sub, will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics. In connection with the merger, Neothetics has also entered into a securities purchase agreement, or the Securities Purchase Agreement, with existing Evofem investors, or the Investors, and Evofem pursuant to which Evofem, immediately prior to the merger, will issue to the Investors, warrants to purchase shares of Evofem common stock, or the Investor Warrants, and, immediately following the merger, the Investors will purchase shares of Neothetics common stock in a private placement transaction for an aggregate purchase price of $20 million, or the Financing. The special meeting of stockholders of Neothetics will be held on [●], 2017 at [●], local time, at the offices of DLA Piper LLP (US) located at 4365 Executive Drive, Suite 1100, San Diego, CA 92121, for the following purposes:

1. To consider and vote upon a proposal to approve the merger agreement, the merger and the issuance of Neothetics common stock pursuant to the Agreement and Plan of Merger and Reorganization, dated as of October 17, 2017, by and among Neothetics, Nobelli Merger Sub, Inc. and Evofem, a copy of which is attached as Annex A to the accompanying proxy statement/prospectus/information statement;

2. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to effect a reverse stock split of Neothetics common stock in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, and approved by the Neothetics board of directors, within a range of one share of Neothetics common stock for every [●] to [●] shares of Neothetics common stock (or any number in between) in the form attached as Annex D to the accompanying proxy statement/prospectus/information statement;

3. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name “Neothetics, Inc.” to “Evofem Biosciences, Inc.” in the form attached as Annex D to the accompanying proxy statement/prospectus/information statement;

4. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to elect for Neothetics not to be governed by or subject to Section 203 of the Delaware General Corporation Law in the form attached as Annex D to the accompanying proxy statement/prospectus/information statement;

5. To approve the issuance of shares of Neothetics common stock in the Financing pursuant to the Securities Purchase Agreement, a copy of which is attached as Annex E to the accompanying proxy statement/prospectus/information statement;

6. To consider and vote upon a proposal to approve, on a non-binding advisory vote basis, compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger;

7. To consider and vote upon an adjournment of the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6; and


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8. To transact such other business as may properly come before the stockholders at the Neothetics special meeting or any adjournment or postponement thereof.

The board of directors of Neothetics has fixed [●], 2017 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Neothetics special meeting and any adjournment or postponement thereof. Only holders of record of shares of Neothetics common stock at the close of business on the record date are entitled to notice of, and to vote at, the Neothetics special meeting. At the close of business on the record date, Neothetics had [●] shares of common stock outstanding and entitled to vote.

Your vote is important. The affirmative vote of the holders of a majority of the shares of Neothetics common stock having voting power present in person or represented by proxy at the Neothetics special meeting, presuming a quorum is present, is required for approval of Neothetics Proposal Nos. 1, 5, 6 and 7. The affirmative vote of the holders of a majority of shares of Neothetics common stock having voting power outstanding on the record date for the Neothetics special meeting is required for approval of Neothetics Proposal Nos. 2, 3 and 4. Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3.

Even if you plan to attend the Neothetics special meeting in person, Neothetics requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Neothetics special meeting if you are unable to attend .

By Order of the Neothetics Board of Directors,

Susan Knudson

Chief Financial Officer

San Diego, California

[●], 2017

THE NEOTHETICS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, NEOTHETICS AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE NEOTHETICS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT NEOTHETICS STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus/information statement incorporates important business and financial information about Neothetics that is not included in or delivered with this document. You may obtain this information without charge through the Securities and Exchange Commission, or the SEC, website (www.sec.gov) or upon your written or oral request by contacting the Chief Financial Officer of Neothetics, Inc., 9171 Towne Centre Drive, Suite 250, San Diego, CA 92122, or by calling (858) 750-1008.

To ensure timely delivery of these documents, any request should be made no later than [ ], 2017 to receive them before the special meeting.

For additional details about where you can find information about Neothetics, please see the section entitled “ Where You Can Find More Information ” beginning on page 240 of this proxy statement/prospectus/information statement.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER

     1  

PROSPECTUS SUMMARY

     6  

The Companies

     6  

The Merger

     7  

Opinion of the Neothetics Financial Advisor

     7  

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

     8  

Management Following the Merger

     11  

Interests of Certain Directors, Officers and Affiliates of Neothetics and Evofem

     12  

Considerations with Respect to U.S. Federal Income Tax Consequences of the Merger

     12  

Risk Factors

     13  

Regulatory Approvals

     14  

National Securities Exchange Listing

     14  

Anticipated Accounting Treatment

     14  

Appraisal Rights and Dissenters’ Rights

     14  

Comparison of Stockholder Rights

     14  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND DATA

     16  

Selected Historical Financial Data of Neothetics

     16  

Selected Historical Consolidated Financial Data of Evofem

     18  

Selected Unaudited Pro Forma Condensed Consolidated Financial Information and Data of Neothetics and Evofem

     19  

Comparative Historical and Unaudited Pro Forma Per Share Data

     20  

MARKET PRICE AND DIVIDEND INFORMATION

     22  

RISK FACTORS

     23  

Risks Related to the Merger

     23  

Risks Related to Neothetics

     26  

Risks Related to Evofem

     31  

Risks Related to Evofem’s Financial Condition and Capital Requirements

     31  

Risks Related to the Development of Evofem’s Product Candidates

     34  

Risks Related to Regulatory Approval of Evofem’s Product Candidates and Other Legal Compliance Matters

     37  

Risks Related to Evofem’s Intellectual Property

     42  

Risks Related to Evofem’s Reliance on Third Parties

     53  

Risks Related to Commercialization of Evofem’s Product Candidate

     57  

Risks Related to Evofem’s Business Operations

     62  

Risks Related to the Combined Organization

     63  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     70  

THE SPECIAL MEETING OF NEOTHETICS STOCKHOLDERS

     72  

Date, Time and Place

     72  

Purposes of the Neothetics Special Meeting

     72  

Recommendations of the Neothetics Board

     72  

Record Date and Voting Power

     73  

Voting and Revocation of Proxies

     73  

Required Vote

     75  

Solicitation of Proxies

     75  

Other Matters

     75  

THE MERGER

     76  

Background of the Merger

     76  

Neothetics Reasons for the Merger

     82  

Evofem Reasons for the Merger

     84  


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Interests of the Evofem Directors and Executive Officers in the Merger

     86  

Limitations on Liability and Indemnification

     89  

Stock Options and Warrants

     89  

Form of Merger

     90  

Merger Consideration

     90  

Regulatory Approvals

     91  

Tax Treatment of the Merger

     91  

Material U.S. Federal Income Tax Consequences of the Merger

     92  

Information Reporting and Backup Withholding

     94  

NASDAQ Stock Market Listing

     95  

Anticipated Accounting Treatment

     95  

Appraisal Rights and Dissenters’ Rights

     95  

Opinion of Oppenheimer  & Co. Inc. as Neothetics’ Financial Advisor

     98  

Consideration to be Paid in the Merger

     101  

Estimated Neothetics Stand-Alone Valuation

     102  

Estimated Evofem Stand-Alone Valuation

     102  

Information Regarding Financial Projections Used for Fairness Opinion Analysis

     105  

Interests of the Neothetics Directors and Executive Officers in the Merger

     105  

THE MERGER AGREEMENT

     108  

General

     108  

Merger Consideration

     108  

Exchange Ratios

     109  

Procedures for Exchanging Evofem Stock Certificates

     110  

Treatment of Evofem Options

     111  

Treatment of Evofem Warrants

     111  

Directors and Executive Officers of Neothetics Following the Merger

     111  

Amendment to the Amended and Restated Certificate of Incorporation of Neothetics

     112  

Conditions to the Completion of the Merger

     112  

Representations and Warranties

     115  

No Solicitation

     116  

Meetings of Stockholders

     118  

Covenants; Conduct of Business Pending the Merger

     119  

Regulatory Approvals

     122  

Access to Information

     122  

Other Agreements

     123  

Termination of the Merger Agreement

     125  

Termination Fees

     126  

Amendment

     126  

AGREEMENTS RELATED TO THE MERGER

     127  

Support Agreements

     127  

Lock-Up Agreements

     127  

Securities Purchase Agreement

     127  

Post-Merger Registration Rights Agreement

     128  

Post-Merger Voting Agreement

     129  

MATTERS BEING SUBMITTED TO A VOTE OF NEOTHETICS STOCKHOLDERS

     130  

Neothetics Proposal No.  1: Approval of the Merger Agreement, the Merger and the Issuance of Common Stock in the Merger

     130  

Neothetics Proposal No.  2: Approval of the Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Neothetics Effecting the Reverse Stock Split

     131  

Neothetics Proposal No. 3: Approval of Name Change

     137  

Neothetics Proposal No.  4: To Approve the Certificate of Amendment to the Amended and Restated Certificate of Incorporation Causing Neothetics as the Post-Merger Combined Entity Not to be Subject to Section 203 of the DGCL

     138  


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Neothetics Proposal No.  5: Approval of the Issuance of Neothetics Common Stock in the Financing

     139  

Neothetics Proposal No.  6: Advisory Non-Binding Vote on Merger-Related Executive Compensation Arrangements

     141  

Neothetics Proposal No.  7: Approval of Possible Adjournment of the Neothetics Special Meeting

     142  

NEOTHETICS BUSINESS

     143  

EVOFEM BUSINESS

     146  

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

     170  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT NEOTHETICS’ MARKET RISK

     177  

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

     178  

MANAGEMENT FOLLOWING THE MERGER

     189  

Executive Officers and Directors

     189  

Composition of the Board of Directors

     191  

Director Independence

     192  

Committees of the Board of Directors

     192  

2016 Evofem Director Compensation

     196  

Compensation Committee Interlocks and Insider

     196  

Executive Compensation

     196  

Employment Benefit Plans

     197  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF EVOFEM

     201  

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     205  

Unaudited Pro Forma Condensed Consolidated Balance Sheet

     211  

Unaudited Pro Forma Condensed Consolidated Statements of Operations

     213  

Unaudited Pro Forma Condensed Consolidated Statements of Comprehensive Loss

     214  

Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information

     215  

DESCRIPTION OF NEOTHETICS CAPITAL STOCK

     215  

COMPARISON OF RIGHTS OF HOLDERS OF NEOTHETICS STOCK AND EVOFEM STOCK

     218  

PRINCIPAL STOCKHOLDERS OF NEOTHETICS

     222  

PRINCIPAL STOCKHOLDERS OF EVOFEM

     233  

LEGAL MATTERS

     235  

EXPERTS

     240  

WHERE YOU CAN FIND MORE INFORMATION

     240  

TRADEMARK NOTICE

     240  

OTHER MATTERS

     241  

INDEX TO FINANCIAL STATEMENTS

     F-1  

ANNEX A – AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

     A-1  

ANNEX B – OPINION OF OPPENHEIMER & CO. INC.

     B-1  

ANNEX C – SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

     C-1  

ANNEX D – CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NEOTHETICS, INC.

     D-1  

ANNEX E – SECURITIES PURCHASE AGREEMENT

     E-1  


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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split described in Neothetics Proposal No. 2.

Neothetics, Inc., or Neothetics, Nobelli Merger Sub, Inc., a wholly owned subsidiary of Neothetics, or the Merger Sub, and Evofem Biosciences, Inc., or Evofem ® , have entered into an Agreement and Plan of Merger and Reorganization, dated as of October 17, 2017, or the Merger Agreement. The Merger Agreement contains the terms and conditions of the proposed business combination of Neothetics and Evofem. Under the Merger Agreement, the Merger Sub will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics. This transaction is referred to as “the merger.” Evofem may also be referred to as “Evofem Biosciences.”

The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q: Why are the two companies proposing to merge?

 

A: Following the merger, Neothetics and Evofem believe the combined organization will be a clinical-stage specialty biopharmaceutical company committed to improving the health and well-being of women throughout the world by addressing women’s unmet medical needs through the discovery, development and commercialization of innovative, next generation women’s healthcare products. Evofem’s multipurpose prevention technology is a vaginal gel being developed for multiple indications, including contraception, sexually transmitted infections and bacterial vaginosis. For a discussion of Neothetics and Evofem reasons for the merger, please see the sections entitled “ The Merger — Neothetics Reasons for the Merger ” beginning on page 82 of this proxy statement/prospectus/information statement and “ The Merger — Evofem Reasons for the Merger ” beginning on page 84 of this proxy statement/prospectus/information statement.

 

Q: As a stockholder of Neothetics or Evofem, what will happen to my stock?

 

A:

Immediately prior to the effective time of the merger, each share of outstanding Evofem preferred stock (other than shares of Evofem Series D Preferred Stock) will be converted into one share of Evofem common stock in accordance with the Evofem certificate of incorporation. At the effective time of the merger, each share of Evofem common stock issued and outstanding immediately prior to the effective time of the merger (including shares of Evofem common stock issued upon conversion of shares of Evofem preferred stock and upon exercise of the Investor Warrants described in the section entitled “Agreements Related to the Merger — Securities Purchase Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement), will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the common stock exchange ratio. See the section entitled “ The Merger Agreement — Exchange Ratios ” beginning on page 109 of this proxy statement/prospectus/information statement. Each share of Evofem Series D Preferred Stock issued and outstanding immediately prior to the effective time of the merger will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the Evofem Series D Preferred Stock exchange ratio. See the section entitled “ The Merger Agreement — Exchange Ratios ” beginning on page 109 of this proxy statement/prospectus/information statement. Shares of Evofem capital stock held by stockholders who have exercised and perfected appraisal or dissenters’ rights will be treated as described in the section entitled “ The Merger — Appraisal Rights and Dissenters’ Rights ” beginning on page 95 of this proxy information/prospectus/information statement. The exchange ratios will be subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement and to account for a reverse stock split of Neothetics common stock, or the Reverse Stock Split, in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, subject to approval by the Neothetics board of directors, or the Neothetics Board, within a range of one

 

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  share of Neothetics common stock for every [●] to [●] shares of Neothetics common stock (or any number in between) to be implemented prior to the consummation of the merger. As a result of the merger and assuming completion of the Financing (as defined below) (see the section entitled “ Agreements Related to the Merger — Securities Purchase Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement), Evofem stockholders are expected to own in the aggregate approximately 87% of Neothetics, and the Neothetics stockholders are expected to own in the aggregate approximately 13% of Neothetics. The exchange ratios are determined pursuant to formulas described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement, and the pre-split figure and percentage ownership figures are estimates.

For a more complete description of what Evofem stockholders, warrant holders and option holders will receive in the merger, please see the sections entitled “ Market Price and Dividend Information ” beginning on page 22 of this proxy statement/prospectus/information statement and “ The Merger Agreement — Merger Consideration ” beginning on page 108 of this proxy statement/prospectus/information statement.

Neothetics stockholders, warrant holders and holders of Neothetics equity awards will not receive anything as a result of the merger, but will continue to hold the same amount of Neothetics common stock, warrants to purchase Neothetics common stock and Neothetics equity awards held immediately prior to the merger, as appropriately adjusted for the Reverse Stock Split.

 

Q: What is required to consummate the merger?

 

A: To consummate the merger, Neothetics stockholders must approve the issuance of Neothetics common stock pursuant to the Merger Agreement. In addition, the Merger Agreement anticipates approval of an amendment to the amended and restated certificate of incorporation of Neothetics (effecting (i) the Reverse Stock Split, (ii) Neothetics’ opt out of Section 203 of the Delaware General Corporation Law, or the DGCL, and (iii) the change in Neothetics’ name to “Evofem Biosciences, Inc.”) and the approval of the issuance of shares of Neothetics common stock pursuant to a private placement where accredited existing investors of Evofem, or the Investors, have agreed to purchase in a private placement, or the Financing, shares of Neothetics common stock at an aggregate purchase price of $20 million subject to and upon the completion of the merger. See the section entitled “ Agreements Related to the Merger — The Securities Purchase Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement. Moreover, Evofem stockholders must approve the merger and the transactions contemplated by the Merger Agreement and the Financing.

For a more complete description of the closing conditions under the Merger Agreement, you are urged to read the section entitled “ The Merger Agreement — Conditions to the Completion of the Merger ” beginning on page 112 of this proxy statement/prospectus/information statement.

 

Q: When do you expect the merger to be consummated?

 

A: The merger is anticipated to occur promptly after the Neothetics special meeting to be held on [●]. For more information, please see the section entitled “T he Merger Agreement — Conditions to the Completion of the Merger ” beginning on page 112 of this proxy statement/prospectus/information statement.

 

Q: What will happen to Neothetics if, for any reason, the merger does not close?

 

A: If, for any reason, the merger does not close, the Neothetics Board may elect to, among other things, attempt to complete another strategic transaction like the merger, attempt to sell or otherwise dispose of the various assets of Neothetics or continue to operate the business of Neothetics. If Neothetics decides to dissolve and liquidate its assets, Neothetics would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left to distribute to stockholders after paying the debts and other obligations of Neothetics and setting aside funds for reserves.

 

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Q: As a Neothetics stockholder, how does the Neothetics Board recommend that I vote?

 

A: After careful consideration, the Neothetics Board unanimously recommends that Neothetics stockholders vote:

 

    FOR ” Proposal No. 1 to approve the Merger Agreement, the merger and the issuance of shares of common stock of Neothetics in the merger;

 

    FOR ” Proposal No. 2 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to effect a reverse stock split of Neothetics common stock in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, and approved by the Neothetics Board, within a range of one share of Neothetics common stock for every [●] to [●] shares of Neothetics common stock (or any number in between);

 

    FOR ” Proposal No. 3 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name of “Neothetics, Inc.” to “Evofem Biosciences, Inc.”;

 

    FOR Proposal No. 4 to approve the certificate of amendment to the amended and restated certificate of incorporation causing the post-merger combined entity not to be governed by or subject to Section 203 of the DGCL;

 

    FOR ” Proposal No. 5 to approve the issuance of the shares of Neothetics common stock in the Financing;

 

    FOR ” Proposal No. 6 to consider and vote upon a proposal to approve, on a non-binding advisory vote basis, compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger; and

 

    FOR ” Proposal No. 7 to adjourn the special meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3, 4, 5 and 6.

 

Q: As an Evofem stockholder, how does the Evofem board of directors recommend that I vote?

 

A: After careful consideration, the Evofem board of directors, or the Evofem Board, unanimously recommends that Evofem stockholders execute the written consent indicating their vote in favor of the adoption of the Merger Agreement and the approval of the merger and the transactions contemplated thereby.

 

Q: What risks should I consider in deciding whether to vote in favor of the merger or to execute and return the written consent, as applicable?

 

A: You should carefully review the section beginning on page 23 of this proxy statement/prospectus/information statement entitled “ Risk Factors ” which sets forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined organization’s business will be subject, and risks and uncertainties to which each of Neothetics and Evofem, as an independent company, is subject.

 

Q: What do I need to do now?

 

A: Neothetics and Evofem urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the merger affects you.

If you are a stockholder of Neothetics, you may provide your proxy instructions in one of two different ways. First, you can mail your signed proxy card in the enclosed return envelope. Second, you may also provide your proxy instructions via the Internet or telephone by following the instructions on your proxy card or voting instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and, even if you are planning to attend the special meeting in person, do so as soon as possible so that your shares can be voted at the special meeting of Neothetics stockholders.

 

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If you are a stockholder of Evofem, you may execute and return your written consent to Evofem in accordance with the instructions provided.

 

Q: When and where is the special meeting of Neothetics stockholders being held?

 

A: The special meeting of Neothetics stockholders will be held at the offices of DLA Piper LLP (US) located at 4365 Executive Drive, Suite 1100, San Diego, CA 92121, at [●] local time, on [●], 2017. Subject to space availability, all Neothetics stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-serve basis.

 

Q: May I vote in person at the special meeting of stockholders of Neothetics?

 

A: If your shares of Neothetics common stock are registered directly in your name with the Neothetics transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy materials and proxy card are being sent directly to you by Neothetics. If you are a Neothetics stockholder of record, you may attend the special meeting of Neothetics stockholders and vote your shares in person. Even if you plan to attend the Neothetics special meeting in person, Neothetics requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Neothetics special meeting if you are unable to attend. If your shares of Neothetics common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the beneficial owner, you are also invited to attend the special meeting of Neothetics stockholders. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Neothetics special meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.

 

Q: If my Neothetics shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A: Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Neothetics common stock on matters requiring discretionary authority without instructions from you. Brokers are not expected to have discretionary authority to vote for Neothetics Proposal Nos. 1, 2, 3, 4, 5 or 6. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

 

Q: May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A: Neothetics stockholders of record may change their vote at any time before their proxy is voted at the Neothetics special meeting in one of three ways. First, a stockholder of record of Neothetics can send a written notice to the Secretary of Neothetics stating that it would like to revoke its proxy. Second, a stockholder of record of Neothetics can submit new proxy instructions either on a new proxy card or via the Internet or telephone. Third, a stockholder of record of Neothetics can attend the Neothetics special meeting and vote in person. Attendance alone will not revoke a proxy. If a Neothetics stockholder of record or a stockholder who owns Neothetics shares in “street name” has instructed a broker to vote its shares of Neothetics common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q: What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A: If you are a Neothetics stockholder, the failure to return your proxy card or otherwise provide proxy instructions will reduce the aggregate number of votes required to approve Neothetics Proposal Nos. 1, 5, 6 and 7 and will have the same effect as voting against Neothetics Proposal Nos. 2, 3 and 4, and your shares will not be counted for purposes of determining whether a quorum is present at the Neothetics special meeting.

 

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Q: Who is paying for this proxy solicitation?

 

A: Neothetics and Evofem will share equally the cost of printing and filing of this proxy statement/prospectus/information statement and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Neothetics common stock for the forwarding of solicitation materials to the beneficial owners of Neothetics common stock. Neothetics will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Neothetics has retained Philadelphia Stock Transfer to assist it in soliciting proxies using the means referred to above. Neothetics will pay the fees of Philadelphia Stock Transfer, which Neothetics expects to be approximately $10,000, plus reimbursement of out-of-pocket expenses.

 

Q: Who can help answer my questions?

 

A: If you are a Neothetics stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact Neothetics’ proxy solicitor:

PHILADELPHIA STOCK TRANSFER

(866) 223-0448 (toll free)

(484) 416-3124 (collect)

If you are an Evofem stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

Evofem Biosciences, Inc.

12400 High Bluff Drive, Suite 600

San Diego, CA 92130

Tel: (858) 550-1900

Attn: Investor Relations

investor@evofem.com

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the Neothetics special meeting and the Evofem stockholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement and the other annexes to which you are referred herein. For more information, please see the section entitled “Where You Can Find More Information” beginning on page 240 of this proxy statement/prospectus/information statement.

The Companies

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

Neothetics, Inc., or Neothetics, is a biopharmaceutical company headquartered in San Diego, California. Neothetics’ lead product candidate, LIPO-202, is a first-in-class injectable formulation of the long-acting ß2-adrenergic receptor agonist, salmeterol xinafoate, which is an active ingredient in the U.S. Food and Drug Administration, or FDA, approved inhaled products SEREVENT DISKUS ® , ADVAIR HFA ® and ADVAIR DISKUS ® . Neothetics has temporarily suspended further research and development of LIPO-202.

Evofem Biosciences, Inc.

12400 High Bluff Drive, Suite 600

San Diego, CA 92130

(858) 550-1900

Evofem Biosciences, Inc., or Evofem, is headquartered in San Diego, California and is a clinical-stage specialty biopharmaceutical company committed to improving the health and well-being of women throughout the world by addressing women’s unmet medical needs through the discovery, development and commercialization of innovative, next generation women’s healthcare products. Evofem’s multipurpose prevention technology, or MPT, is a vaginal gel being developed for multiple indications, including contraception, sexually transmitted infections, or STIs, and bacterial vaginosis, or BV.

Evofem’s lead product candidate, Amphora ® , is a hormone-free, on demand, woman-controlled vaginal gel currently in Phase 3 clinical trials as a contraceptive and in a Phase 2b/3 trial for the prevention of certain STIs. In addition, Evofem recently completed a Phase 1 trial of its MPT vaginal gel for the reduction of recurrence of BV and is currently designing a Phase 2b/3 trial.

Nobelli Merger Sub, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

Nobelli Merger Sub, Inc., or Merger Sub, is a wholly owned subsidiary of Neothetics and was formed solely for the purposes of carrying out the merger.

 



 

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The Merger (see page 76)

If the merger is completed, Merger Sub will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics.

Immediately after the merger and the Financing, Evofem stockholders will own approximately 87% of the issued and outstanding common stock of post-merger Neothetics, with Neothetics stockholders holding approximately 13% of the issued and outstanding common stock of post-merger Neothetics. Neothetics will assume options to purchase Evofem common stock that are outstanding and unexercised as of immediately prior to the effective time of the merger, and these options will be converted into options to purchase Neothetics common stock. Warrants to purchase capital stock of Evofem will be assumed by Neothetics in connection with the merger and then immediately amended and restated to be warrants, or the Neothetics Post-Merger Warrants, to purchase up to an aggregate of 12,000,000 shares (subject to adjustment for the Reverse Stock Split) of Neothetics common stock. The Neothetics Post-Merger Warrants will have an exercise price equal to the average of the closing sale prices of shares of Neothetics common stock as quoted on The NASDAQ Capital Market for the 30 consecutive trading day period immediately following the effective time of the merger and will be exercisable commencing on the first anniversary of the effective time of the merger and ending on the fourth anniversary of the merger. Each of the three Neothetics Post-Merger Warrants will be issued as a unit with one share of Neothetics common stock, or the Unit Share. Per the terms of the Neothetics Post-Merger Warrants, the Unit Shares may not be transferred separately from the Neothetics Post-Merger Warrants.

The common stock exchange ratio and Series D Preferred Stock exchange ratio are determined pursuant to formulas described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement. The foregoing percentages assume that the exchange ratios are not adjusted.

For a more complete description of the merger exchange ratios, please see the section entitled “ The Merger Agreement ” beginning on page 108 of this proxy statement/prospectus/information statement.

The closing of the merger will occur no later than three business days after the last of the conditions to the merger has been satisfied or waived, or at another time as Neothetics and Evofem agree. Neothetics and Evofem anticipate that the consummation of the merger will occur promptly after the Neothetics special meeting assuming Neothetics stockholder approval is received. However, because the merger is subject to a number of conditions, neither Neothetics nor Evofem can predict exactly when the closing will occur or if it will occur at all. In connection with the merger, assuming that Neothetics receives the required stockholder approval of Neothetics Proposal No. 3, Neothetics will be renamed “Evofem Biosciences, Inc.”

The reasons for the merger are described on pages 82 and 84 of this proxy statement/prospectus/information statement.

Opinion of the Neothetics’ Financial Advisor (see page 98)

Oppenheimer & Co. Inc., or Oppenheimer, the financial advisor of Neothetics, delivered to the Strategic Transactions Committee, or the Strategic Committee, of the Neothetics Board, a written opinion dated October 16, 2017, addressed to the Strategic Committee, to the effect that, as of such date and based on and subject to the assumptions, factors, qualifications and limitations set forth in the opinion, the merger consideration to be paid by Neothetics in the merger was fair, from a financial point of view, to Neothetics. The full text of this written opinion to the Strategic Committee, which set forth, among other things, the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Oppenheimer in preparing its opinion, is attached as Annex B to this proxy statement/prospectus/information statement and is incorporated by reference in its entirety into this proxy statement/prospectus/

 



 

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information statement. Holders of Neothetics common stock are encouraged to read the opinion carefully in its entirety. The Oppenheimer opinion was prepared for the information of the Strategic Committee for its use in connection with its consideration of the merger. It does not address any other aspect of the proposed merger or any alternative to the merger. Neither Oppenheimer’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus/information statement are intended to be, and they do not constitute, a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the merger or any other matter.

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

Merger Consideration (see page 90)

Immediately prior to the effective time of the merger, each share of Evofem preferred stock (other than shares of Evofem Series D Preferred Stock) outstanding at such time will be converted into one share of Evofem common stock in accordance with the Evofem certificate of incorporation then in effect. At the effective time of the merger:

 

    each share of Evofem common stock issued and outstanding immediately prior to the effective time of the merger (including shares of Evofem common stock issued upon conversion of shares of Evofem preferred stock and upon exercise of the Investor Warrants described in the section entitled “ Agreements Related to the Merger-Securities Purchase Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement) will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the common stock exchange ratio, as described below;

 

    each share of Evofem Series D Preferred Stock issued and outstanding immediately prior to the effective time of the merger will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the Series D Preferred Stock exchange ratio, as described below;

 

    each option to purchase common stock of Evofem, or Evofem Option, will be assumed by Neothetics and will become an option to that number of shares of the common stock of Neothetics, or Neothetics Option, multiplied by the common stock exchange ratio (and rounding the resulting number down to the nearest whole share), at an exercise price equal to the per share exercise price of such Evofem Option divided by the common stock exchange ratio (and rounding the resulting number up to the nearest whole cent); and

 

    warrants to purchase Evofem capital stock, or the Evofem Warrants, will be assumed by Neothetics and then immediately amended and restated to become the Neothetics Post-Merger Warrants.

Immediately after the merger and after giving effect to the Financing, based on the exchange ratios, Evofem stockholders will own approximately 87% of the issued and outstanding common stock of Neothetics and the Neothetics stockholders will own approximately 13% of the issued and outstanding common stock of Neothetics. The exchange ratios are determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement and are subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement.

There will be no adjustment to the total number of shares of Neothetics common stock that Evofem stockholders will be entitled to receive for changes in the market price of Neothetics common stock. Accordingly, the market value of the shares of Neothetics common stock issued pursuant to the merger will depend on the market value of the shares of Neothetics common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

In connection with the Merger Agreement and the Securities Purchase Agreement, upon consummation of the Financing, Neothetics will terminate its existing Fourth Amended and Restated Investors’ Rights Agreement,

 



 

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dated September 22, 2014, by and between Neothetics and the investors listed therein, or the Existing Investors, and enter into a registration rights agreement with certain of the Existing Investors and certain investors of Evofem.

Treatment of Evofem Options (see page 111)

At the effective time of the merger, each Evofem Option, whether vested or not vested, will be converted into a Neothetics Option and each Neothetics Option may be exercised solely for shares of Neothetics common stock. Neothetics will fully assume the Evofem Amended and Restated 2012 Equity Incentive Plan, or the Evofem Equity Incentive Plan. The number of shares of Neothetics common stock subject to each Neothetics Option will be determined by multiplying (i) the number of shares of Evofem common stock that were subject to the underlying Evofem Option by (ii) the common stock exchange ratio, with the resulting number rounded down to the nearest whole number of shares of Neothetics common stock. The per share exercise price for the Neothetics common stock subject to such Neothetics Option will be determined by dividing (i) the per share exercise price of the underlying Evofem Option by (ii) the common stock exchange ratio, with the resulting number rounded up to the nearest whole cent.

Any restrictions on the exercise of assumed Evofem Options will continue in full force and effect following the conversion and the term, exercisability, vesting schedules, status as an “incentive stock option” under Section 422 of the Code, if applicable, and other provisions of the assumed Evofem Options will generally remain unchanged, provided, that any Evofem Options assumed by Neothetics may be subject to adjustment to reflect changes in Neothetics’ capitalization after the effective time of the merger and that the Neothetics Board or any committee thereof will succeed to the authority of the Evofem Board with respect to each assumed Evofem Option.

Treatment of Evofem Warrants (see page 111)

The Evofem Warrants will be assumed by Neothetics at the effective time of the merger and then immediately amended and restated to become the Neothetics Post-Merger Warrants. The exercise price for the Neothetics Post-Merger Warrants will be equal to the average of the closing sale prices of the Neothetics common stock as quoted on The NASDAQ Capital Market for the 30-consecutive trading day period commencing immediately following the effective time of the merger and will be exercisable for a period commencing on the one year anniversary of the effective time of the merger and ending on the fourth anniversary of the effective time of the merger. Each of the three Neothetics Post-Merger Warrants will be issued as a unit with one Unit Share. Per the terms of the Neothetics Post-Merger Warrants, the Unit Shares may not be transferred separately from the Neothetics Post-Merger Warrants. The Neothetics Post-Merger Warrants will be subject to adjustment for the Reverse Stock Split as well as any other changes in Neothetics’ capitalization after the effective time of the merger.

Conditions to the Completion of the Merger (see page 112)

To consummate the merger, Neothetics stockholders must approve the merger and the issuance of shares of Neothetics common stock in the merger. In addition, the Merger Agreement anticipates approval of a certificate of amendment to the amended and restated certificate of incorporation of Neothetics (i) effecting the Reverse Stock Split, (ii) effecting a change of the Neothetics name to “Evofem Biosciences, Inc.” and (iii) causing the post-merger combined entity not to be subject to or governed by Section 203 of the DGCL. Moreover, the Evofem stockholders must adopt the Merger Agreement and approve the merger. In addition to obtaining such stockholder approvals and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

 



 

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No Solicitation (see page 116)

Each of Neothetics and Evofem agreed that, subject to limited exceptions, Neothetics and Evofem will not, and will not authorize or permit any of their respective subsidiaries or any of their respective controlled affiliates, officers, directors, employees, partners, attorneys, accountants, advisors, agents or representatives of such parties or of any such party’s subsidiaries or other controlled affiliates to, directly or indirectly:

 

    solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any “acquisition proposal,” as defined below, or take any action that would reasonably be expected to lead to an acquisition proposal;

 

    furnish any nonpublic information regarding it to any person in connection with or in response to an acquisition proposal or an inquiry or indication of interest that could lead to an acquisition proposal;

 

    engage in discussions or negotiations with any person with respect to any acquisition proposal;

 

    approve, endorse or recommend an acquisition proposal; or

 

    enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to an “acquisition transaction,” as defined in the Merger Agreement.

However, before obtaining the applicable Neothetics or Evofem stockholder approvals required to adopt the Merger Agreement, each party may furnish nonpublic information regarding such party and its respective subsidiaries to, may enter into discussions with, or facilitate or cooperate with the submission of an acquisition proposal made by any person in response to any such acquisition proposal, that after consultation with a financial advisor and outside legal counsel, such party’s board of directors determines in good faith is, or would reasonably be expected to result in a “superior offer,” as defined in the Merger Agreement, if:

 

    such acquisition proposal did not result from a breach of the no solicitation provisions of the Merger Agreement described above such party’s board of directors concludes in good faith, after having taken into account the advice of its outside legal counsel, that such action is required in order for the board of directors to comply with its fiduciary duty obligations to its stockholders under applicable legal requirements;

 

    at least two business days prior to furnishing any information or entering into discussions with a third party, such party must (i) give the other party written notice of the identity of the third party, the terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) made thereby and of that party’s intention to furnish information to, or enter into discussions with such third party and (ii) such party must receive from the third party an executed confidentiality agreement on terms no less favorable to such party than those in the confidentiality agreement between Neothetics and Evofem, with such new confidentiality agreement to contain customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such third party on or behalf of such party (as well as customary “standstill” provisions if Neothetics is the party entering into a new confidentiality agreement with the third party); and

 

    substantially contemporaneous with furnishing of any information to a third party, such party furnishes the same information to the other party to the extent not previously furnished.

Termination of the Merger Agreement (see page 125)

Either Neothetics or Evofem can terminate the Merger Agreement under certain circumstances, which would prevent the merger from being consummated.

 



 

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Termination Fees (see page 126)

If the Merger Agreement is terminated under certain circumstances, by either Neothetics or Evofem, the terminating party will be required to pay the other party up to $1.5 million in termination fees. Neothetics or Evofem will be required in some circumstances, to reimburse the other party for expenses incurred in connection with the merger, up to a maximum of $250,000.

Support Agreements (see page 127)

Certain Evofem securityholders hold approximately 68% of the voting power of Evofem’s outstanding capital stock on an as-converted to common stock basis as of October 20, 2017 entered into support agreements, or the Support Agreements, pursuant to which, among other things, they agreed to vote all of their shares of Evofem capital stock in favor of the adoption of the Merger Agreement and the approval of the merger, the other transactions contemplated by the Merger Agreement, and any other matter that is reasonably necessary to facilitate the consummation of the merger and the other transactions contemplated by the Merger Agreement, against any “Adverse Proposal,” as defined in the Support Agreements, and against any other matter that would reasonably be expected to impede, interfere with, delay, postpone or adversely affect the merger or any of the transactions contemplated by the Merger Agreement.

Lock-Up Agreements (see page 127)

Certain officers and directors of Evofem entered into lock-up agreements, or the Lock-Up Agreements, with Evofem and Neothetics pursuant to which the Evofem officers and directors agreed, except in certain limited circumstances, to refrain from the following items, or the Lock-Up Restrictions, (i) offering, pledging, selling, contracting to sell, selling any option or contract purchase, purchasing any option or contract to sell, granting any option, right or warrant to purchase, making any short sale or otherwise transferring or disposing of or lending any shares of Neothetics common stock or securities convertible into, exercisable or exchangeable for or that represent the right to receive Neothetics common stock whether then owned or thereafter acquired, or the Lock-Up Securities, (ii) entering into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, (iii) making any demanded for or exercise any right with respect to the registration of any Neothetics common stock or any security convertible into or exercisable or exchangeable for Neothetics common stock or (iv) publicly disclosing the intention to do any of the foregoing.

The restrictions in the Lock-Up Agreements automatically terminate 180 days following the effective time of the merger.

Management Following the Merger (see page 189)

Effective as of the closing of the merger, Neothetics’ executive officers are expected to be the current Evofem management team:

 

Name

  

Title

Saundra Pelletier

   Chief Executive Officer

Justin J. File

   Chief Financial Officer

Kelly Culwell, M.D.

   Chief Medical Officer

Russ Barrans

   Chief Commercial Officer

David R. Friend, Ph.D.

   Chief Scientific Officer

Alexander A. Fitzpatrick, Esq.

   General Counsel and Secretary

 



 

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Interests of Certain Directors, Officers and Affiliates of Neothetics and Evofem (see pages 105 and 86)

When considering the recommendation of the Neothetics Board, you should be aware that Neothetics’ executive officers and directors have interests in the merger that are different from, or in addition to, your interests as a stockholder. The Neothetics Strategic Committee was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the merger, and in recommending that the Merger Agreement be adopted by the stockholders of Neothetics. For example, Neothetics previously entered into an executive employment agreement with its Chief Financial Officer that provide her with cash severance payments, cash payments intended to cover certain health insurance costs and the acceleration of her outstanding equity awards in the event her employment is terminated without cause following a change of control of Neothetics. In addition, certain of Neothetics’ directors and executive officers have options, which shall vest immediately prior to the consummation of the merger, and certain officers of Neothetics are eligible for a cash bonus award upon the consummation of the merger. None of Neothetics’ directors and executive officers are expected to continue with the combined company following the merger except for one member of the Neothetics Board who is expected to continue as a director of Neothetics upon the closing of the merger. All of Neothetics’ directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement and coverage pursuant to insurance policies maintained by Neothetics.

As of October 20, 2017, the directors and executive officers of Neothetics, together with their affiliates, owned approximately 42% of the outstanding shares of Neothetics common stock.

In considering the recommendation of the Evofem Board with respect to approving the merger and related transactions by written consent, Evofem stockholders should be aware that certain members of the board of directors and executive officers of Evofem have interests in the merger that may be different from, or in addition to, interests they have as Evofem stockholders. For example, certain of Evofem’s directors and executive officers have options subject to vesting, which options to purchase shares of Evofem common stock which will be converted into and become options to purchase shares of Neothetics common stock, Evofem’s directors and executive officers are expected to become directors and executive officers of Neothetics upon the closing of the merger and all of Evofem’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement.

As of October 20, 2017, the directors and executive officers of Evofem, together with their affiliates, owned approximately 12.8% of the outstanding shares of Evofem capital stock, on an as converted to common stock basis. Certain Evofem stockholders have also entered into Support Agreements in connection with the merger.

Considerations with Respect to U.S. Federal Income Tax Consequences of the Merger (see page 91)

Each of Neothetics and Evofem intends the merger to qualify as a reorganization within the meaning of Section 368(a) of the United States Internal Revenue Code, as amended, or the Code. Assuming the merger qualifies as a reorganization, in general, and subject to the qualifications and limitations set forth in the section entitled “ The Merger — Material U.S. Federal Income Tax Consequences of the Merger ,” the material U.S. federal income tax consequences to U.S. Holders (as defined herein) of Evofem common stock should be as follows:

 

    an Evofem stockholder should not recognize gain or loss upon the exchange of Evofem common stock for Neothetics common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Neothetics common stock as described below;

 

    an Evofem stockholder’s aggregate tax basis for the shares of Neothetics common stock received in the merger (including any fractional share interest for which cash is received) should equal the stockholder’s aggregate tax basis in the shares of Evofem common stock surrendered upon completion of the merger;

 



 

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    the holding period of the shares of Neothetics common stock received by an Evofem stockholder in the merger should include the holding period of the shares of Evofem common stock surrendered in exchange therefor provided the surrendered Evofem common stock is held as a capital asset (generally, property held for investment) at the time of the merger; and

 

    an Evofem stockholder who receives cash in lieu of a fractional share of Neothetics common stock in the merger should recognize capital gain or loss in an amount equal to the difference between the amount of cash received instead of a fractional share and the stockholder’s tax basis allocable to such fractional share.

Tax matters are very complicated, and the tax consequences of the merger to a particular Evofem stockholder will depend on such stockholder’s circumstances. Accordingly, you should consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws. For more information, please see the section entitled “ The Merger — Material U.S. Federal Income Tax Consequences of the Merger ” beginning on page 92 of this proxy statement/prospectus/information statement.

Risk Factors (see page 23)

Both Neothetics and Evofem are subject to various risks associated with their businesses and their industries. In addition, the merger, including the possibility that the merger may not be completed, poses a number of risks to each company and its respective stockholders, including the following risks:

 

    The exchange ratios are not adjustable based on the market price of Neothetics common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed;

 

    Failure to complete the merger may result in Neothetics and Evofem paying a termination fee or expenses to the other and could harm the common stock price of Neothetics and the future business, liquidity and operations of each company;

 

    If the conditions to the merger are not met, the merger may not occur;

 

    The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes;

 

    Some Neothetics and Evofem executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests;

 

    The market price of the combined organization common stock may decline as a result of the merger;

 

    Neothetics and Evofem stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger;

 

    During the pendency of the merger, Neothetics and Evofem may not be able to enter into a business combination with another party at a favorable price (subject to certain exceptions) because of restrictions in the Merger Agreement, which could adversely affect their respective businesses;

 

    Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement; and

 

    Because the lack of a public market for Evofem shares makes it difficult to evaluate the fairness of the merger, the stockholders of Evofem may receive consideration in the merger that is less than the fair market value of the Evofem shares or Neothetics may pay more than the fair market value of the Evofem shares.

 



 

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These risks and other risks are discussed in greater detail under the section entitled “Risk Factors” in this proxy statement/prospectus/information statement. Neothetics and Evofem both encourage you to read and consider all of these risks carefully.

Regulatory Approvals (see page 122)

In the United States, Neothetics must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Capital Market in connection with the issuance of shares of Neothetics common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement of which this proxy statement/prospectus/information statement is a part has not become effective.

National Securities Exchange Listing (see page 95)

Prior to consummation of the merger, Neothetics intends to file an initial listing application for the combined company with The NASDAQ Capital Market or another national securities exchange. If such application is accepted, Neothetics anticipates that Neothetics’ common stock will be listed on The NASDAQ Capital Market or such other national securities exchange following the closing of the merger under the trading symbol “EVFM.”

Anticipated Accounting Treatment (see page 95)

Although Neothetics is the legal acquirer and will issue shares of its common stock to affect the merger with Evofem, Evofem is considered the accounting acquirer. In accordance with the accounting guidance under ASU 2017-01, the merger is considered an asset acquisition. Accordingly, the assets and liabilities of Private Evofem will be recorded as of the merger closing date at their respective carrying values and the acquired net assets of Neothetics will be recorded as of the merger closing date at their fair value. Determination of fair value of certain assets acquired is dependent upon certain valuations that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated fair values, which cannot be made prior to the completion of the transaction, will be based on the actual net tangible assets of Neothetics that exist as of the date of the completion of the transaction. Therefore, the actual purchase price allocation may differ from the amounts reflected in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed consolidated financial statements include the accounts of Evofem since the effective date of merger and Neothetics since inception.

Appraisal Rights and Dissenters’ Rights (see page 95)

Holders of Neothetics common stock are not entitled to appraisal rights in connection with the merger. Evofem stockholders are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the DGCL, attached hereto as Annex C , and the section entitled “ The Merger — Appraisal Rights and Dissenters’ Rights ” in this proxy statement/prospectus/information statement.

Comparison of Stockholder Rights (see page 222)

Both Neothetics and Evofem are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Evofem stockholders will become stockholders of Neothetics, and their rights will be governed by the DGCL, the bylaws of Neothetics and, assuming Neothetics Proposals Nos. 2, 3 and 4 are approved by Neothetics stockholders at the Neothetics special meeting, the amended and restated certificate of incorporation of

 



 

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Neothetics, as amended by the certificate of amendment attached to this proxy statement/prospectus/information statement as Annex D . The rights of Neothetics stockholders contained in the amended and restated certificate of incorporation and bylaws of Neothetics differ from the rights of Evofem stockholders under the amended and restated certificate of incorporation and bylaws of Evofem, as more fully described under the section entitled “Comparison of Rights of Holders of Neothetics Stock and Evofem Stock ” in this proxy statement/prospectus/information statement.

 



 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND DATA

The following tables present summary historical financial data for Neothetics and Evofem, summary unaudited pro forma condensed consolidated financial data for Neothetics and Evofem, and comparative historical and unaudited pro forma per share data for Neothetics and Evofem.

Selected Historical Financial Data of Neothetics

The selected statements of operations data for the years ended December 31, 2016, 2015 and 2014 and the selected balance sheet data as of December 31, 2016 and 2015 are derived from Neothetics’ audited financial statements beginning on page F-2 of this proxy statement/prospectus/information statement. The selected statements of operations data for the nine months ended September 30, 2017 and 2016 and the selected balance sheet data as of September 30, 2017 are derived from Neothetics’ unaudited condensed financial statements beginning on page F-21 of this proxy statement/prospectus/information statement. Neothetics’ unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, on the same basis as its audited annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair statement of those unaudited condensed financial statements. Neothetics’ historical results are not necessarily indicative of results that may be expected in any future period and the results for the nine months ended September 30, 2017 are not necessarily indicative of results to be expected for the full year ending December 31, 2017 or any other period.

The selected historical financial data below should be read in conjunction with the sections entitled “ Neothetics Management’s Discussion and Analysis of Financial Condition and Results of Operations ” beginning on page 170 of this proxy statement/prospectus/information statement, “ Risk Factors — Risks Related to Neothetics ” beginning on page 26 of this proxy statement/prospectus/information statement and Neothetics’ financial statements and related notes beginning on page F-2 of this proxy statement/prospectus/information statement.

Condensed Statements of Operations:

(In thousands, except for share and per share data)

 

     Year ended December 31,     Nine Months Ended
September 30,
 
     2016     2015     2014     2017     2016  

Expenses:

          

Research and development

   $ 6,579     $ 34,410     $ 5,175     $ 3,593     $ 5,653  

General and administrative

     5,463       7,639       4,416       4,081       4,408  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     12,042       42,049       9,591       7,674       10,061  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (12,042     (42,049     (9,591     (7,674     (10,061

Interest income

     59       26       8       40       50  

Interest expense

     (1,036     (1,134     (375     —         (1,036

Loss on change in fair value of preferred stock warrants

     —         —         (861     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (13,019   $ (43,157   $ (10,819   $ (7,634   $ (11,047
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (0.94   $ (3.15   $ (5.36   $ (0.55   $ (0.80
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute basic and diluted net loss per share

     13,801,003       13,696,033       2,017,601       13,830,981       13,786,207  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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Balance Sheet Data

(In thousands)

 

     September 30,
2017
    December 31,
2016
    December 31,
2015
 

Cash and cash equivalents

   $ 5,750     $ 11,478     $ 37,749  

Restricted cash

     93       200       200  

Total assets

     6,246       12,817       40,112  

Long-term debt, current portion

     —         —         2,756  

Total current liabilities

     1,396       902       9,100  

Long-term debt, net of current portion

     —         —         7,205  

Accumulated deficit

     (133,484     (125,850     (112,832

Total stockholders’ equity

     4,850       11,915       23,807  

Total liabilities and stockholders’ equity

     6,246       12,817       40,112  

 



 

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Selected Historical Consolidated Financial Data of Evofem

The selected consolidated statements of operations data for the years ended December 31, 2016 and 2015 are derived from Evofem’s audited consolidated financial statements beginning on page F-33 of this proxy statement/prospectus/information statement. The selected consolidated statements of operations data for the nine months ended September 30, 2017 and the selected consolidated balance sheet data as of September 30, 2017 are derived from Evofem’s unaudited condensed consolidated financial statements beginning on page F-68 of this proxy statement/prospectus/information statement. Evofem’s unaudited condensed consolidated financial statements have been prepared in accordance with GAAP on the same basis as its audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair statement of those unaudited condensed consolidated financial statements. Evofem’s historical results are not necessarily indicative of results that may be expected in any future period and the results for the nine months ended September 30, 2017 are not necessarily indicative of results to be expected for the full year ending December 31, 2017 or any other period.

The selected historical financial data below should be read in conjunction with the sections entitled “ Evofem’s Management’s Discussion and Analysis of Financial Condition and Results of Operations ” beginning on page 178 of this proxy statement/prospectus/information statement, “ Risk Factors — Risks Related to Evofem’s Financial Condition and Capital Requirements ” beginning on page 31 of this proxy statement/prospectus/information statement and Evofem’s financial statements and related notes beginning on page F-33 of this proxy statement/prospectus/information statement.

 

     Nine Months Ended 
September 30,

2017
    Year Ended 
December 31,
 
       2016     2015  
    

(in thousands)

 

Statement of Operations Data:

      

Research and development

   $ 12,323     $ 14,855     $ 17,196  

Abandoned initial public offering costs

     —         4,705       —    

General and administrative

     8,018       15,083       15,019  

Loss on issuance of Series D redeemable convertible preferred stock

     (5,740     (26,635     —    

Loss on extinguishment of related-party note payable

     —         (6,651     —    

Change in fair value of Series D 2X liquidation preference

     (59,811     (543     —    

Loss from continuing operations, net of tax

     (85,809     (67,744     (32,363

Net gain (loss) from discontinued operations

     —         1,077       (257

Net loss

     (85,812     (66,667     (32,620

Accretion of Series D redeemable convertible preferred stock dividends

     (2,839     (1,144     —    

Net loss attributable to common stock stockholders

     (88,651     (67,811     (32,620
     September 30, 2017     December 31,  
           2016     2015  
     (in thousands)  

Balance Sheet Data:

      

Cash

   $ 3,660     $ 10,937     $ 16,522  

Total assets

     6,488       14,371       22,409  

Series D 2X liquidation preference

     70,610       8,030       —    

Total liabilities

     84,270       17,384       20,799  

Convertible preferred stock

     121,315       121,315       121,315  

Redeemable convertible preferred stock

     69,992       56,757       —    

Accumulated deficit

     (287,784     (201,972     (135,305

Total stockholders’ deficit

     (269,089     (181,085     (119,705

 



 

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Selected Unaudited Pro Forma Condensed Consolidated Financial Information and

Data of Neothetics and Evofem

The following information does not give effect to the proposed Reverse Stock Split of Neothetics common stock described in Neothetics Proposal No. 2.

The following selected unaudited pro forma condensed consolidated financial information has been prepared to reflect the acquisitions of Neothetics by Evofem using the acquisition method of accounting and the Invesco financing. On October 17, 2017, Evofem and Neothetics entered into the Merger Agreement pursuant to which a wholly owned subsidiary of Neothetics will merge with and into Evofem, with Evofem becoming a wholly owned subsidiary of Neothetics and the surviving corporation of the merger. For accounting purposes, Evofem is considered to be acquiring Neothetics in the merger.

The unaudited pro forma condensed combined financial information was prepared in accordance with the regulations of the U.S. Securities and Exchange Commission, or the SEC. The unaudited pro forma condensed combined balance sheet as of September 30, 2017 is presented as if the merger had been completed on September 30, 2017. The unaudited pro forma condensed combined statements of operations for nine months ended September 30, 2017 and for the year ended December 31, 2016 assume that the merger took place as of January 1, 2016, and combines the historical results of Neothetics and Evofem.

The selected unaudited pro forma condensed consolidated financial data are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The selected unaudited pro forma condensed consolidated financial data as of and for the nine months ended September 30, 2017 are derived from the unaudited condensed consolidated financial information included elsewhere in this prospectus and should be read in conjunction with that information. The selected unaudited pro forma condensed consolidated financial data for the year ended December 31, 2016 is derived from the audited consolidated financial information included elsewhere in this prospectus and should be read in conjunction with that information. For more information, please see the section entitled “ Unaudited Pro Forma Condensed Consolidated Financial Statements ” beginning on page 211 of this proxy statement/prospectus/information statement.

The unaudited pro forma condensed consolidated financial information assumes that, at the effective time of the merger, each share of Evofem common stock, including shares of Evofem Series A, Series B, Series C and Series C-1 convertible preferred stock which will convert to Evofem common stock on a 1:1 basis, will convert into the right to receive approximately 0.1515 shares of Neothetics common stock and that each share of Evofem Series D Preferred Stock will convert into the right to receive approximately 515,616.2625 shares of Neothetics common stock, subject to adjustment as contemplated by Section 1.12(b) of the Merger Agreement. The estimated exchange ratio calculations used herein is based upon Neothetics’ and Evofem’s capitalization numbers immediately prior to the date of this proxy statement/prospectus/information statement, and will be adjusted to account for the issuance of any additional shares of Neothetics common stock prior to the consummation of the merger or for the issuance of any additional shares of Evofem capital stock in a manner not contemplated by the Merger Agreement or the Securities Purchase Agreement prior to the consummation of the merger.

 



 

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Selected Pro Forma Condensed Consolidated Statements of Operations Data (in 000’s, except share and per share data):

 

     Nine Months
Ended
September 30,
2017
    Year Ended
December 31,
2016
 

Research and development

   $ 15,916     $ 21,434  

General and administrative

   $ 11,728     $ 20,546  

Net loss

   $ (27,524   $ (46,934

Basic and diluted net loss per share from continuing operations

   $ (0.28   $ (0.55

Weighted-average shares used in computing net loss per share, basic and diluted

     99,517,259       85,491,311  

Selected Pro Forma Condensed Consolidated Balance Sheet Data (in thousands):

 

     September 30,  
     2017  

Cash

   $ 29,410  

Total assets

     32,734  

Total liabilities

     19,308  

Accumulated deficit

     (296,884

Total stockholders’ equity

     13,426  

Comparative Historical and Unaudited Pro Forma Per Share Data

The information below reflects the historical net loss and book value per share of Neothetics common stock and the historical net loss and book value per share of Evofem common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed merger of Neothetics with Evofem on a pro forma basis. The unaudited pro forma net loss and book value per share does not give effect to the proposed reverse stock split of Neothetics common stock described in Neothetics Proposal No. 2.

You should read the tables below in conjunction with the audited financial statements of Neothetics included in this proxy statement/prospectus/information statement and the audited financial statements of Evofem included in this proxy statement/prospectus/information statement and the related notes and the unaudited pro forma condensed consolidated financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus/information statement.

 



 

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NEOTHETICS

 

     Nine Months
Ended
September 30,
2017
    Year Ended
December 31,
2016
 

Historical Per Common Share Data:

    

Basic and diluted net loss per share

   $ (0.55   $ (0.94

Tangible book value per share

   $ 0.35     $ 0.86  

EVOFEM

 

     Nine Months
Ended
September 30,
2017
    Year Ended
December 31,
2016
 

Historical Per Common Share Data:

    

Basic and diluted net loss per share from continuing operations

   $ (1.12   $ (0.88

Basic and diluted net loss per share attributable to common stockholders

   $ (1.16   $ (0.89

Tangible book (deficit) value per share

   $ (0.09   $ 0.06  

NEOTHETICS AND EVOFEM

 

     Nine Months
Ended
September 30,
2017
    Year Ended
December 31,
2016
 

Pro Forma Per Common Share Data:

    

Pro forma basic and diluted net loss per share from continuing operations

   $ (0.28   $ (0.55

Pro forma tangible book value per share

   $ 0.13     $ 0.30  

 



 

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MARKET PRICE AND DIVIDEND INFORMATION

Market Information

Neothetics’ common stock trades under the symbol “NEOT” on The NASDAQ Capital Market equities market. Neothetics’ common stock began trading on November 20, 2014. Prior to November 20, 2014, there was no public market for Neothetics’ common stock. The following table sets forth the high and low sale prices for Neothetics common stock in each full quarterly period within the three most recent fiscal years.

 

     Sales Price  
     High      Low  

Year ended December 31, 2014

     

Fourth Quarter (beginning November 20, 2014)

   $ 14.10      $ 6.11  

Year ended December 31, 2015

     

First Quarter

   $ 8.88      $ 6.42  

Second Quarter

     9.05        5.92  

Third Quarter

     15.05        7.77  

Fourth Quarter

     10.78        1.24  

Year ended December 31, 2016

     

First Quarter

   $ 1.62      $ 0.53  

Second Quarter

     1.56        0.56  

Third Quarter

     1.50        0.72  

Fourth Quarter

     1.44        0.80  

Year ended December 31, 2017

     

First Quarter

   $ 1.98      $ 1.03  

Second Quarter

     2.63        0.50  

Third Quarter

     0.64        0.30  

Fourth Quarter (through November 14, 2017)

     1.99        0.42  

On [●], 2017, the last reported sale price of Neothetics’ common stock on The NASDAQ Capital Market was $[●] per share. As of [●], 2017, Neothetics had approximately [●] record holders of its common stock. The number of beneficial owners is substantially greater than the number of record holders because a large majority of Neothetics’ outstanding common stock is held of record through brokerage firms in “street name.”

Dividend Policy

Neothetics has never declared or paid any cash dividends on its common stock and does not anticipate declaring or paying any cash dividends on its common stock in the foreseeable future. Neothetics expects to retain all available funds and any future earnings to support operations and fund the development and growth of its business.

 

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RISK FACTORS

The combined organization will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with the business of Neothetics because these risks may also affect the combined company — these risks can be found in Neothetics’ Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC. You should also read and consider the other information in this proxy statement/prospectus/information statement and the other documents incorporated by reference into this proxy statement/prospectus/information statement. Please see the section entitled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

Risks Related to the Merger

The exchange ratios are not adjustable based on the market price of Neothetics common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

The Merger Agreement has set the common stock exchange ratio and Series D Preferred Stock exchange ratio, and these exchange ratios are adjustable upward or downward under certain circumstances as described in “ The Merger — Merger Consideration ” beginning on page 108 of this proxy statement/prospectus/information statement. Any changes in the market price of Neothetics common stock before the completion of the merger will not affect the number of shares Evofem securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the merger the market price of Neothetics common stock declines from the market price on the date of the Merger Agreement, then Evofem securityholders could receive merger consideration with substantially lower value. Similarly, if before the completion of the merger the market price of Neothetics common stock increases from the market price on the date of the Merger Agreement, then Evofem securityholders could receive merger consideration with substantially more value for their shares of Evofem capital stock than the parties had negotiated for in the establishment of the exchange ratios. Because the exchange ratios do not adjust as a result of changes in the value of Neothetics common stock, for each one percentage point that the market value of Neothetics common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to Evofem securityholders.

Failure to complete the merger may result in Neothetics and Evofem paying a termination fee or expenses to the other party and could harm the common stock price of Neothetics and future business and operations of each company.

If the merger is not completed, Neothetics and Evofem are subject to the following risks:

 

    if the Merger Agreement is terminated under certain circumstances, Neothetics will be required to pay Evofem termination fees of $1.5 million;

 

    if the Merger Agreement is terminated under certain circumstances, Evofem will be required to pay Neothetics termination fees of $1.5 million;

 

    the price of Neothetics stock may decline and remain volatile, which may result in Neothetics being delisted from The NASDAQ Capital Market; and

 

    costs related to the merger, such as legal and accounting fees, and with respect to Neothetics, tail insurance premiums, which Neothetics and Evofem estimate will total approximately $[●] million and $[●] million, respectively, some of which must be paid even if the merger is not completed.

 

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In addition, if the Merger Agreement is terminated and the Neothetics Board or Evofem Board determines to seek another business combination, there can be no assurance that either Neothetics or Evofem will be able to find a partner willing to provide equivalent or more attractive strategic alternative than the proposed merger.

If the conditions to the merger are not met, the merger may not occur.

Even if the merger is approved by the stockholders of Neothetics and Evofem, specified conditions must be satisfied or waived to complete the merger. These conditions are set forth in the Merger Agreement and described in the section entitled “The Merger Agreement — Conditions to the Completion of the Merger ” beginning on page 112 of this proxy statement/prospectus/information statement. Neothetics and Evofem cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or will be delayed, and Neothetics and Evofem each may lose some or all of the intended benefits of the merger.

The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes.

In general, either Neothetics or Evofem can refuse to complete the merger if there is a material adverse change affecting the other party between the date of the Merger Agreement, and the closing. However, certain types of changes do not permit either party to refuse to complete the merger, even if such change could be said to have a material adverse effect on Neothetics or Evofem, including:

 

    any effect, change, event, circumstance or development in the conditions generally affecting the industries in which Evofem and Neothetics operate or the United States or global economy or capital markets as a whole;

 

    any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation of worsening thereof;

 

    any failure by Neothetics or Evofem to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending on or after October 17, 2017;

 

    any changes in GAAP or applicable legal requirements after October 17, 2017; or

 

    with respect to Neothetics, any change in the price or trading volume of Neothetics common stock.

If adverse changes occur and Neothetics and Evofem still complete the merger, the combined organization stock price may suffer. This in turn may reduce the value of the merger to the stockholders of Neothetics, Evofem or both.

Some Neothetics and Evofem executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests.

Certain officers and directors of Neothetics and Evofem participate in arrangements that provide them with interests in the merger that are different from yours, including, among others, the continued service as an officer or director of the combined organization, severance benefits, cash bonuses contingent upon the closing of the merger, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined organization in accordance with Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. For example, Neothetics previously entered into an employment agreement with its chief financial officer that provides her with cash severance payments, cash payments intended to cover certain health insurance costs and the acceleration of their outstanding equity awards in the event her employment is terminated without cause following a change of control of Neothetics. In addition, certain of Neothetics’ directors and executive officers have options, certain of which shall vest immediately prior to the date the merger is consummated, and certain officers of Neothetics are eligible for a cash bonus award upon the closing of the

 

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merger. One member of the Neothetics Board is expected to continue as a director of Neothetics upon the closing of the merger, and all of Neothetics’ directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement and coverage pursuant to insurance policies maintained by Neothetics.

The market price of Neothetics common stock following the merger may decline as a result of the merger.

The market price of Neothetics common stock may decline as a result of the merger for a number of reasons including if:

 

    investors react negatively to the prospects of the combined organization’s business and prospects from the merger;

 

    the effect of the merger on the combined organization’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

    the combined organization does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts.

Neothetics and Evofem stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

If the combined organization is unable to realize the full strategic and financial benefits currently anticipated from the merger, Neothetics and Evofem stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined organization is able to realize only part of the strategic and financial benefits currently anticipated from the merger.

During the pendency of the merger, Neothetics and Evofem may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of Neothetics and Evofem to make acquisitions, subject to certain exceptions relating to fiduciaries duties, as set forth below, or complete other transactions that are not in the ordinary course of business pending completion of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with any third party, subject to certain exceptions described below. These restrictions apply even if such transactions could be favorable to such party’s stockholders.

Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of Neothetics and Evofem from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior takeover proposal and is reasonably capable of being consummated and that failure to cooperate with the proponent of the proposal is reasonably likely to result in a breach of the board’s fiduciary duties. If the Merger Agreement is terminated under certain circumstances by either Neothetics or Evofem, the terminating party will be required to pay the other party up to $1.5 million in termination fees. In addition, Neothetics or Evofem will be required in some circumstances to reimburse the other party for expenses

 

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incurred in connection with the merger, up to a maximum of $250,000. These termination fees may discourage third parties from submitting alternative takeover proposals to Neothetics or Evofem or their stockholders, and may cause the respective boards of directors to be less inclined to recommend an alternative proposal.

Because the lack of a public market for Evofem shares makes it difficult to evaluate the fairness of the merger, the stockholders of Evofem may receive consideration in the merger that is less than the fair market value of the Evofem shares and/or Neothetics may pay more than the fair market value of the Evofem shares.

The outstanding capital stock of Evofem is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Evofem. Because the percentage of Neothetics equity to be issued to Evofem securityholders was determined based on negotiations between the parties, it is possible that the value of the Neothetics common stock to be received by Evofem securityholders will be less than the fair market value of Evofem, or Neothetics may pay more than the aggregate fair market value for Evofem.

If the merger does not qualify as a tax-free reorganization, the receipt of Neothetics common stock pursuant to the merger could be fully taxable to all Evofem stockholders.

Each of Neothetics and Evofem intends the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. However, completion of the merger is not conditioned upon receipt of an opinion from counsel dated as of the closing date that the merger qualifies as a reorganization. The tax opinions received by Evofem and Neothetics as of the effective date of this proxy statement/prospectus/information statement are based on representation letters delivered as of such date by Evofem and Neothetics pertaining to factual matters and on certain factual assumptions, including with respect to the number of Evofem shares held by, and the amount of consideration payable to, Evofem stockholders, if any, that exercise dissenters’ rights. If any of these assumptions or representations proves incorrect, for example, if there is a change in applicable law or if consideration paid to Evofem stockholders exercising dissenters’ rights is significant, the merger could be fully taxable to all Evofem stockholders. Further, no ruling from the IRS has been or will be requested with respect to the tax consequences of the merger. Opinions of counsel do not bind the courts or the IRS, nor will they preclude the IRS from adopting the position contrary to those expressed in the opinions. See the section entitled “ The Merger — Material U.S. Federal Income Tax Consequences of the Merger ” beginning on page 92 of this proxy statement/prospectus/information statement.

Risks Related to Neothetics

If Neothetics does not consummate the merger or another strategic transaction, the Neothetics Board may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to its shareholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

There can be no assurance that Neothetics will complete the merger or successfully identify an alternative strategic transaction. If Neothetics is unable to complete the merger or another strategic transaction, the Neothetics Board may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to the Neothetics shareholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as Neothetics continues to fund its operations while it seeks an alternative strategic acquisition, business combination or partnership. In addition, if the Neothetics Board were to approve and recommend, and its shareholders were to approve, a dissolution and liquidation of the company, Neothetics would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to its shareholders. Neothetics’ commitments and contingent liabilities may include (i) obligations under our employment agreements with certain employees that

 

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provide for severance and other payments following a termination of employment occurring for various reasons, including a change in control of the company; and (ii) non-cancelable lease obligations. As a result of this requirement, a portion of Neothetics’ assets may need to be reserved pending the resolution of such obligations. In addition, Neothetics may be subject to litigation or other claims related to a dissolution and liquidation of the company. If a dissolution and liquidation were pursued, the Neothetics Board, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Neothetics common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of the company.

Neothetics’ business to date has been almost entirely dependent on the success of LIPO-202, which recently failed to demonstrate efficacy measurements in its Phase 2 proof-of-concept clinical trial. Following the analysis of the data from its Phase 2 trial, Neothetics decided to temporarily suspend further research and development while it seeks a strategic acquisition, business combination or partnership, and there is no guarantee that this strategic path will be successful.

On June 26, 2017, Neothetics announced that top-line safety and efficacy results from its Phase 2 proof-of-concept clinical trial, LIPO-202-CL-31, did not demonstrate improvement on any efficacy measurements or separation from placebo. Neothetics had previously devoted substantially all of its research, development and clinical efforts and financial resources toward the development of LIPO-202. As a result of the negative results from its Phase 2 trial, Neothetics has temporarily suspended further research and development of LIPO-202 and its pre-clinical programs to reduce operating expenses while it sought a strategic alternative. There also can be no assurance that Neothetics will conduct new clinical trials or drug development activities in the future.

On October 17, 2017, Neothetics entered into the Merger Agreement with Evofem. There can be no assurance that the merger will be consummated. In addition, there can be no assurance that the merger, if consummated, will enhance shareholder value.

If Neothetics fails to continue to meet all applicable NASDAQ Capital Market requirements and NASDAQ determines to delist its common stock, the delisting could adversely affect the ability to consummate the merger, the market liquidity of its common stock and the market price of its common stock could decrease.

Neothetics’ common stock is listed on The NASDAQ Capital Market. In order to maintain its listing, Neothetics must meet minimum financial and other requirements, including requirements for a minimum amount of capital, a minimum price per share and continued business operations so that Neothetics’ is not characterized as a “public shell company”. If Neothetics is unable to complete the merger for any reason, the Neothetics stock price may fall below the minimum price per share requirement. If Neothetics is unable to comply with NASDAQ’s listing standards, NASDAQ may determine to delist its common stock from The NASDAQ Capital Market. If Neothetics’ common stock is delisted for any reason, it could reduce the value of its common stock and its liquidity and adversely affect the ability to consummate the merger.

As a result of the Phase 2 clinical trial data and the reductions in its workforce that was announced in July 2017, Neothetics will have a limited number of full-time employees and may not be successful in retaining these key employees. If Neothetics is unable to retain these key employees, its ability to consummate the merger or another strategic transaction will be seriously jeopardized.

On July 10, 2017, Neothetics announced workforce reductions, which decreased its headcount to three full-time employees during the third quarter. Neothetics intends to further reduce its headcount to two full-time employees which reduction is expected to occur during the fourth quarter of 2017 or first quarter of 2018. Competition among biotechnology companies for qualified employees is intense, and the ability to retain the remaining key employees is critical to Neothetics’ ability to effectively manage its resources in order to consummate the

 

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merger. Additional attrition could have a material adverse effect on its business. In addition, as a result of the reduction in our workforce, Neothetics faces an increased risk of employment litigation.

Based on its operating plans, Neothetics management believes its current cash and cash equivalents will not be sufficient to fund its operations beyond second half of 2018, and as a result, there is substantial doubt about Neothetics’ ability to continue as a going concern within one year after the date that the financial statements for the quarter ended September 30, 2017 are issued.

Neothetics’ recurring losses from operations, liquidity position, and debt service requirements raises substantial doubt about its ability to continue as a going concern within one year after the date that the financial statements for the quarter ended September 30, 2017 are issued. Neothetics’ ability to continue as a going concern could materially limit its ability to raise additional funds through the issuance of new debt or equity securities or otherwise in the event the merger is not completed. Future audit reports from Neothetics’ independent registered public accounting firm on its financial statements may also include an explanatory paragraph with respect to its ability to continue as a going concern. To date, Neothetics’ operating losses have been funded primarily from outside sources of invested capital and gross profits. Neothetics has had, and it will likely continue to have, an ongoing need to raise additional cash from outside sources to fund its future operations if the merger is not completed. However, no assurance can be given that additional capital will be available when required or on acceptable terms. If Neothetics is unsuccessful in its efforts to raise any such additional capital, it would be required to take actions that could materially and adversely affect our business, including curtailing or ceasing operations. The perception that Neothetics may not be able to continue as a going concern may cause third parties to choose not to deal with it due to concerns about our ability to meet its contractual obligations, which could have a material adverse effect on its business.

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

Neothetics is an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, or 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:

 

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

 

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

 

    not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure obligations regarding executive compensation; and

 

    exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Neothetics has taken advantage of certain reduced reporting burdens in this document. Neothetics cannot predict whether investors will find its common stock less attractive if it relies on these exemptions. If some investors find Neothetics common stock less attractive as a result, there may be a less active trading market for Neothetics common stock and its stock price may be more volatile.

 

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In addition, the JOBS Act also 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. Neothetics has irrevocably elected not to avail itself of this extended transition period and, as a result, Neothetics will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Neothetics’ officers and directors own a significant percentage of its stock and will be able to exert significant control over matters subject to stockholder approval.

As of October 20, 2017, Neothetics’ executive officers, directors and their respective affiliates beneficially owned approximately 42% of its outstanding voting stock. Therefore, these stockholders have the ability to influence us through this ownership position and may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of Neothetics organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for Neothetics common stock that stockholders may feel are in their best interest as one of its stockholders.

Anti-takeover provisions in Neothetics’ charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by its stockholders to replace or remove Neothetics’ current directors and management team, and limit the market price of its common stock.

Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent changes in control or changes in its management without the consent of the Neothetics Board. These provisions include the following:

 

    a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of the board of directors;

 

    prohibiting stockholders from calling a special meeting of stockholders or acting by non-unanimous written consent;

 

    permitting the board to issue additional shares of preferred stock, with such rights, preferences and privileges as they may designate, including the right to approve an acquisition or other changes in control;

 

    establishing an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to the board of directors;

 

    providing that directors may be removed only for cause;

 

    providing that vacancies on the board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and

 

    requiring the approval of the board of directors or the holders of a supermajority of the outstanding shares of capital stock to amend the bylaws and certain provisions of the certificate of incorporation.

Although Neothetics believes these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with the board, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by Neothetics stockholders to replace or remove its current management team by making it more difficult for stockholders to replace members of the Neothetics Board, which is responsible for appointing the members of its management.

Moreover, because Neothetics is incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits a person who owns in excess of 15% of its outstanding voting stock from merging or

 

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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. The restrictions contained in Section 203 are not applicable to any of our existing stockholders prior to our IPO that owned 15% or more of our outstanding voting stock upon the completion of our IPO. As discussed in Proposal No. 4, the Neothetics Board has recommended that its stockholders opt out of Section 203 of the DGCL.

Claims for indemnification by Neothetics’ directors and officers may reduce its available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Neothetics amended and restated certificate of incorporation and amended and restated bylaws provides that it will indemnify its directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, Neothetics amended and restated bylaws and its indemnification agreements that it has entered into with its directors and officers provide that:

 

    Neothetics will indemnify its directors and officers for serving it in those capacities or for serving other business enterprises at Neothetics’ request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

 

    Neothetics may, in its discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

 

    Neothetics is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

 

    Neothetics will not be obligated pursuant to its amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against Neothetics or its other indemnitees, except with respect to proceedings authorized by the Neothetics Board or brought to enforce a right to indemnification.

 

    The rights conferred in the Neothetics amended and restated bylaws are not exclusive, and Neothetics is authorized to enter into indemnification agreements with its directors, officers, employees and agents and to obtain insurance to indemnify such persons.

 

    Neothetics may not retroactively amend its bylaw provisions to reduce its indemnification obligations to directors, officers, employees and agents.

Neothetics does not currently intend to pay dividends on its common stock, and, consequently, its ability to achieve a return on its investment will depend on appreciation in the price of its common stock.

Neothetics does not currently intend to pay any cash dividends on its common stock for the foreseeable future. Neothetics currently intends to invest its future earnings, if any, to fund its growth. Therefore, Neothetics stockholders are not likely to receive any dividends on their common stock for the foreseeable future. Since Neothetics does not intend to pay dividends, stockholders’ ability to receive a return on their investment will depend on any future appreciation in the market value of Neothetics common stock. There is no guarantee that Neothetics common stock will appreciate or even maintain the price at which its holders have purchased it.

 

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Risks Related to Evofem

Risks Related to Evofem’s Financial Condition and Capital Requirements

Evofem has incurred losses since its inception and anticipates that it will continue to incur significant losses for the foreseeable future.

Evofem is a specialty clinical development-stage biopharmaceutical company with a limited operating history. Evofem has incurred net losses in each year since its inception in 2009, including net losses of $66.7 million and $32.6 million for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, Evofem had an accumulated deficit of $202.0 million. Negative cash flows from its operations are expected to continue for the foreseeable future. Evofem’s utilization of cash has been and will continue to be highly dependent on its product development programs, particularly its programs for the development of its MPT vaginal gel and its lead product candidate, Amphora. Evofem’s cash expenses will be highly dependent on the product development programs it chooses to pursue, the progress of these product development programs, the results of its preclinical studies and clinical trials, the cost, timing and outcomes of regulatory decisions regarding potential approval for its product candidate or any future product candidate it may choose to develop, the terms and conditions of its contracts with service providers and license partners, and the rate of recruitment of patients in its clinical trials. In addition, the continuation of Evofem’s clinical trials, and quite possibly its entire business, will depend on results of upcoming clinical data analyses and its financial resources at the time. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on Evofem’s financial condition and its ability to develop its product candidates.

Evofem has devoted substantially all of its financial resources to develop its product candidates, including conducting clinical trials and providing general and administrative support for its operations. To date, Evofem has financed its operations primarily through the sale of equity securities. The amount of its future net losses will depend, in part, on the rate of its future expenditures and its ability to obtain funding through equity or debt financings, strategic collaborations or grants. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk.

Evofem expects to continue to incur significant expenses and increasing operating losses for the foreseeable future and its expenses will increase substantially if and as Evofem:

 

    continues the clinical development of its MPT vaginal gel and its lead product candidate, Amphora;

 

    continues efforts to discover new product candidates;

 

    undertakes the manufacturing of its product candidates or increases volumes manufactured by third parties;

 

    advances its programs into larger, more expensive clinical trials;

 

    initiates additional preclinical, clinical, or other trials or studies for its product candidate or any product candidates Evofem may choose to develop in the future;

 

    seeks regulatory and marketing approvals and reimbursement for its product candidate or any product candidates Evofem may choose to develop in the future;

 

    establishes a sales, marketing, and distribution infrastructure to commercialize any products for which Evofem may obtain marketing approval and market for itself;

 

    seeks to identify, assess, acquire, and/or develop other product candidates;

 

    makes milestone, royalty or other payments under third-party license agreements;

 

    seeks to maintain, protect, and expand its intellectual property portfolio;

 

    seeks to attract and retain skilled personnel; and

 

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    experiences any delays or encounters issues with the development and potential for regulatory approval of its clinical candidates such as safety issues, clinical trial accrual delays, longer follow-up for planned studies, additional major studies or supportive studies necessary to support marketing approval.

Further, the net losses Evofem incurs may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of its results of operations may not be a good indication of its future performance.

The opinion of Evofem’s accountant assumed Evofem’s ability to continue as a going concern, and Evofem must raise additional funds to finance its operations to remain a going concern.

Based on its cash balances, recurring losses since inception and inadequacy of existing capital resources to fund planned operations for a twelve-month period, Evofem’s independent auditors have included an emphasis-of-matter paragraph in its report on Evofem’s financial statements as of and for the years ended December 31, 2016 and December 31, 2015 assuming Evofem’s ability to continue as a going concern. Evofem will, during the remainder of 2017 and 2018, require significant additional funding to continue operations even after taking into account the Financing that will take place immediately after completion of the merger. If Evofem is unable to raise additional funds when needed, it will not be able to continue development of its MPT vaginal gel or its lead product candidate, Amphora, or Evofem will be required to delay, scale back or eliminate some or all of its development programs or cease operations. Any additional equity or debt financing that Evofem is able to obtain may be dilutive to its current stockholders and debt financing, if available, may involve restrictive covenants or unfavorable terms. If Evofem raises funds through collaborative or licensing arrangements, it may be required to relinquish, on terms that are not favorable to Evofem, rights to some of its technologies or product candidates that it would otherwise seek to develop or commercialize. Moreover, if Evofem is unable to continue as a going concern, it may be forced to liquidate its assets and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in its financial statements.

Evofem has never generated any revenue from product sales and may never be profitable.

Evofem has no products approved for commercialization and has never generated any material amount of revenue from product sales. Evofem’s ability to generate revenue and achieve profitability depends on its ability, alone or with strategic collaborators, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize one or more of its current or future product candidates. Evofem does not anticipate generating revenue from product sales for the foreseeable future. Evofem’s ability to generate future revenue from product sales depends heavily on its success in many areas, including, but not limited to:

 

    completing research and development of its MPT vaginal gel, Amphora, its lead product candidate, and one or more of its current or future product candidates;

 

    obtaining regulatory and marketing approvals for one or more of its current or future product candidates;

 

    manufacturing one or more product candidates and establishing and maintaining supply and manufacturing relationships with third parties that are commercially feasible, meet regulatory requirements and Evofem’s supply needs in sufficient quantities to meet market demand for its product candidates, if approved;

 

    marketing, launching and commercializing one or more product candidates for which Evofem obtains regulatory and marketing approval, either directly or with a collaborator or distributor;

 

    gaining market acceptance of one or more of its product candidates as treatment options;

 

    addressing any competing products;

 

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    protecting, maintaining and enforcing its intellectual property rights, including patents, trade secrets and know-how;

 

    negotiating favorable terms in any collaboration, licensing or other arrangements into which Evofem may enter;

 

    obtaining reimbursement or pricing for its MPT vaginal gel, its lead product candidate, Amphora, or one or more of its current or future product candidates that supports profitability; and

 

    attracting, hiring and retaining qualified personnel.

Even if one or more of the product candidates that Evofem develops is approved for commercial sale, Evofem anticipates incurring significant costs associated with launching and commercializing any approved product candidate. Evofem also will have to develop or acquire manufacturing capabilities or continue to contract with contract manufacturers in order to continue development and potential commercialization of its product candidates. If Evofem is not able to generate revenue from the sale of any approved products, Evofem may never become profitable.

Raising additional capital may cause dilution to Evofem’s stockholders, restrict its operations or require Evofem to relinquish rights.

In order to complete the development of its MPT vaginal gel and its lead product candidate, Amphora, Evofem must raise significant additional capital in addition to the Financing. To the extent that Evofem raises additional capital through the sale of equity, convertible debt or other securities convertible into equity, the ownership interest of Evofem’s stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect rights of Evofem’s stockholders. Debt financing, if available at all, would likely involve agreements that include covenants limiting or restricting Evofem’s ability to take specific actions, such as incurring additional debt, making capital expenditures, making additional product acquisitions or declaring dividends. If Evofem raises additional funds through strategic collaborations or licensing arrangements with third parties, Evofem may have to relinquish valuable rights to its product candidates or future revenue streams or grant licenses on terms that are not favorable to Evofem. Evofem does not know if it will be able to obtain additional funding if and when necessary to fund its entire portfolio of product candidates to meet its projected plans. If Evofem is unable to obtain funding on a timely basis, Evofem may be required to delay or discontinue one or more of its development programs or the commercialization of any product candidates or be unable to expand its operations or otherwise capitalize on potential business opportunities, which could materially harm Evofem’s business, financial condition, and results of operations.

Evofem’s limited operating history makes it difficult to evaluate the success of Evofem’s business to date and to assess its future viability.

Evofem commenced operations in 2009. To date, its activities have been largely limited to staffing, business planning, raising capital, developing its technology, identifying potential products and undertaking pre-clinical and clinical studies of Amphora. Evofem has a limited operating history which makes it difficult to evaluate its business and prospects. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. As a largely development stage company, Evofem has not yet demonstrated its ability to obtain regulatory approvals, generate significant revenue and conduct biopharmaceutical marketing activities necessary for successful product commercialization. In addition, given its limited operating history, Evofem may encounter unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. Evofem’s likelihood of success must be evaluated in light of such challenges and variables associated with a clinical-stage biopharmaceutical product development company and Evofem may not be successful in its commercialization efforts or may incur greater costs than expected, both of which would materially adversely affect Evofem’s business, results of operations or financial condition.

 

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Risks Related to the Development of Evofem’s Product Candidates

Evofem’s success will depend heavily on whether it can develop its lead product candidate, Amphora, as a contraceptive. Failure to develop Amphora as a contraceptive would likely cause its business to fail.

Evofem currently has a single platform technology, its MPT vaginal gel, from which it intends to create multiple product candidates. However, Evofem will rely primarily on its lead product candidate, Amphora, for use as a contraceptive for the company’s commercial success. Amphora is currently the subject of an ongoing Phase 3 clinical trial intended to demonstrate efficacy as a contraceptive. While Evofem believes that its MPT vaginal gel may also be useful in preventing other indications, currently Evofem’s business depends almost entirely on the successful clinical development and regulatory approval of Amphora for use as a contraceptive, which may never occur. Evofem has never received a regulatory approval for any product. Accordingly, even if Evofem is able to successfully complete its clinical trial for Amphora as a contraceptive, it may be unable to obtain regulatory approval for Amphora as a contraceptive which would have a material adverse effect on its business and operations.

Evofem’s ability to develop its MPT vaginal gel for additional indications could have an adverse effect on its business and its ability to successfully market Amphora as a contraceptive.

Evofem believes that Amphora may also be useful in the prevention of certain other indications, and Evofem is designing a Phase 2b/3 clinical trial for the prevention of certain STIs, including gonorrhea and chlamydia. In addition, Evofem is currently designing a Phase 2b/3 trial of its MPT vaginal gel for the reduction of recurrence of BV. Evofem does not know if it will successfully complete either of these clinical trials. Even if Evofem does complete these clinical trials, there is no assurance that it will obtain regulatory approval of Amphora or its MPT vaginal gel for additional indications. Such a failure could impede the ability of the company to market Amphora as a contraceptive because these product candidates are based on the same chemical formulation. Also, any failure to obtain regulatory approvals for additional indications will likely have a material adverse effect on the company’s business and operations.

Indemnity claims from lawsuits or damages against Evofem’s clinical trial sites could cause Evofem to incur substantial liabilities and to limit commercialization of Amphora, and any future product candidate that Evofem may develop .

In connection with its clinical trials, Evofem’s third party clinical sites face inherent risk of liability exposure from patients enrolled in Evofem’s clinical trials. Evofem has entered into indemnification agreements with each of these clinical trial sites obligating Evofem to reimburse these sites should they incur certain liability in connection with Evofem’s clinical trials. If Evofem or its clinical trial sites cannot successfully defend against these product liability and other health related claims, Evofem may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in decreased demand for its MPT vaginal gel and its lead product candidate, Amphora or, as applicable, any future product candidate Evofem may develop, injury to Evofem’s reputation, negative media attention and the diversion of Evofem management’s time and attention from Evofem’s product development and commercialization efforts to address claim related matters.

The success of Evofem’s business is also expected to depend in part upon its ability to identify, license, discover, develop or commercialize additional product candidates. Failure to identify additional product candidates would have a negative impact on Evofem’s business and operations.

Although a substantial amount of Evofem’s effort will focus on the continued clinical testing, potential approval and commercialization of its MPT vaginal gel as a contraceptive and as a possible preventative for certain STIs and prevention of recurrence of BV, the success of Evofem’s business is also expected to depend in part upon its ability to identify, license, discover, develop or commercialize additional product candidates. Evofem is seeking to license, or otherwise obtain, product and technology rights to a variety of products and product candidates in the field of women’s health, but there can be no assurance it will be able to do so, or do so on favorable terms.

 

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Research programs to identify new product candidates require substantial technical, financial and human resources. There are risks, uncertainties and costs associated with identifying, licensing and advancing product candidates through successful clinical development. Evofem may focus its efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Evofem’s research programs or licensing efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:

 

    Evofem’s research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;

 

    Evofem may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;

 

    its product candidates may not succeed in preclinical or clinical testing;

 

    its potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;

 

    competitors may develop alternatives that render Evofem’s product candidates obsolete or less attractive;

 

    product candidates Evofem develops may be covered by third parties’ patents or other exclusive rights;

 

    the market for a product candidate may change during Evofem’s program so that such a product may become unreasonable to continue to develop;

 

    research and development programs are quite costly and the company may be unable to obtain the financing and resources to do so;

 

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

 

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

If any of these events occur, Evofem may be forced to abandon its development efforts for a program or programs, or Evofem may not be able to identify, license, partner, discover, develop or commercialize additional product candidates, which would have a material adverse effect on its business, financial condition or results of operations and could potentially cause Evofem to cease operations. Moreover, even if Evofem were able to obtain the rights to additional product candidates, there can be no assurance that these candidates will ever be advanced successfully through clinical development.

Clinical trials are costly, time consuming and inherently risky, and Evofem may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

Clinical development is expensive, time consuming and involves significant risk. Evofem cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. In addition, the company’s product candidates are targeted toward pregnancy prevention and the prevention of certain infectious diseases. Therefore, it may be especially difficult to recruit patients to participate in its clinical trials when doing so will require that patients refrain from other methods of contraception and disease prevention. A failure of one or more clinical trials can occur at any stage of development. Events that may prevent successful or timely completion of clinical development include but are not limited to:

 

    inability to obtain the funding necessary to initiate or complete any clinical trial;

 

    inability to generate satisfactory preclinical, toxicology or other in vivo or in vitro data or to develop diagnostics capable of supporting the initiation or continuation of clinical trials;

 

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    delays in reaching agreement on acceptable terms with clinical 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 clinical trial sites;

 

    delays or failure in obtaining required institutional review board, or IRB, approval at each clinical trial site;

 

    failure to obtain or delays in obtaining a permit from regulatory authorities to conduct a clinical trial;

 

    delays in recruiting or failure to recruit sufficient eligible patients in its clinical trials;

 

    failure by clinical sites or CROs or other third parties to adhere to clinical trial requirements;

 

    failure by clinical sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of the FDA or applicable foreign regulatory guidelines;

 

    patients withdrawing from Evofem’s clinical trials;

 

    adverse events or other issues of concern significant enough for the FDA, or comparable foreign regulatory authority, to put an Investigational New Drug, or IND, on clinical hold;

 

    occurrence of adverse events associated with Evofem’s product candidates;

 

    changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

 

    the cost of clinical trials of Evofem’s product candidates;

 

    negative or inconclusive results from Evofem’s clinical trials which may result in Evofem’s deciding, or regulators requiring Evofem, to conduct additional clinical trials or abandon development programs in other ongoing or planned indications for a product candidate; and

 

    delays in reaching agreement on acceptable terms with third-party manufacturers and the time for manufacture of sufficient quantities of its product candidates for use in clinical trials.

Any inability to successfully complete clinical development and obtain regulatory approval for one or more of its product candidates could result in additional costs to Evofem or impair its ability to generate revenue. In addition, if Evofem makes manufacturing or formulation changes to its product candidates, Evofem may need to conduct additional nonclinical studies and/or clinical trials to show that the results obtained from such new formulation are consistent with previous results obtained. Clinical trial delays could also shorten any periods during which its products have patent protection and may allow competitors to develop and bring products to market before Evofem does, which could impair its ability to successfully commercialize its product candidates and may harm its business and results of operations.

Contraception is a highly competitive healthcare niche. The success of Amphora and any other future contraceptive product candidate Evofem may pursue will be related to its efficacy and safety outcomes during clinical trials.

Today, there are a variety of hormonal and non-hormonal contraceptive options available to women and men, including oral contraceptive pills and intrauterine devices, newer hormonal contraceptive products including implants, injectables, vaginal rings, patches, and hormonal intrauterine systems, and non-hormonal methods such as female condoms, novel diaphragms, and new methods of female sterilization. Based on Evofem’s market research, clinical testing of Amphora may need to demonstrate efficacy for typical use of at least 80% to be commercially viable. Should Amphora fail to generate the safety and efficacy data expected, Evofem’s business prospects would be materially damaged.

 

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Due in part to Evofem’s limited financial resources, it may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for its product candidate, and it may be unable to pursue and complete the clinical trials that it would like to pursue and complete.

Evofem has limited financial and technical resources to determine the indications on which it should focus the development efforts for its product candidate and any future candidates it may choose to develop. Due to Evofem’s limited available financial resources, it may be required to curtail clinical development programs and activities that might otherwise have led to more rapid progress of its product candidate, or product candidates that it may in the future choose to develop, through the regulatory and development processes. Evofem may make incorrect determinations with regard to the indications and clinical trials on which to focus the available resources that it does have. The decisions to allocate Evofem’s research, management and financial resources toward particular indications may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, Evofem’s decisions to delay or terminate development programs may also cause it to miss valuable opportunities.

Risks Related to Regulatory Approval of Evofem’s Product Candidates and Other Legal Compliance Matters

Evofem must obtain regulatory approval prior to marketing or commercializing its products and product candidates. In order to obtain regulatory approval, Evofem must complete its clinical and pre-clinical trials in compliance with the regulatory approval requirements of the FDA and any applicable and comparable foreign regulators. If clinical trials of Evofem’s product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA and other comparable foreign regulators, Evofem may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of its product candidates.

Evofem is not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable foreign regulatory authorities impose similar restrictions. Evofem may never receive such approvals, and must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of its product candidates before we will be able to obtain these approvals.

Any inability to complete preclinical and clinical development successfully could result in additional costs to Evofem, and impair its ability to generate revenues. Moreover, if (1) Evofem is required to conduct additional clinical trials or other testing of its product candidates beyond the trials and testing that it currently contemplates (2) Evofem is unable to successfully complete clinical trials of its product candidates or other testing, (3) the results of these clinical trials or tests are unfavorable, uncertain or are only modestly favorable or (4) there are unacceptable safety concerns associated with its product candidates, Evofem may:

 

    be delayed in obtaining marketing approval for our product candidates;

 

    not obtain marketing approval at all;

 

    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.

Amphora is a drug/device combination and the process for obtaining regulatory approval for Amphora in the United States will require compliance with requirements of two divisions of the FDA. A change in the FDA’s primary oversight responsibility would adversely impact Evofem’s development timeline and significantly raise its cost s.

Amphora is comprised of both drug and device components and is considered a combination product by the FDA. It is a method of self-applied contraception that uses a pre-filled applicator to apply a semi-solid topical

 

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gel. The key active ingredient has been shown to be an active anti-inflammatory and anti-infective and works in combination with other active ingredients to stabilize the pH levels in the vagina without altering the vaginal microbiome, which results in both the inhibition and the immobilization of spermatozoa. Other properties contributing to the contraceptive effect of Amphora are its capacity to reduce/inhibit cervical mucus penetration, to maintain sufficient viscosity even on dilution, and its bioadhesive strength. The FDA has different divisions responsible for assessing and approving devices and drugs. The Center for Drug Evaluation and Research, or CDER, has responsibility for drug products, while the Center for Devices and Radiological Health, or CDRH, has oversight responsibility for medical devices. Amphora previously underwent a request for designation process with the FDA that determined that CDER would lead the review. If the designation were to be changed to CDRH, or if either division were to institute additional requirements for the approval of Amphora, Evofem could be required to complete clinical studies with more patients and over longer periods of time than is currently anticipated. This would likely require Evofem to raise additional funds and would cause it to miss anticipated timelines. The impact of either a change in review agency or the imposition of additional requirements for approval would be significant to it and would have a material adverse effect on the prospects for the development of Amphora, its business and its financial condition.

Serious adverse events arising during clinical studies of Evofem’s MPT vaginal gel and its lead product candidate, Amphora, or post marketing could have a material, adverse effect on Evofem’s product development timeline or its ability to develop and market its MPT vaginal gel and its lead product candidate, Amphora, at all.

If serious adverse events or undesirable side effects occur during the clinical investigation of Evofem’s MPT vaginal gel or its lead product candidate, Amphora, or post marketing, the following events could materially and adversely affect Evofem’s business:

 

    regulatory authorities may impose a clinical hold which could result in substantial delays and adversely impact Evofem’s ability to continue development of its MPT vaginal gel and Amphora;

 

    regulatory authorities may require the addition of specific warnings or contraindications to product labeling or field alerts to physicians and pharmacies;

 

    Evofem may be required to change the way the MPT vaginal gel and/or Amphora is administered or the labeling of the MPT vaginal gel and/or Amphora;

 

    Evofem may be required to conduct additional clinical studies with more patients or over longer periods of time than anticipated;

 

    Evofem may be required to implement a risk minimization action plan, which could result in substantial cost increases and have a negative impact on its ability to commercialize its MPT vaginal gel and/or Amphora;

 

    Evofem may be required to limit the patients who can receive its MPT vaginal gel and/or Amphora;

 

    Evofem may be subject to promotional and marketing limitations on its MPT vaginal gel and/or Amphora;

 

    sales of its MPT vaginal gel and/or Amphora may decrease significantly;

 

    regulatory authorities may require Evofem to take an approved product off the market;

 

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

 

    Evofem’s reputation may suffer.

Any of these events could prevent Evofem from achieving or maintaining market acceptance of its MPT vaginal gel or its lead product candidate, Amphora, or any future product candidate Evofem may seek to develop, or could substantially increase commercialization costs and expenses, which in turn could delay or prevent Evofem from generating significant revenues from its MPT vaginal gel or Amphora sales or the sales from any future product candidate.

 

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If FDA approval is received for Evofem’s MPT vaginal gel, its lead product candidate, Amphora, or any other future product candidate Evofem may develop, serious adverse events or side effects could require the product to be taken off of the market, may require the product to be packaged with safety warnings or may otherwise limit Evofem’s sales of the product.

Even if Evofem obtains regulatory approval for a product, Evofem will remain subject to ongoing regulatory requirements.

If Evofem’s lead product candidate, Amphora, is approved or if its MPT vaginal gel product candidate is approved in additional indications, Evofem will be subject to ongoing regulatory requirements with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical trials and submission of safety, efficacy and other post-approval information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to continuously comply with FDA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to current good manufacturing practices, or cGMP, regulations and corresponding foreign regulatory manufacturing requirements. As such, Evofem and its contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any FDA new drug application, or NDA, or marketing authorization application.

Any regulatory approvals that Evofem receives for any of its product candidates may be subject to limitations on the approved indicated uses for which the product candidate may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. Evofem will be required to report adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. If its original marketing approval for a product candidate was obtained through an accelerated approval pathway, Evofem could be required to conduct a successful post-marketing clinical trial in order to confirm the clinical benefit for its products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of marketing approval.

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, the regulatory agency may impose restrictions on that product or Evofem, including requiring withdrawal of the product from the market. If Evofem fails to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

 

    issue warning letters;

 

    impose civil or criminal penalties;

 

    suspend or withdraw regulatory approval;

 

    suspend any of Evofem’s ongoing clinical trials;

 

    refuse to approve pending applications or supplements to approved applications submitted by Evofem;

 

    impose restrictions on Evofem’s operations, including closing its contract manufacturers’ facilities; or

 

    require a product recall.

Any government investigation of alleged violations of law would require Evofem to expend significant time and resources in response and could generate adverse publicity. Any failure to comply with ongoing regulatory

 

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requirements may significantly and adversely affect Evofem’s ability to develop and commercialize its products and the value of Evofem and its operating results would be adversely affected.

Even if Evofem receives approval from the FDA in the United States to market its MPT vaginal gel, its lead product candidate, Amphora, or a future product candidate Evofem may seek to develop, it may fail to receive similar approval outside the United States.

In order to market a new product outside the United States, Evofem must obtain separate marketing approvals in each jurisdiction and comply with numerous and varying regulatory requirements of other countries, including clinical trials, commercial sales, pricing manufacture distribution and safety requirements. The time required to obtain approval in other countries might differ from, and be longer than, that required to obtain FDA approval. The marketing approval process in other countries may include all of the risks associated with obtaining FDA approval in the United States, as well as other risks. Further, Evofem may be unable to obtain rights to the necessary clinical data and may be required to develop its own. In addition, in many countries outside the United States, a new product must receive pricing and reimbursement approval prior to commercialization. This can result in substantial delays in these countries. Additionally, the product labeling requirements outside the United States may be different and inconsistent with the United States labeling requirements, negatively affecting the ability of Evofem to market its products in countries outside the United States.

In addition, if Evofem fails to comply with applicable foreign regulatory requirements, Evofem may be subject to fines, suspension or withdrawal of marketing approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. In such an event, Evofem’s ability to market to its full target market will be reduced and Evofem’s ability to realize the full market potential of its product candidate will be harmed, which could have a materially adverse effect on its business, financial condition, results of operation and prospects.

Evofem’s development and commercialization strategy for its MPT vaginal gel and its lead product candidate, Amphora, depends, in part, on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of approved products based on data developed by others that the FDA may rely on in reviewing Evofem’s NDA.

The Drug Price Competition and Patent Term Restoration Act added section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act (as amended), or the FDCA. Section 505(b)(2) permits the filing of a NDA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets section 505(b)(2) of the FDCA, for the purposes of approving an NDA, to permit the applicant to rely, in part, upon published literature or the FDA’s previous findings of safety and efficacy for an approved product. The FDA may also require the applicant to perform additional clinical trials or measurements to support any deviation from the previously approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product candidate has been approved, as well as for any new indication sought by the section 505(b)(2) applicant. The applicant’s product label, however, may require all or some of the limitations, contraindications, warnings or precautions included in the reference product’s label, including a black box warning, or may require additional limitations, contraindications, warnings or precautions. Evofem has submitted a NDA for Amphora under section 505(b)(2) of the FDCA and as such the NDA relied, in part, on the FDA’s previous findings of safety and efficacy from investigations for approved products and published scientific literature for which Evofem has not received a right of reference. In addition, notwithstanding the approval of many products by the FDA pursuant to section 505(b)(2) of the FDCA, over the last few years some pharmaceutical companies and others have objected to the FDA’s interpretation of section 505(b)(2) of the FDCA. If the FDA changes its interpretation of section 505(b)(2) of the FDCA, or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any section 505(b)(2) NDAs that Evofem submits. Such a result could require Evofem to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of its product candidates.

 

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Product liability lawsuits against Evofem could cause Evofem to incur substantial liabilities and to limit commercialization of its MPT vaginal gel, its lead product candidate, Amphora, and any future product candidate that Evofem may develop.

Evofem faces an inherent risk of product liability exposure should it commercialize its MPT vaginal gel or its lead product candidate, Amphora. Evofem will face similar risks with any other future indications for its MPT vaginal gel or other product candidates that it may develop or commercialize. If Evofem cannot successfully defend itself against these product liability claims, it may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in decreased demand for its MPT vaginal gel, Amphora or, as applicable, any future product candidate Evofem may develop, injury to Evofem’s reputation, negative media attention and the diversion of Evofem management’s time and attention from Evofem’s product development and commercialization efforts to address claim related matters.

Evofem will need to maintain liability insurance coverage as it seeks to conduct and continues to conduct clinical trials for its MPT vaginal gel and Amphora. Such insurance may become increasingly expensive and difficult to procure. In the future, such insurance may not be available to Evofem at all or may only be available at a very high cost and, if available, may not be adequate to cover all liabilities that Evofem may incur. In addition, Evofem may need to increase its liability insurance coverage in connection with the commercialization of its MPT vaginal gel, Amphora or any other product candidate it may commercialize. If it is not able to obtain and maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise, Evofem’s business could be harmed, possibly materially.

If Evofem fails to comply with environmental, health and safety laws and regulations, Evofem could become subject to fines or penalties or incur costs that could have a material adverse effect on its business, financial condition or results of operations.

Evofem’s research and development activities and its third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardous materials, including the components of its product candidates and other hazardous compounds. Evofem and its manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at Evofem’s and its manufacturers’ facilities pending their use and disposal. Evofem cannot eliminate the risk of contamination, which could cause an interruption of its commercialization efforts, research and development efforts and business operations; environmental damage resulting in costly clean-up; and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. Although Evofem believes that the safety procedures utilized by it and its third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, Evofem cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, Evofem may be held liable for any resulting damages and such liability could exceed its resources and state or federal or other applicable authorities may curtail Evofem’s use of specified materials and/or interrupt its business operations. Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more stringent. Evofem cannot predict the impact of such changes and cannot be certain of its future compliance. Evofem does not currently carry biological or hazardous waste insurance coverage.

 

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Risks Related to Evofem’s Intellectual Property

If Evofem is unable to obtain and maintain patent protection for its MPT vaginal gel, its lead product candidate, Amphora, and other proprietary technologies it develops, or if the scope of the patent protection it has or will obtain is not sufficiently broad, Evofem’s competitors could develop and commercialize products and technology similar or identical to Evofem’s, and Evofem’s ability to successfully commercialize its MPT vaginal gel, Amphora, and other proprietary technologies Evofem may develop may be adversely affected.

Evofem’s success depends in large part on its ability to obtain and maintain patent protection in the United States and other countries with respect to its MPT vaginal gel, its lead product candidate, Amphora, and other proprietary technologies it may develop. Evofem seeks to protect its proprietary position by in-licensing intellectual property and filing patent applications in the United States and abroad relating to its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop. If Evofem or its licensors are unable to obtain or maintain patent protection with respect to its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop, Evofem’s business, financial condition, results of operations, and prospects could be materially harmed.

Changes in either the patent laws or their interpretation in the United States and other countries may diminish Evofem’s ability to protect its inventions, obtain, maintain, and enforce its intellectual property rights and, more generally, could affect the value of its intellectual property or narrow the scope of its owned and licensed patents. With respect to both in-licensed and owned intellectual property, Evofem cannot predict whether the patent applications Evofem and its licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.

The patent prosecution process is expensive, time-consuming, and complex, and Evofem may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Evofem will fail to identify patentable aspects of its research and development output in time to obtain patent protection. Although Evofem enters into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of its research and development output, such as its employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing Evofem’s ability to seek patent protection. In addition, Evofem’s ability to obtain and maintain valid and enforceable patents depends on whether the differences between its inventions and the prior art allow Evofem’s inventions to be patentable over the prior art. Furthermore, 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, Evofem cannot be certain that Evofem or its licensors were the first to make the inventions claimed in any of its owned or licensed patents or pending patent applications, or that Evofem or its licensors were the first to file for patent protection of such inventions.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of Evofem’s patent rights are highly uncertain. Evofem’s owned or in-licensed pending and future patent applications may not result in patents being issued which protect Amphora product candidate and other proprietary technologies Evofem may develop or which effectively prevent others from commercializing competitive technologies and product candidates.

Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications Evofem licenses or owns currently or in the future issue as patents, they may not issue in a form that will provide Evofem with any meaningful protection, prevent competitors or other third parties from competing with Evofem, or otherwise provide Evofem

 

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with any competitive advantage. Any patents that Evofem owns or in-licenses may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, Evofem does not know whether its MPT vaginal gel, Amphora product candidate and other proprietary technology will be protectable or remain protected by valid and enforceable patents. Evofem’s competitors or other third parties may be able to circumvent Evofem’s patents by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect Evofem’s business, financial condition, results of operations and prospects.

The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and Evofem’s patents may be challenged in the courts or patent offices in the United States and abroad. Evofem or its licensors may be subject to a third party preissuance submission of prior art to the United States Patent and Trademark Office, or the USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review, or interference proceedings or other similar proceedings challenging Evofem’s owned or licensed patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, Evofem’s owned or in-licensed patent rights, allow third parties to commercialize its MPT vaginal gel, Amphora product candidate and other proprietary technologies Evofem may develop and compete directly with Evofem, without payment to Evofem, or result in Evofem’s inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, Evofem, or one of its licensors, may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge Evofem or its licensor’s priority of invention or other features of patentability with respect to Evofem’s owned or in-licensed patents and patent applications. Such challenges may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit Evofem’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of its MPT vaginal gel, Amphora product candidate and other proprietary technologies Evofem may develop. Such proceedings also may result in substantial cost and require significant time from Evofem’s scientists and management, even if the eventual outcome is favorable to Evofem.

In addition, given the amount of time required for the development, testing, and regulatory review of Evofem’s MPT vaginal gel and Amphora product candidate, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, Evofem’s intellectual property may not provide Evofem with sufficient rights to exclude others from commercializing products similar or identical to Evofem’s. Moreover, some of Evofem’s owned and in-licensed patents and patent applications are, and may in the future be, co-owned with third parties. If Evofem is unable to obtain an exclusive license to any such third party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including Evofem’s competitors, and Evofem’s competitors could market competing products and technology. In addition, Evofem may need the cooperation of any such co-owners of its patents in order to enforce such patents against third parties, and such cooperation may not be provided to Evofem. Furthermore, Evofem’s owned and in-licensed patents may be subject to a reservation of rights by one or more third parties. Any of the foregoing could have a material adverse effect on Evofem’s competitive position, business, financial conditions, results of operations, and prospects.

Evofem’s rights to develop and commercialize its MPT vaginal gel and lead product candidate, Amphora, are subject, in part, to the terms and conditions of licenses granted to Evofem by others.

Evofem is reliant upon licenses to certain patent rights and proprietary technology from third parties that are important or necessary to the development of Amphora product candidate. For example, Evofem’s license agreement with Rush University includes intellectual property rights to its MPT vaginal gel and its Amphora product candidate. This agreement requires Evofem, as a condition to the maintenance of Evofem’s license and other rights, to make milestone and royalty payments and satisfy certain performance obligations. Evofem’s obligations under this in-license agreement impose significant financial and logistical burdens upon Evofem’s ability to carry out its business plan. Furthermore, if Evofem does not meet such obligations in a timely manner, and, in the case of milestone payment requirements, if Evofem were unable to obtain an extension of the

 

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deadlines for meeting such payment requirements, Evofem could lose the rights to this proprietary technology, which would have a material adverse effect on Evofem’s business, financial condition and results of operations.

There is no assurance that the existing Rush University license agreement covering the rights related to its MP vaginal gel or its Amphora product candidate will not be terminated due to a material breach of the underlying agreement. This would include a failure on Evofem’s part to make the milestone and royalty payments, Evofem’s failure to obtain applicable approvals from governmental authorities, or the loss of rights to the underlying intellectual property by any such licensors. There is no assurance that Evofem will be able to renew or renegotiate a license agreement on acceptable terms if the agreement is terminated. Evofem cannot guarantee that any license agreement will be enforceable. The termination of this license agreement or Evofem’s inability to enforce its rights under this license agreement would materially and adversely affect Evofem’s ability to commercialize its MPT vaginal gel and its Amphora product candidate.

In addition, with respect to the MPT vaginal gel and Evofem’s Amphora product candidate, Rush University has the right, in certain instances, to control the defense against any infringement litigation arising from the manufacture or development (but not the sale) of the MPT vaginal gel and Evofem’s Amphora product candidate. While Evofem’s license agreement with Rush University requires Rush University to indemnify Evofem for certain losses arising from these claims, this indemnification may not be sufficient to adequately compensate Evofem for any related losses or the potential loss of Evofem’s ability to manufacture and develop its MPT vaginal gel or Amphora product candidate.

In addition, the agreements under which Evofem currently licenses intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what Evofem believes to be the scope of Evofem’s rights to the relevant intellectual property or technology, or increase what Evofem believes to be its financial or other obligations under the relevant agreement, either of which could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that Evofem has licensed prevent or impair its ability to maintain its current licensing arrangements on commercially acceptable terms, Evofem may be unable to successfully develop and commercialize the affected product candidate, which could have a material adverse effect on Evofem’s business, financial conditions, results of operations, and prospects.

Evofem’s licensors may have relied on third party consultants or collaborators or on funds from third parties such that Evofem’s licensors are not the sole and exclusive owners of the patents Evofem in-licensed. If other third parties have ownership rights to Evofem’s in-licensed patents, they may be able to license such patents to Evofem’s competitors, and Evofem’s competitors could market competing products and technology. This could have a material adverse effect on Evofem’s competitive position, business, financial conditions, results of operations, and prospects.

Evofem may not be able to protect its intellectual property and proprietary rights throughout the world.

Filing, prosecuting, and defending patents on Evofem’s MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect Evofem’s rights to the same extent as the laws of the United States. Consequently, Evofem may not be able to prevent third parties from practicing Evofem’s inventions in all countries outside the United States, or from selling or importing products made using Evofem’s inventions in and into the United States or other jurisdictions. Competitors may use Evofem’s technologies in jurisdictions where Evofem has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where Evofem has patent protection but enforcement is not as strong as that in the United States. These products may compete with Evofem’s products, and Evofem’s patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for Evofem to stop the infringement of its patents or marketing of competing products in violation of its intellectual property and proprietary rights generally. In addition, some jurisdictions, such as Europe, Japan, and China, may have a higher standard for patentability than in the U.S., including for example the requirement of claims having literal support in the original patent filing and the limitation on using supporting data that is not in the original patent filing. Under those heightened patentability requirements, Evofem may not be able to obtain sufficient patent protection in certain jurisdictions even though the same or similar patent protection can be secured in U.S. and other jurisdictions.

Proceedings to enforce Evofem’s intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert Evofem’s efforts and attention from other aspects of its business, could put Evofem’s patents at risk of being invalidated or interpreted narrowly, could put Evofem’s patent applications at risk of not issuing, and could provoke third parties to assert claims against Evofem. Evofem may not prevail in any lawsuits that it initiates, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Evofem’s efforts to enforce its intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that Evofem develops or licenses.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If Evofem or any of its licensors are forced to grant a license to third parties with respect to any patents relevant to Evofem’s business, Evofem’s competitive position may be impaired, and its business, financial condition, results of operations, and prospects may be adversely affected.

Obtaining and maintaining Evofem’s patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and its patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees, and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of Evofem’s owned or licensed patents and applications. In certain circumstances, Evofem relies on its licensing partners to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. Evofem is also dependent on its licensors to take the necessary action to comply with these requirements with respect to its licensed intellectual property. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing Evofem’s ability to protect its products.

Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United

 

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States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before Evofem could therefore be awarded a patent covering an invention of Evofem’s even if Evofem had made the invention before it was made by such third party. This will require Evofem to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, Evofem cannot be certain that it or its licensors were the first to either (i) file any patent application related to its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop or (ii) invent any of the inventions claimed in Evofem’s or its licensor’s patents or patent applications.

The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate Evofem’s patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of Evofem’s owned or in-licensed patent applications and the enforcement or defense of Evofem’s owned or in-licensed issued patents, all of which could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects.

In addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on Evofem’s existing patent portfolio and Evofem’s ability to protect and enforce its intellectual property in the future.

Issued patents covering Evofem’s MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.

If Evofem or one of its licensors initiated legal proceedings against a third party to enforce a patent covering Evofem’s MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may raise claims challenging the validity or enforceability of Evofem’s owned or in-licensed patents before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter

 

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partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to Evofem’s patents in such a way that they no longer cover its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, Evofem cannot be certain that there is no invalidating prior art, of which Evofem or its licensing partners and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity or unenforceability, Evofem would lose at least part, and perhaps all, of the patent protection on Amphora product candidate and other proprietary technologies Evofem may develop. Such a loss of patent protection would have a material adverse impact on Evofem’s business, financial condition, results of operations, and prospects.

If Evofem does not obtain patent term extension and data exclusivity for its MPT vaginal gel and its Amphora product candidate, Evofem’s business may be materially harmed.

Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidate Evofem may develop, one or more of Evofem’s owned or in-licensed U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term, or PTE, of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar patent term restoration provisions to compensate for commercialization delay caused by regulatory review are also available in certain foreign jurisdictions, such as in Europe under Supplemental Protection Certificate, or SPC.

An important part of Evofem’s patent strategy is reliant on its ability to obtain patent term extension on the patents licensed from Rush University. However, Evofem may not be granted an extension, such as PTE for the U.S. patent and SPC for the European patents because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than Evofem requests. If Evofem is unable to obtain patent term extension or the term of any such extension is shorter than what Evofem requests, its competitors may obtain approval of competing products following Evofem’s patent expiration, and Evofem’s business, financial condition, results of operations, and prospects could be materially harmed.

The patent protection and patent prosecution for Evofem’s MPT vaginal gel and Amphora product candidate is dependent on third parties.

While Evofem normally seeks to obtain the right to control prosecution, maintenance and enforcement of the patents relating to Evofem’s MPT vaginal gel and Amphora product candidate, there may be times when the filing and prosecution activities for patents relating to Evofem’s product candidate are controlled by Evofem’s licensors or collaboration partners. If any of Evofem’s current or future licensing or collaboration partners fail to prosecute, maintain and enforce such patents and patent applications in a manner consistent with the best interests of Evofem’s business, including by payment of all applicable fees for patents covering its product candidate, Evofem could lose its rights to the intellectual property or its exclusivity with respect to those rights, its ability to develop and commercialize its product candidate may be adversely affected and Evofem may not be able to prevent competitors from making, using and selling competing products. In addition, even where Evofem has the right to control patent prosecution of patents and patent applications Evofem has licensed to and from third parties, Evofem may still be adversely affected or prejudiced by actions or inactions of its licensees, its licensors and their counsel that took place prior to the date upon which Evofem assumed control over patent prosecution.

 

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Evofem may be subject to claims challenging the inventorship of its patents and other intellectual property.

Evofem or its licensors may be subject to claims that former employees, collaborators or other third parties have an interest in its owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, Evofem or its licensors may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing Amphora product candidate and other proprietary technologies Evofem may develop. Litigation may be necessary to defend against these and other claims challenging inventorship or Evofem’s or its licensor’s ownership of its owned or in-licensed patents, trade secrets or other intellectual property. If Evofem or its licensors fail in defending any such claims, in addition to paying monetary damages, Evofem may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to Amphora product candidate and other proprietary technologies Evofem may develop. Even if Evofem is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on Evofem’s business, financial condition, results of operations and prospects.

If Evofem is unable to protect the confidentiality of its trade secrets, Evofem’s business and competitive position would be harmed.

In addition to seeking patents for its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop, Evofem also relies on trade secrets and confidentiality agreements to protect its unpatented know-how, technology, and other proprietary information and to maintain its competitive position. With respect to its MPT vaginal gel and its Amphora product candidate, Evofem considers trade secrets and know-how to be one of its important sources of intellectual property. Trade secrets and know-how can be difficult to protect. In particular, the trade secrets and know-how in connection with its MPT vaginal gel and its Amphora product candidate and other proprietary technology Evofem may develop may over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology, and the movement of personnel with scientific positions in academic and industry.

Evofem seeks to protect these trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as Evofem’s employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties. Evofem also enters into confidentiality and invention or patent assignment agreements with its employees and consultants. Evofem cannot guarantee that it has entered into such agreements with each party that may have or have had access to Evofem’s trade secrets or proprietary technology and processes. Despite these efforts, any of these parties may breach the agreements and disclose Evofem’s proprietary information, including its trade secrets, and Evofem may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of Evofem’s trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, Evofem would have no right to prevent them from using that technology or information to compete with Evofem. If any of Evofem’s trade secrets were to be disclosed to or independently developed by a competitor or other third party, Evofem’s competitive position would be materially and adversely harmed.

Evofem may be subject to claims that third parties have an ownership interest in its trade secrets. For example, Evofem may have disputes arise from conflicting obligations of its employees, consultants or others who are involved in developing its product candidate. Litigation may be necessary to defend against these and other claims challenging ownership of Evofem’s trade secrets. If Evofem fails in defending any such claims, in addition to paying monetary damages, it may lose valuable trade secret rights, such as exclusive ownership of, or right to use, trade secrets that are important to Amphora product candidate and other proprietary technologies

 

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Evofem may develop. Such an outcome could have a material adverse effect on Evofem’s business. Even if Evofem is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Evofem may not be successful in obtaining necessary rights to any product candidate it may develop through acquisitions and in-licenses.

Evofem currently has rights to intellectual property, covering its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop. Other pharmaceutical companies and academic institutions may also have filed or are planning to file patent applications potentially relevant to Evofem’s business. In order to avoid infringing these third party patents, Evofem may find it necessary or prudent to obtain licenses to such patents from such third party intellectual property holders. However, Evofem may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that Evofem identifies as necessary for its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop. The licensing or acquisition of third party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third party intellectual property rights that Evofem may consider attractive or necessary. These established companies may have a competitive advantage over Evofem due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive Evofem to be a competitor may be unwilling to assign or license rights to Evofem. Evofem also may be unable to license or acquire third party intellectual property rights on terms that would allow it to make an appropriate return on Evofem’s investment or at all. If Evofem is unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights it has, it may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects.

Evofem may be subject to claims that its employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what Evofem regards as its own intellectual property.

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

In addition, while it is Evofem’s policy to require its employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to Evofem, Evofem may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that it regards as its own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and Evofem may be forced to bring claims against third parties, or defend claims that they may bring against Evofem, to determine the ownership of what Evofem regards as its intellectual property. Such claims could have a material adverse effect on its business, financial condition, results of operations, and prospects.

 

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Third-party claims of intellectual property infringement, misappropriation or other violation against Evofem or its collaborators may prevent or delay the development and commercialization of its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop.

The field of contraceptive and/or anti-STDs vaginal gel is competitive and dynamic. Due to the significant research and development that is taking place by several companies, including Evofem and its competitors, in this field, the intellectual property landscape is in flux, and it may remain uncertain in the future. There may be significant intellectual property related litigation and proceedings, in addition to the ongoing interference proceedings, relating to Evofem’s owned and in-licensed, and other third party, intellectual property and proprietary rights in the future.

Evofem’s commercial success depends in part on Evofem’s and its collaborators’ ability to avoid infringing, misappropriating and otherwise violating the patents and other intellectual property rights of third parties. There is a substantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. As discussed above, recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented. As stated above, this reform adds uncertainty to the possibility of challenge to Evofem’s patents in the future.

Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which Evofem is commercializing its MPT vaginal gel, its Amphora product candidate and in which it is developing other proprietary technologies. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that Evofem’s product candidate may give rise to claims of infringement of the patent rights of others. Evofem cannot assure you that its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop will not infringe existing or future patents owned by third parties. Evofem may not be aware of patents that have already been issued and that a third party, for example, a competitor in the fields in which it is developing its product candidate, might assert are infringed by its current or future product candidate, including claims to compositions, formulations, methods of manufacture or methods of use or treatment that cover its product candidate. It is also possible that patents owned by third parties of which Evofem is aware, but which it does not believe are relevant to its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop, could be found to be infringed by its product candidate. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that Evofem’s product candidate may infringe.

Third parties may currently have patents or obtain patents in the future, and claim that use of Evofem’s technologies or the manufacture, use or sale of its MPT vaginal gel or its Amphora product candidate infringes upon these patents. In the event that any third party claims that Evofem infringes their patents or that Evofem is otherwise employing their proprietary technology without authorization and initiates litigation against Evofem, even if Evofem believes such claims are without merit, a court of competent jurisdiction could hold that such patents are valid, enforceable and infringed by Evofem’s technologies or product candidate. In this case, the holders of such patents may be able to block Evofem’s ability to commercialize the applicable product candidate or technology unless it obtains a license under the applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. Even if Evofem is able to obtain a license, the license would likely obligate Evofem to pay license fees or royalties or both, and the rights granted to Evofem might be nonexclusive, which could result in its competitors gaining access to the same intellectual property. If Evofem is unable to obtain a necessary license to a third-party patent on commercially reasonable terms, it may be unable to commercialize its product candidate or technologies or such commercialization efforts may be significantly delayed, which could in turn significantly harm Evofem’s business.

 

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Defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from Evofem’s business, and may impact its reputation. In the event of a successful claim of infringement against Evofem, Evofem may be enjoined from further developing or commercializing its infringing products or technologies. In addition, Evofem may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties and/or redesign its infringing products or technologies, which may be impossible or require substantial time and monetary expenditure. In that event, Evofem would be unable to further develop and commercialize its product candidate or technologies, which could harm its business significantly. Further, Evofem cannot predict whether any required license would be available at all or whether it would be available on commercially reasonable terms. In the event that Evofem could not obtain a license, it may be unable to further develop its product candidate and commercialize its product and product candidate, if approved, which could harm its business significantly. Even if Evofem are able to obtain a license, the license would likely obligate Evofem to pay license fees or royalties or both, and the rights granted to it might be nonexclusive, which could result in Evofem’s competitors gaining access to the same intellectual property. Ultimately, Evofem could be prevented from commercializing a product, or be forced to cease some aspect of its business operations, if, as a result of actual or threatened patent infringement claims, Evofem is unable to enter into licenses on acceptable terms.

Engaging in litigation defending Evofem against third parties alleging infringement of patent and other intellectual property rights is very expensive, particularly for a company of Evofem’s size, and time-consuming. Some of Evofem’s competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than Evofem can because of greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair Evofem’s ability to compete in the marketplace. The occurrence of any of the foregoing could have a material adverse effect on Evofem’s business, financial condition or results of operations.

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

Competitors may infringe Evofem’s patents or the patents of its licensing partners, or Evofem may be required to defend against claims of infringement. In addition, Evofem’s patents or the patents of its licensing partners also may become involved in inventorship, priority or validity disputes. To counter or defend against such claims can be expensive and time consuming. In an infringement proceeding, a court may decide that a patent owned or in-licensed by Evofem is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that Evofem’s owned and in-licensed patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of Evofem’s owned or in-licensed patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Evofem’s confidential information could be compromised by disclosure during this type of litigation.

Even if resolved in Evofem’s favor, litigation or other legal proceedings relating to intellectual property claims may cause Evofem to incur significant expenses and could distract Evofem’s personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of Evofem’s common stock. Such litigation or proceedings could substantially increase Evofem’s operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. Evofem may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of Evofem’s competitors may be able to sustain the costs of such litigation or proceedings more effectively than Evofem can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on Evofem’s ability to compete in the marketplace.

 

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If Evofem’s trademarks and trade names are not adequately protected, then Evofem may not be able to build name recognition in its markets of interest and its business may be adversely affected.

Evofem’s registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. During trademark registration proceedings, including those for Amphora, Evofem may receive rejections of its applications by the USPTO or in other foreign jurisdictions. Although Evofem is given an opportunity to respond to those rejections, it may be unable to overcome such rejections. In addition, in the USPTO 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 Evofem’s trademarks, and its trademarks may not survive such proceedings. Moreover, any name Evofem has proposed to use with its product candidate in the United States must be approved by the FDA, regardless of whether Evofem has registered it, or applied to register it, as a trademark. Similar requirements exist in Europe. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA (or an equivalent administrative body in a foreign jurisdiction) objects to any of Evofem’s proposed proprietary product names, it may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registration may not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark.

Evofem may not be able to protect its rights to these trademarks and trade names, which Evofem needs to build name recognition among potential partners or customers in its markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to Evofem’s, thereby impeding its ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of Evofem’s registered or unregistered trademarks or trade names. Over the long term, if Evofem is unable to establish name recognition based on its trademarks and trade names, then Evofem may not be able to compete effectively and its business may be adversely affected. Evofem’s efforts to enforce or protect its proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect its business, financial condition, results of operations and prospects.

Intellectual property rights do not necessarily address all potential threats.

The degree of future protection afforded by Evofem’s intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect Evofem’s business or permit Evofem to maintain its competitive advantage. For example:

 

    others may be able to make products that are similar to Evofem’s product candidate or utilize similar technology but that are not covered by the claims of the patents that Evofem licenses or may own;

 

    Evofem, or its current or future licensors or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that Evofem licenses or may own in the future;

 

    Evofem, or its current or future licensors or collaborators, might not have been the first to file patent applications covering certain of Evofem’s or their inventions;

 

    others may independently develop similar or alternative technologies or duplicate any of Evofem’s technologies without infringing its owned or licensed intellectual property rights;

 

    it is possible that Evofem’s current or future pending owned or licensed patent applications will not lead to issued patents;

 

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    issued patents that Evofem holds rights to may be held invalid or unenforceable, including as a result of legal challenges by its competitors or other third parties;

 

    Evofem’s competitors or other third parties might conduct research and development activities in countries where Evofem does not have patent rights and then use the information learned from such activities to develop competitive products for sale in Evofem’s major commercial markets;

 

    Evofem may not develop additional proprietary technologies that are patentable;

 

    the patents of others may harm Evofem’s business; and

 

    Evofem may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, they could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects.

Risks Related to Evofem’s Reliance on Third Parties

Evofem’s success relies on third party suppliers and manufacturers. Any failure by such third parties, including failure to successfully perform and comply with regulatory requirements, could negatively impact Evofem’s business and its ability to develop and market Amphora and potential future product candidates, and its business could be substantially harmed.

Evofem has a small number of employees and no internal manufacturing capability. Evofem management does not expect to manufacture any products and expects to rely on third parties to make Evofem’s products, and as such it will be subject to inherent uncertainties related to product safety, availability and security. To date, Evofem’s contract manufacturer, Swiss-American Products, Inc., has only produced a small quantity of its MPT vaginal gel for clinical testing. Furthermore, for some of the key raw materials and components of its MPT vaginal gel, Evofem has only a single source of supply, and alternate sources of supply may not be readily available.

Moreover, Evofem does not expect to control the manufacturing processes for the production of its MPT vaginal gel or any of its other future products or product candidates, which must be made in accordance with relevant regulations, and includes, among other things, quality control, quality assurance, compliance with cGMP and the maintenance of records and documentation. In the future, it is possible that Evofem’s suppliers or manufacturers may fail to comply with FDA regulations, the requirements of other regulatory bodies or its own requirements, all of which would result in suspension or prevention of commercialization and/or manufacturing of its products or product candidates, including its MPT vaginal gel and its lad product candidate, Amphora, suspension of ongoing research, disqualification of data or other enforcement actions such as product recall, injunctions, civil penalties or criminal prosecutions against Evofem. Furthermore, Evofem may be unable to replace any supplier or manufacturer with an alternate supplier or manufacturer on a commercially reasonable or timely basis, or at all.

If Evofem were to experience an unexpected loss of supply of, or if any supplier or manufacturer were unable to meet its demand for its product candidates, Evofem could experience delays in research, planned clinical studies or commercialization. Evofem might be unable to find alternative suppliers or manufacturers with FDA approval, of acceptable quality, in the appropriate volumes and at an acceptable cost. The long transition periods necessary to switch manufacturers and suppliers, would significantly delay Evofem’s timelines, which would materially adversely affect its business, financial conditions, results of operation and prospects.

In addition, Evofem’s reliance on third-party manufacturers exposes Evofem to the following additional risks:

 

    Evofem may be unable to identify manufacturers on acceptable terms or at all;

 

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    Evofem’s third-party manufacturers might be unable to timely formulate and manufacture Evofem’s product or produce the quantity and quality required to meet Evofem’s clinical and commercial needs, if any;

 

    Contract manufacturers may not be able to execute Evofem’s manufacturing procedures appropriately;

 

    Evofem’s future third-party manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply its clinical trials or to successfully produce, store and distribute its products;

 

    Manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMPs and other government regulations and corresponding foreign standards, and Evofem does not have control over third-party manufacturers’ compliance with these regulations and standards;

 

    Evofem may not own, or may have to share, the intellectual property rights to any improvements made by Evofem’s third-party manufacturers in the manufacturing process for its product candidates; and

 

    Evofem’s third-party manufacturers could breach or terminate their agreement with Evofem.

Each of these risks could delay Evofem’s clinical trials, the approval, if any of its product candidates by the FDA or the commercialization of its product candidates or result in higher costs or deprive Evofem of potential product revenue. In addition, Evofem relies on third parties to perform release testing on its product candidates prior to delivery to patients. If these tests are not appropriately conducted and test data are not reliable, patients could be put at risk of serious harm, which could result in product liability suits.

The manufacture of medical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of medical products often encounter difficulties in production, particularly in scaling up and validating initial production and absence of contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in Evofem’s supply of its product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Evofem cannot be assured that any stability or other issues relating to the manufacture of its product candidates will not occur in the future. Additionally, Evofem’s manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If Evofem’s manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, Evofem’s ability to provide its product candidates to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require Evofem to commence new clinical trials at additional expense or terminate clinical trials completely.

Evofem has no internal distribution capabilities and intends to engage third party distributors for distribution of products outside the United States. The inability to identify, or enter into an agreement with, any such third party distributor, would likely have a material adverse effect on Evofem’s business and operations.

Although Evofem currently plans to market and sell its lead product candidate, Amphora, directly in the United States, Evofem does intend to enter into distribution agreements with one or more distributors of Amphora outside the United States. Evofem currently has not entered into any such distribution agreement with any such distributor, and Evofem cannot guaranty that it will be able to enter into any such distribution agreement on commercially reasonable terms, or at all. If Evofem were to outsource product distribution, including the

 

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distribution of its MPT vaginal gel, Amphora or any future product candidate or product, this outsourcing would also be subject to uncertainties related to such distribution services, including the quality of such distribution services. For example, distributors may not have the capacity to supply sufficient product if demand increases rapidly. Further, Evofem would be dependent on the distributors to ensure that the distribution process accords with relevant regulations, which includes, among other things, compliance with current good documentation practices, the maintenance of records and documentation and compliance with other regulations, including, without limitation, the Foreign Corrupt Practices Act. Failure to comply with these requirements could result in significant remedial action, including improvement of facilities, suspension of distribution or recall of product. Additionally, any failure by Evofem to forecast demand for finished product, including Amphora, and failure by Evofem to ensure its distributors have appropriate capacity to distribute such quantities of finished product, could result in an interruption in the supply of certain products and a decline in sales of that product. Further third-party distributors may not perform as agreed or may terminate their agreements with Evofem. Any significant problem that Evofem’s distributors experience could delay or interrupt Evofem’s sale of products in the applicable jurisdiction until the applicable distributor cures the problem or until Evofem identifies and negotiates an acceptable agreement with an alternative distributor, if one is available. Any failure or delay in distributing products would likely have a negative impact on Evofem’s business and operations.

Evofem relies and intends to rely on third-parties for the execution of its development programs for its MPT vaginal gel, its lead product candidate, Amphora, and its potential future product candidates. Failure of these third parties to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of Evofem’s development programs.

Evofem employs a business model that relies on the outsourcing of certain functions, tests and services to CROs, medical institutions and other specialist providers, including, without limitation, the conduct, management and monitoring of Evofem’s ongoing and planned clinical trials. As a result, Evofem relies on these third parties for, among other things, quality assurance, clinical monitoring, clinical data management and regulatory expertise. In terms of Amphora, Evofem has engaged PAREXEL International Corporation as CRO to run substantially all aspects of the AMPOWER clinical trial. Evofem also intends to engage a CRO for all future clinical trial requirements needed to file for regulatory approvals. There is no assurance that such organizations or individuals will be able to provide the functions, tests or services as agreed upon, or to the requisite quality. Evofem will rely on the efforts of these organizations and individuals and could suffer significant delays in the development of its product or processes should they fail to perform as expected.

There is also no assurance that these third parties will not make errors in, or simply fail to be effective in, the design, management or retention of Evofem’s data or data systems. Any failures by such third parties could lead to a loss of data, which in turn could lead to delays in clinical development and obtaining regulatory approval. Third parties may not pass FDA or other regulatory audits, which could delay or prohibit regulatory approval. In addition, the cost of such services could significantly increase over time. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, regulatory approval of Evofem’s MPT vaginal gel, its lead product candidate, Amphora, or any future product candidates, may be delayed, prevented or cost significantly more than expected, all of which would have a material adverse effect on Evofem’s business, financial conditions, results of operation and prospects.

If Evofem fails to enter into or maintain strategic relationships or collaborations with respect to future product candidates, or if Evofem is unable to realize the potential benefits from such collaborations, its business, financial condition, commercialization prospects and results of operation may be materially adversely affected.

If Evofem is successful in identifying and in-licensing the rights to additional product candidates, Evofem’s expected strategy with respect to the development of any such future product candidates is to supplement internal efforts with third-party collaborations. Evofem faces significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming arrangements to negotiate and document.

 

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Evofem’s success in entering into a definitive agreement for any collaboration will depend upon, among other things, its 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 and outcomes of the clinical studies, the likelihood of approval by regulatory authorities, the potential market for the product, the costs and complexities of manufacturing and delivering such products to customers, the potential of competing products, the strength of the intellectual property and industry and market conditions generally. The collaborator may also consider alternative products or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with Evofem for its products or product candidates.

Any potential collaboration agreement into which Evofem might enter may call for licensing or cross-licensing of potentially blocking patents, know-how or other intellectual property. Due to the potential overlap of data, know-how and intellectual property rights, there can be no assurance that one of Evofem’s collaborators will not dispute its right to use, license or distribute such data, know-how or other intellectual property rights, and this may potentially lead to disputes, liability or termination of the collaboration.

Evofem may also be restricted under existing and future collaboration agreements from entering into agreements on certain terms with other potential collaborators and may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If that were to occur, Evofem may have to curtail the development of a particular product, reduce or delay Evofem’s development program, delay commercialization, reduce the scope of sales or marketing activities, or increase expenditures and undertake development or commercialization activities at its own expense. If Evofem elects to fund development or commercialization activities on its own, it will need to obtain additional capital, which may not be available to Evofem on acceptable terms or at all. Absent sufficient funds, Evofem may not be able to commercialize a product candidate. If Evofem enters into a collaboration agreement regarding a product or product candidate, it could be subject to, among other things, the following risks, each of which may materially harm its business, commercialization prospects and financial condition:

 

    Evofem may not be able to control the amount and timing of resources that the collaborator devotes to the product development program;

 

    Evofem may experience financial difficulties and thus not commit sufficient financial resources to the product development program;

 

    Evofem may be required to relinquish important rights to the collaborator such as marketing, distribution and intellectual property rights;

 

    a collaborator could move forward with a competing product developed either independently or in collaboration with third parties, including its competitors;

 

    a collaborator could terminate the agreement (for convenience if permitted) or for its breach; or

 

    business combinations or significant changes in a collaborator’s business strategy may adversely affect Evofem’s willingness to complete its obligations under any arrangement.

As a result, a collaboration may not result in the successful development or commercialization of Evofem’s product candidates.

Evofem enters into various contracts in the normal course of its business in which Evofem indemnifies the other party to the contract. In the event Evofem has to perform under these indemnification provisions, it could have a material adverse effect on its business, financial condition and results of operations.

In the normal course of business, Evofem periodically enters into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to Evofem’s academic and other research agreements, including the Rush License, Evofem typically indemnifies the

 

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institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which Evofem has secured licenses, and from claims arising from Evofem’s or its sublicensees’ exercise of rights under the agreement. With respect to collaboration agreements, Evofem may have to indemnify its collaborators from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right owned by a third party. With respect to consultants, Evofem indemnifies them from claims arising from the good faith performance of their services.

If Evofem’s obligations under an indemnification provision exceed applicable insurance coverage or if Evofem were denied insurance coverage, Evofem’s business, financial condition and results of operations could be adversely affected. Similarly, if Evofem is relying on a collaborator to indemnify Evofem and the collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage, and if the collaborator does not have other assets available to indemnify Evofem, its business, financial condition and results of operations could be adversely affected.

Risks Related to Commercialization of Evofem’s Product Candidate

Evofem currently has limited marketing and sales experience. If Evofem is unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell its product candidates, Evofem may be unable to generate any revenue.

Although some of its employees may have marketed, launched and sold other pharmaceutical products in the past while employed at other companies, Evofem has no experience selling and marketing its product candidates, and Evofem currently has no marketing or sales organization. To successfully commercialize any products that may result from its development programs, Evofem will need to find one or more collaborators to commercialize its products or invest in and develop these capabilities, either on its own or with others, which would be expensive, difficult and time consuming. Any failure or delay in the timely development of Evofem’s internal commercialization capabilities could adversely impact the potential for success of its products.

If commercialization collaborators do not commit sufficient resources to commercialize Evofem’s future products and Evofem is unable to develop the necessary marketing and sales capabilities on its own, Evofem will be unable to generate sufficient product revenue to sustain or grow its business. Evofem may be competing with companies that currently have extensive and well-funded marketing and sales operations, particularly in the markets its product candidates are intended to address. Without appropriate capabilities, whether directly or through third-party collaborators, Evofem may be unable to compete successfully against these more established companies.

Evofem faces competition from other medical device, biotechnology and pharmaceutical companies and its operating results will suffer if Evofem fails to compete effectively.

The medical device, biotechnology and pharmaceutical industries are intensely competitive. Significant competition among various contraceptive products already exists. Existing products have name recognition, are marketed by companies with established commercial infrastructures and with greater financial, technical and personnel resources than Evofem. In order to compete and gain market share, any new product will need to demonstrate advantages in efficacy, convenience, tolerability or safety. In addition, new products developed by others could emerge as competitors to Amphora, if approved. Such products could offer an alternative form of non-hormonal contraceptive that provides protection over longer periods of time. If Evofem is not able to compete effectively against its current and future competitors, Evofem’s business will not grow and its financial condition and operations will suffer.

Evofem’s potential competitors include large, well-established pharmaceutical companies and specialty pharmaceutical companies. These companies include Merck & Co., Inc., Allergan plc, Teva Pharmaceutical

 

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Industries Ltd., Bayer AG, Johnson & Johnson, Cooper and Mylan Inc. Additionally, several generic manufacturers currently market and continue to introduce new generic contraceptives. There are other contraceptive product candidates in development that, if approved, would potentially compete with Amphora, including hormonal patches and hormonal vaginal rings.

Evofem’s MPT vaginal gel, its lead product candidate, Amphora, and any of its future potential product candidates, may not gain acceptance among physicians, patients or the medical community, thereby limiting Evofem’s potential to generate revenue, which will undermine its future growth prospects.

Even if Evofem’s MPT vaginal gel, Amphora or any of its future product candidates are approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any new product by physicians, health care professionals and third-party payors will depend on a number of factors, including:

 

    demonstrated evidence of efficacy and safety;

 

    sufficient third-party insurance coverage or reimbursement;

 

    effectiveness of Evofem’s or its collaborators’ sales and marketing strategy;

 

    the willingness of uninsured consumers to pay for the product;

 

    the willingness of pharmacy chains to stock the products;

 

    the prevalence and severity of any adverse side effects; and

 

    availability of alternative products.

If Evofem’s MPT vaginal gel, Amphora or any product candidate that Evofem may license, develop or sell does not provide a benefit over currently available options, that product is unlikely to achieve market acceptance and Evofem will not generate sufficient revenues to achieve profitability.

The success of Evofem’s MPT vaginal gel, its lead product candidate, Amphora, or any future contraceptive product candidate Evofem may seek to develop, will depend on the availability of contraceptive alternatives and women’s preferences, in addition to the market’s acceptance of this specific method of contraception.

The commercial success of Evofem’s MPT vaginal gel, Amphora, or any other future contraceptive product candidate Evofem may seek to develop, will depend upon the contraceptive market as well as market acceptance of this alternative method. Risks related to market acceptance include, among other things:

 

    minimum acceptable contraceptive efficacy rates;

 

    perceived safety differences of hormonal and/or non-hormonal contraceptive options;

 

    changes in healthcare laws and regulations, including the PPCA, and its effect on pharmaceutical coverage, reimbursement and pricing, and the birth control mandate;

 

    competition from new lower dose hormonal contraceptives with more favorable side effect profiles; and

 

    new generic contraceptive options including a generic version of Amphora as a contraceptive.

If one or more of these risks occur it could reduce the market potential for Evofem’s MPT vagina gel, Amphora, or any future contraceptive product Evofem may seek to develop, and place pressure on Evofem’s business, financial condition, results of operation and prospects.

 

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If Evofem suffers negative publicity concerning the safety or efficacy of Evofem’s products in development, Evofem’s reputation could be harmed and Evofem may be forced to cease development of such products.

If concerns should arise about the actual or anticipated clinical outcomes regarding the safety of any of Evofem’s product candidates, such concerns could adversely affect the market’s perception of these candidates. Such concerns could lead to a decline in investors’ expectations and a decline in the price of Evofem’s common stock.

Evofem relies, and continues to expect to rely, on market research conducted on its behalf to evaluate the potential commercial acceptance its MPT vaginal gel, lead product candidate, Amphora and other future product candidates.

Evofem has contracted with and expects to continue to contract with third parties to perform market research on its behalf. Based on the results of its market research to date, Evofem believes that Amphora, if approved, would be an attractive alternative to hormonal birth control to certain women. However, these research findings may not be indicative or predictive of actual or overall market acceptance and any future market research may not be indicative of the acceptance for another product candidate or future product candidate Evofem may develop.

The commercial success of Evofem’s MPT vaginal gel, its lead product candidate, Amphora, and any future Evofem product candidates will depend in significant measure on the label claims that the FDA or other regulatory authorities approve for the product.

The commercial success of Evofem’s MPT vaginal gel, its lead product candidate, Amphora, and any of Evofem’s future product candidates will depend in significant measure upon Evofem’s ability to obtain approval from the FDA or other regulatory authorities of labeling describing a product candidate’s expected features or benefits. Failure to achieve approval from the FDA or other regulatory authorities of product labeling containing adequate information on features or benefits will prevent or substantially limit Evofem’s advertising and promotion of such features in order to differentiate Amphora or any future product candidate from those products that already exist in the market. This failure would have a material adverse impact on Evofem’s business, financial condition, results of operation and prospects.

The proportion of the contraceptive market that is made up of generic products continues to increase, making introduction of a branded contraceptive difficult and expensive.

The proportion of the U.S. market that is made up of generic products has been increasing over time. In 2005, generic contraceptive products held 47% of prescription volume and 34% of sales and, by 2011, those values had risen to 68% and 44%, respectively. For the year ended December 31, 2016, approximately 83% of the prescription volume and approximately 43% of sales of combined hormonal contraceptives in the United States were generated by generic products. If this trend continues, it may be more difficult to introduce Amphora, if approved, or any future approved contraceptive product candidate Evofem may develop, as a branded contraceptive, at a price that will maximize its revenue and profits. Also, there may be additional marketing costs to introduce Amphora in order to overcome the trend towards generics and to gain access to reimbursement by payors. If Evofem is unable to introduce Amphora or any future approved contraceptive product candidate at a price that is commensurate with that of current branded contraceptive products, or it is unable to gain reimbursement from payors for Amphora, or if patients are unwilling to pay any price differential between Amphora and a generic contraceptive, its revenues will be limited.

 

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Changes in healthcare laws and regulations may eliminate current requirements that health insurance plans cover and reimburse FDA-cleared or approved contraceptive products without cost sharing, which could reduce demand for products such as Amphora. Even if Amphora is approved for commercialization, Evofem management expects that Evofem’s success will be dependent on the willingness or ability of patients to pay out-of-pocket should they not be able to obtain third party reimbursement or should such reimbursement be limited.

Evofem cannot be certain that third party reimbursement will be available for Amphora, and if reimbursement is available, the amount of any such reimbursement. The Patient Protection and Affordable Care Act of 2010, or the PPACA, and subsequent regulations enacted by the Department of Health and Human Services, or DHHS, require health plans to provide coverage for women’s preventive care, including all forms of FDA-cleared or approved contraception, without imposing any cost sharing on the plan beneficiary. These regulations ensure that women who wish to use an approved form of contraception may request it from their doctors and their health insurance plan must cover all costs associated with such products. However, after the 2016 election, the U.S. Federal Government is attempting to repeal the PPACA and corresponding regulations, which would likely eliminate the requirement for health plans to cover women’s preventive care without cost sharing. Even if the PPACA is not repealed, the DHHS regulations to specifically enforce the preventive health coverage mandate could be repealed under the Congressional Review Act. Any repeal or elimination of the preventive care coverage rules would mean that women seeking to use prescribed forms of contraceptives may have to pay some portion of the cost for such products out-of-pocket, which could deter some women from using prescription contraceptive products, such as Amphora, at all. As a result, Evofem expects that its success will be dependent on the willingness of patients to pay out-of-pocket for Amphora in the event that either they do not have insurance or their insurance requires payment of a portion of Amphora by the patient, thus increasing the patient’s overall cost to use Amphora. This could reduce market demand for Amphora or any future product candidates Evofem may seek to develop, if and when they receive FDA approval, which would have a material adverse effect on its business, financial conditions, and prospects.

In the event that Evofem is successful in obtaining regulatory approval to market its MPT vaginal gel, its lead product candidate, Amphora, or a future product in the United States, revenues may be adversely affected if the product fails to obtain insurance coverage or adequate reimbursement from third-party payers and administrators in the United States.

Third-party payers and administrators, including state Medicaid programs and Medicare, have recently been challenging the prices charged for pharmaceutical and medical device products. The United States government and other third-party payers are increasingly limiting both coverage and the level of reimbursement for new drugs and medical devices. Third-party insurance coverage may not be available to patients for Amphora or any future product Evofem may seek to commercialize. If such government and other third-party payers do not provide adequate coverage and reimbursement for Amphora or such products, healthcare providers may not prescribe them or patients may ask their healthcare providers to prescribe competing products with more favorable reimbursement.

Managed care organizations and other private insurers frequently adopt their own payment or reimbursement reductions. Consolidation among managed care organizations has increased the negotiating power of these entities. Private third-party payers, as well as governments, increasingly employ formularies to control costs by negotiating discounted prices in exchange for formulary inclusion. Failure to obtain timely or adequate pricing or formulary placement for Evofem’s MPT vaginal gel, Amphora or any future product Evofem may seek to commercialize, or obtaining such pricing or placement at unfavorable pricing levels, could materially adversely affect Evofem’s business, financial conditions, results of operation and prospects.

 

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The pharmaceutical and medical device industries are highly regulated and subject to various fraud and abuse laws, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal False Claims Act and the U.S. Foreign Corrupt Practices Act.

Healthcare fraud and abuse regulations are complex, and even minor irregularities can potentially give rise to claims that a statute or prohibition has been violated. The laws that may affect Evofem’s ability to operate include, among other things:

 

    the federal healthcare programs’ anti-kickback law, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce 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 federal healthcare programs such as the Medicare and Medicaid programs;

 

    false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;

 

    the Health Insurance Portability and Accountability Act of 1996, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and

 

    the U.S. Foreign Corrupt Practices Act, which prohibits corrupt payments, gifts or transfers of value to non-U.S. officials.

The scope and enforcement of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Regulatory authorities might challenge Evofem’s current or future activities under these laws. Any such challenge could have a material adverse effect on Evofem’s reputation, business, results of operations and financial condition. In addition, efforts to ensure that Evofem’s business arrangements with third parties will comply with these laws will involve substantial costs. Any investigation of Evofem or the third parties with whom Evofem contracts, regardless of the outcome, would be costly and time consuming.

Evofem’s business may be adversely affected by unfavorable macroeconomic conditions.

Various macroeconomic factors could adversely affect Evofem’s business, its results of operations and financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from political instability (including workforce uncertainty) and the current and future conditions in the global financial markets. For example, if inflation or other factors were to significantly increase Evofem’s business costs, it may be unable to pass through price increases to patients. The cost of importing similar products from foreign markets may affect Evofem’s sales in any domestic market.

Interest rates and the ability to access credit markets could also adversely affect the ability of patients, payers and distributors to purchase, pay for and effectively distribute Evofem’s product if and when approved. Similarly, these macroeconomic factors could affect the ability of Evofem’s current or potential future third-party manufacturers, sole source or single source suppliers, licensors or licensees to remain in business, or otherwise manufacture or supply Evofem’s product candidate. Failure by any of them to remain in business could affect Evofem’s ability to manufacture Amphora or any of its future product candidates.

 

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Risks Related to Evofem’s Business Operations

As Evofem matures and expands its sales and marketing infrastructure, it will need to expand the size of its organization. If Evofem experiences difficulties in managing this growth or fails to attract and retain management and other key personnel, it may be unable to successfully commercialize its products, develop any product candidates or otherwise implement its business plan.

As of October 20, 2017, Evofem had a total of 23 full-time employees, and uses third-party consultants to assist with research and development activities, including regulatory filings and clinical trial operations and support, sales and marketing research and programs, as well as general and administrative activities. As Evofem’s development and commercialization plans and strategies develop, Evofem expects that it will expand the size of its employee base for managerial, operational, sales, marketing, financial, regulatory affairs and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, management may have to divert a disproportionate amount of its attention away from day-to-day activities and devote a substantial amount of time to managing these growth activities, which would lead to disruptions in Evofem’s operations. Evofem cannot provide assurance that it will be able to retain adequate staffing levels to run its operations and/or to accomplish all of the objectives that it otherwise would seek to accomplish.

Evofem’s ability to compete in the highly competitive pharmaceutical and medical device industries depends upon its ability to attract and retain highly qualified managerial and key personnel. Evofem is highly dependent on its senior management, including its President and Chief Executive Officer, Saundra Pelletier, its Chief Financial Officer, Justin J. File, Kelly Culwell, M.D., its Chief Medical Officer and Russ Barrans, its Chief Commercial Officer. The loss of the services of any of these individuals could impede, delay or prevent the development and commercialization of Evofem’s product candidates, hurt its ability to raise additional funds and negatively impact its ability to implement its business plan. If Evofem loses the services of any of these individuals, it might not be able to find suitable replacements on a timely basis or at all, and its business could be harmed as a result. Evofem does not maintain “key man” insurance policies on the lives of these individuals.

Evofem might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, medical device, pharmaceutical and other businesses, particularly in the San Diego area where it is headquartered. As a result, Evofem may be required to expend significant financial resources in its employee recruitment and retention efforts, including the grant of significant equity incentive awards which would be dilutive to stockholders. Many of the other companies within the contraceptive industry with whom Evofem competes for qualified personnel have greater financial and other resources, different risk profiles and longer histories in the industry than Evofem does. They also may provide more diverse opportunities and better chances for career advancement. If Evofem is not able to attract and retain the necessary personnel to accomplish its business objectives or if Evofem is not able to effectively manage any future growth, it may experience constraints that will harm its ability to implement its business strategy and achieve its business objectives.

Evofem’s current or future employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards.

Evofem may become exposed to the risk of employees, independent contractors, principal investigators, consultants, suppliers, commercial partners or vendors engaging in fraud or other misconduct. Misconduct by employees, independent contractors, principal investigators, consultants, suppliers, commercial partners and vendors could include intentional failures such as failures: (i) to comply with FDA or other regulators’ regulations, (ii) to provide accurate information to such regulators or (iii) to comply with manufacturing standards established by Evofem and/or required by law. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws, regulations and industry guidance intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,

 

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customer incentive programs and other business arrangements. Misconduct by current or future employees, independent contractors, principal investigators, consultants, suppliers, commercial partners and vendors could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory or civil sanctions and serious harm to Evofem’s reputation. It is not always possible to identify and deter misconduct by employees, independent contractors, principal investigators, consultants, suppliers, commercial partners and vendors, and the precautions Evofem takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against Evofem, and it is not successful in defending or asserting Evofem’s rights, those actions could have a significant adverse impact on its business, including the imposition of significant fines or other sanctions, and its reputation.

Evofem may be vulnerable to disruption, damage and financial obligations as a result of information technology system failures.

Despite the implementation of security measures, any of the internal computer systems belonging to Evofem or its third-party service providers are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failure. Any system failure, accident, security breach or data breach that causes interruptions in its own or in third-party service vendors’ operations could result in a material disruption of its product development programs. For example, the loss of clinical study data from future clinical studies could result in delays in its or its partners’ regulatory approval efforts and significantly increase its costs in order to recover or reproduce the lost data. Further, Evofem’s information technology and other internal infrastructure systems, including firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure, which could disrupt its operations. To the extent that any disruption or security breach results in a loss or damage to Evofem’s data or applications, or inappropriate disclosure of confidential or proprietary information, it may incur resulting liability, its product development programs and competitive position may be adversely affected and the further development of its products may be delayed. Furthermore, Evofem may incur additional costs to remedy the damage caused by these disruptions or security breaches.

Risks Related to the Combined Organization

In determining whether you should approve the merger, the issuance of shares of Neothetics common stock and other matters related to the merger, as the case may be, you should carefully read the following risk factors in addition to the risks.

The combined company may never earn a profit.

Evofem and Neothetics have never generated revenue from the sale of any products and expect the combined company to incur substantial net losses for the foreseeable future. Because of the risks and uncertainties associated with identifying, licensing and advancing product candidates through clinical development, Evofem and Neothetics are unable to predict if and when the combined company may be able to commercially introduce products. These uncertainties also make it difficult to forecast the extent of any future losses or if the combined company will ever become profitable. Even if the combined company were able to obtain regulatory approval for Amphora, there is no guaranty that a commercial market for the product will develop.

The combined company will be required to raise additional funds to finance its operations and remain a going concern; the combined company may not be able to do so when necessary, and/or on acceptable terms.

The combined company’s ongoing capital requirements will depend on numerous factors related to the development of its product candidates and the sale of products obtaining regulatory approval, including: the

 

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progress and cost of research and development programs and clinical trials; the progress and cost of research and development programs of partners; the time and costs expended and required to obtain any necessary or desired regulatory approvals; the costs of ongoing compliance with the FDA and other domestic and foreign regulatory agency requirements; the resources devoted to manufacturing expenditures; the ability to enter into licensing arrangements; the cost of commercialization activities and arrangements, if any, undertaken by the combined company; and, if and when approved, the demand for the combined company’s products.

Evofem and Neothetics anticipate that the combined company will need to raise additional funds through public or private financings, strategic partnerships or other arrangements. Additional equity financing would be dilutive to the combined company existing stockholders, and debt financing, if available, may involve restrictive covenants. If the combined company raises funds through collaborative or licensing arrangements, it may be required to relinquish, on terms that are not favorable to the combined company, rights to some of its technologies or product candidates that the combined company would otherwise seek to develop or commercialize. The combined company’s failure to raise capital when needed could materially harm its business, financial condition and results of operations.

The combined company expects to be heavily reliant on its ability to access funding through capital market transactions. Due to the combined company’s small public float, low market capitalization, limited operating history and lack of revenue, it may be difficult and expensive for the combined company to raise additional funds.

Evofem and Neothetics anticipate that the combined company will be heavily reliant on its ability to raise funds through the issuance of shares of its common stock or securities linked to its common stock. The combined company’s ability to raise these funds may be dependent on a number of factors, including the risk factors further described herein and the low trading volume and volatile trading price of its shares of common stock. The stocks of small cap companies in the biotechnology sector like the combined company tend to be highly volatile. The combined company expects that the price of its common stock will be highly volatile for the next several years. Even if the combined company expands its portfolio of products and product candidates, it may never successfully commercialize or monetize its current product candidate or any future product candidate that the combined company may seek to develop.

As a result, the combined company may be unable to access funding through sales of its common stock or other equity-linked securities. Even if the combined company were able to access funding, the cost of capital may be substantial due to its low market cap and its small public float. The terms of any funding the combined company is able to obtain may not be favorable to it and may be highly dilutive to its stockholders. The combined company may be unable to access capital due to unfavorable market conditions or other market factors outside of its control. There can be no assurance that it will be able to raise additional capital when needed. The failure to obtain additional capital when needed would have a material adverse effect on its business.

The unaudited pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the completion of the transactions.

The unaudited pro forma financial statements contained in this proxy statement/prospectus/information statement are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger for several reasons. The unaudited pro forma financial statements have been derived from the historical financial statements of Neothetics and Evofem and adjustments and assumptions have been made regarding the combined company after giving effect to the transaction. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the unaudited pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the transactions or that have been incurred since the date of such unaudited pro forma financial statements. For

 

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example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the unaudited pro forma financial statements. As a result, the actual financial condition of the combined company following the merger may not be consistent with, or evident from, these unaudited pro forma financial statements. The assumptions used in preparing the unaudited pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition following the transaction. The unaudited pro forma financial statements can be found in the section entitled “ Unaudited Pro Forma Condensed Consolidated Financial Statements ” beginning on page 211 of this proxy statement/prospectus/information statement.

The merger will result in changes to the combined company’s board of directors that may affect the combined company’s business strategy and operations.

The composition of the combined company’s board of directors will change as described in more detail in the section of this proxy statement/prospectus/information statement entitled “ Management Following the Merger ” beginning on page 188 of this proxy statement/prospectus/information statement. The newly comprised board of directors of the combined company may affect business strategies and operating decisions with respect to the combined company that may have an adverse impact on the combined company’s business, financial condition and results of operations following the completion of the transaction.

Neothetics and Evofem expect the price of the combined company’s common stock may be volatile and may fluctuate substantially following this transaction.

The stock market in general, and the market for biopharmaceutical companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for the combined company’s common stock may be influenced by many factors, including:

 

    the results of the combined company’s efforts to discover, develop, acquire or in-license product candidates or products, if any;

 

    failure or discontinuation of any of the combined company’s research programs;

 

    actual or anticipated results from, and any delays in, any future clinical trials, as well as results of regulatory reviews relating to the approval of any product candidates the combined company may choose to develop;

 

    the level of expenses related to any product candidates that the combined company may choose to develop or clinical development programs Evofem may choose to pursue;

 

    commencement or termination of any collaboration or licensing arrangement;

 

    disputes or other developments relating to proprietary rights, including patents, litigation matters and the combined company’s ability to obtain patent protection for its technologies;

 

    announcements by the combined company or the combined company’s competitors of significant acquisitions, strategic partnerships, joint ventures and capital commitments;

 

    additions or departures of key scientific or management personnel;

 

    variations in the combined company’s financial results or those of companies that are perceived to be similar to the combined company;

 

    new products, product candidates or new uses for existing products introduced or announced by the combined company’s competitors, and the timing of these introductions or announcements;

 

    results of clinical trials of product candidates of the combined company’s competitors;

 

    general economic and market conditions and other factors that may be unrelated to the combined company’s operating performance or the operating performance of the combined company’s competitors, including changes in market valuations of similar companies;

 

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

 

    changes in the structure of healthcare payment systems;

 

    conditions or trends in the biotechnology and biopharmaceutical industries;

 

    actual or anticipated changes in earnings estimates, development timelines or recommendations by securities analysts;

 

    announcement or expectation of additional financing efforts;

 

    sales of common stock by the combined company or its stockholders in the future, as well as the overall trading volume of the combined company’s common stock; and

 

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

In the past, following periods of volatility in companies’ stock prices, securities class-action litigation has often been instituted against such companies. Such litigation, if instituted against the combined company, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect the combined company’s business and financial condition.

If the combined company were to be delisted from NASDAQ, it could reduce the visibility, liquidity and price of its common stock.

There are various quantitative listing requirements for a company to remain listed on The NASDAQ Capital Market, including maintaining a minimum bid price of $1.00 per share. Further, upon closing of this transaction, the combined company expects to trade on the NASDAQ Capital Market. There is no guarantee that the combined company will be able to continue complying with the minimum bid price rule, the minimum equity standard or other NASDAQ requirements.

Delisting from The NASDAQ Capital Market could reduce the visibility, liquidity and price of the combined company’s common stock.

After the merger, two existing stockholders of Evofem will own a significant percentage of the combined company’s issued and outstanding common stock and will be able to exercise significant influence over matters submitted to stockholders for approval.

Upon closing of the merger (and without assuming the issuance of Neothetics common stock in the Financing and the issuance of the Neothetics Post Merger Warrants), funds affiliated with or discretionarily managed Invesco Asset Management, or Invesco, and funds affiliated with or discretionarily managed by Woodford Investment Management are expected to hold approximately 33.6% and 46.3%, respectively, of the combined company’s outstanding common stock. At or immediately following the effective time of the merger, Neothetics expects to enter into voting agreements with certain of these holders which agreements provide that the shares held by such holders in excess of 19.5% of the then issued and outstanding Neothetics common stock shall be voted in the same proportion as the shares voted by all other Neothetics stockholders (see the section entitled “ Agreements Relating to the Merger — Post-Merger Voting Agreement ” beginning on page 129 of this proxy statement/prospectus/information statement). Notwithstanding the voting agreements, if these stockholders were to choose to act together, they would be able to exert a significant degree of influence over matters submitted to the combined company’s stockholders for approval, as well as its management and affairs. This concentration of voting power could delay or prevent an acquisition on terms that other stockholders may desire. For example, these entities, if they choose to act together, would be able to have significant influence on the election of directors, approval of any increase in the number of shares reserved under equity incentive plans, approval of new equity incentive plans, and approval of any merger, consolidation or sale of all or substantially all of the combined company’s assets.

In addition, if Proposal No. 4 is approved, the combined entity will not be subject to or governed by Section 203 of the DGCL, which prohibits a publicly-held Delaware corporation from engaging in a “business combination”

 

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with an “interested stockholder,” and the combined entity will be able to enter into transactions with its principal stockholders. The post-merger concentration of ownership may have the effect of delaying, preventing or deterring a change of control of the combined company, could deprive its stockholders of an opportunity to receive a premium for their common stock as part of a sale of the combined company and may materially adversely affect the market price of the combined company’s common stock.

A significant portion of the combined company’s total outstanding shares of common stock may be sold into the public market at any point, which could cause the market price of the combined company’s common stock to drop significantly, even if the combined company’s business is doing well.

Sales of a substantial number of shares of the combined company’s common stock in the public market could occur at any time. These sales, or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the market price of the combined company’s common stock. The combined company’s outstanding shares of common stock may be freely sold in the public market at any time to the extent permitted by Rules 144 and 701 under the Securities Act or to the extent such shares have already been registered under the Securities Act and are held by non-affiliates.

As of October 20, 2017, there were 1,555,573 shares of the Neothetics common stock subject to outstanding options, all of which have been registered on a registration statement on Form S-8. These shares can be freely sold in the public market upon exercise, except to the extent they will be held by the combined company’s affiliates, in which case such shares will become eligible for sale in the public market as permitted by Rule 144 under the Securities Act. Furthermore, as of October 20, 2017, there were 71,257 shares subject to outstanding warrants to purchase common stock. These shares will become eligible for sale in the public market, to the extent such warrants are exercised, as permitted by Rule 144 under the Securities Act. Moreover, holders of approximately 4,729,151 shares of the combined company’s common stock have rights, subject to conditions, to require the combined company to file registration statements covering their shares or to include their shares in registration statements that Neothetics or the combined company may file for itself or other stockholders. Unless held by affiliates of the combined company and as permitted by Rule 144 under the Securities Act, shares of Neothetics common stock registered pursuant to the Registration Statement on Form S-4 may be freely sold in the public market.

In addition and as further disclosed in the section entitled “ Agreements Relating to the Merger — Post-Merger Registration Rights Agreement ” beginning on page 128 of this proxy statement/information statement/registration statement, certain existing Evofem and Neothetics stockholders will have the registration rights set forth in the Post-Merger Registration Rights Agreement.

The combined company will have broad discretion in the use of its cash reserves and may not use them effectively.

The combined company’s management will have broad discretion to use its cash reserves, including any amounts received as a result of the Financing, and could use its cash reserves in ways that do not improve the combined company’s results of operations or enhance the value of its common stock. The failure by the combined company’s management to apply these funds effectively could result in financial losses and these financial losses could have a material adverse effect on the combined company’s business, cause the price of the combined company’s common stock to decline and delay the development of any product candidates that it may choose to develop. Pending their use, the combined company may invest its cash reserves in a manner that does not produce income or that loses value.

The combined company will be an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make the combined company’s common stock less attractive to investors.

The combined company will be an “emerging growth company,” as defined in the JOBS Act and may remain an emerging growth company through 2019. For so long

 

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as the combined company remains an emerging growth company, it will be permitted to 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 in the assessment of its internal control over financial reporting;

 

    not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure obligations regarding executive compensation; and

 

    exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

The combined company may choose to take advantage of some, but not all, of the available exemptions. The combined company cannot predict whether investors will find its common stock less attractive if it relies on these exemptions. If some investors find the combined company’s common stock less attractive as a result, there may be a less active trading market for the combined company’s common stock and the price of the combined company’s common stock price may be more volatile.

The combined company expects to continue to incur increased costs as a result of operating as a public company, and its management will be required to devote substantial time to compliance initiatives and corporate governance practices.

As a public company, the combined company will be incurring and expect to continue to incur additional significant legal, accounting and other expenses in relation to its status as a public reporting company. The combined company expects that these expenses will further increase after it is no longer an “emerging growth company.” The combined company expects that it will need to hire additional accounting, finance and other personnel in connection with its continuing efforts to comply with the requirements of being a public company, and its management and other personnel will need to continue to devote a substantial amount of time towards maintaining compliance with these requirements. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the Securities and Exchange Commission and NASDAQ have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. The combined company’s management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase the combined company’s legal and financial compliance costs and will make some activities more time-consuming and costly.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, the combined company will be required to furnish a report by its management on its internal controls over financial reporting, including an attestation report on internal control over financial reporting issued by its independent registered public accounting firm. However, while the combined company remains an “emerging growth company,” it will not be required to include an attestation report on internal control over financial reporting issued by its independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, the combined company will be engaged in a process to document and evaluate its internal control over financial reporting, which is both costly and challenging. In this regard, the combined company 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. If the combined company identifies one or more material weaknesses, this could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of its financial statements.

 

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The combined company does not anticipate paying any cash dividends on its capital stock in the foreseeable future; capital appreciation, if any, will be your sole source of gain as a holder of the combined company’s common stock.

Neither Neothetics nor Evofem have ever declared or paid cash dividends on shares of their capital stock. The combined company currently plans to retain all of its future earnings, if any, and any cash received as a result of future financings to finance the growth and development of the combined company’s business. Accordingly, capital appreciation, if any, of the combined company’s common stock will be the sole source of gain for its common stockholders for the foreseeable future.

Provisions in the combined company’s certificate of incorporation, its bylaws or Delaware law might discourage, delay or prevent a change in control of the company or changes in its management and, therefore, depress the trading price of its common stock.

Provisions in the combined company’s certificate of incorporation, its bylaws or Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which its stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of the combined company’s common stock, thereby depressing the market price of its common stock. In addition, because the combined company’s board of directors is responsible for appointing the members of its management team, these provisions might frustrate or prevent any attempts by its stockholders to replace or remove the current management by making it more difficult for stockholders to replace members of its board of directors. These provisions include the following:

 

    a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of the combined company’s board of directors;

 

    prohibiting the combined company’s stockholders from calling a special meeting of stockholders or acting by written consent other than unanimous written consent;

 

    permitting the combined company’s board to issue additional shares of its preferred stock, with such rights, preferences and privileges as they may designate, including the right to approve an acquisition or other changes in control;

 

    establishing an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to the combined company’s board of directors;

 

    providing that the combined company’s directors may be removed only for cause;

 

    providing that vacancies on the combined company’s board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and

 

    requiring the approval of the combined company’s board of directors or the holders of a supermajority of its outstanding shares of capital stock to amend the combined company’s bylaws and certain provisions of its certificate of incorporation.

If securities analysts do not publish research or reports about the combined company’s business or if they publish negative evaluations of the combined company’s stock, the price of the combined company’s stock could decline.

The trading market for the combined company’s common stock relies in part on the research and reports that industry or financial analysts publish about the combined company or its business. The combined company does not have any control over these analysts. If one or more of the analysts covering the combined company’s business downgrade their evaluations of the combined company’s stock, the price of the combined company’s common stock could decline. In addition, if one or more of these analysts cease coverage or fail to regularly publish reports on the combined company’s business, the combined company could lose visibility in the financial markets, which in turn could cause the combined company’s common stock price or trading volume to decline.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus/information statement and the documents incorporated by reference into this proxy statement/prospectus/information statement contain forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as Neothetics and Evofem cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include, but are not limited to statements about:

 

    the merger consideration may have greater or lesser value than at the time the Merger Agreement is signed because the exchange ratios are not adjustable based on the market price of Neothetics common stock;

 

    failure to complete the merger may result in either party paying a termination fee or expenses to the other party and could harm the future business and operations of each company;

 

    if the conditions to the merger are not met, the merger may not occur;

 

    the merger may be completed even though material adverse changes may occur;

 

    some executive officers of each company have interests in the merger that are different from yours, which may result them to support or approve the merger without regard to your interests;

 

    the market price of Neothetics common stock may decline following the merger;

 

    restrictions in the Merger Agreement may prevent Neothetics and Evofem from entering into a business combination with another party at a favorable price;

 

    certain provisions of the Merger Agreement may discourage third parties rom submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement;

 

    the stockholders of Evofem may receive consideration in the merger that is greater or less than fair market value of the Evofem shares due to the lack of a public market for Evofem shares;

 

    if the merger does not qualify as a tax-free reorganization, the receipt of Neothetics common stock pursuant to the merger could be fully taxable to all Evofem stockholders;

 

    the combined company may never earn a profit;

 

    the combined company will be required to raise additional funds to finance its operations and remain a going concern; the combined company may not be able to raise additional funds when necessary, and/or on acceptable terms;

 

    the combined company’s small public float, low market capitalization, limited operating history, and lack of revenue may make it difficult and expensive for the combined company to raise additional funds;

 

    the pro forma financial statement may not be an indication of the combined company’s financial condition or results of operations following the completion of the transactions;

 

    the merger will result in changes to the combined company’s board of directors that may affect the combined company’s business strategy and operations;

 

    both companies expect the price of the combined company’s common stock may be volatile and may fluctuate substantially following this transaction;

 

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    if the combined company were to be delisted from NASDAQ, it could reduce the visibility, liquidity and price of its common stock;

 

    after the merger, two existing stockholders of Evofem will own a significant percentage of the combined company’s issued and outstanding common stock and will be able to exercise significant influence over matters submitted to stockholders for approval;

 

    a significant portion of the combined company’s total outstanding shares of common stock may be sold into the public market at any point, which could cause the market price of the combined company’s common stock to drop significantly, even if the combined company is doing well;

 

    the combined company will have broad discretion in the use of its cash reserves and may not use them effectively;

 

    the combined company will be an “emerging growth company,” and the reduced disclosure requirements applicable to such companies may make the combined company’s common stock less attractive to investors;

 

    the combined company expects to continue to incur increased costs as a result of operating as a public company, and its management will be required to devote substantial time to compliance initiatives and corporate governance practices;

 

    the combined company does not anticipate paying any cash dividends on its capital stock in the foreseeable future;

 

    provisions in the combined company’s certificate of incorporation, its bylaws or Delaware law might discourage, delay or prevent a change in control of the company or changes in its management, which may depress the price of its common stock; and

 

    securities analysts’ published reports could cause a decline in the price of the combined company’s stock.

For a discussion of the factors that may cause Neothetics, Evofem or the combined organization’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Neothetics and Evofem to complete the merger and the effect of the merger on the business of Neothetics, Evofem and the combined organization, see section entitled “ Risk Factors ” beginning on page 23 of this proxy statement/prospectus/information statement.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Neothetics. See section entitled “ Where You Can Find More Information ” beginning on page 240 of this proxy statement/prospectus/information statement.

If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of Neothetics, Evofem or the combined organization could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. Neothetics and Evofem do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

 

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THE SPECIAL MEETING OF NEOTHETICS STOCKHOLDERS

Date, Time and Place

The special meeting of Neothetics stockholders will be held on [●], at the offices of DLA Piper LLP (US) located at 4365 Executive Driver, Suite 1100, San Diego, CA 92121 commencing at [●] a.m. local time. Neothetics is sending this proxy statement/prospectus/information statement to its stockholders in connection with the solicitation of proxies by the Neothetics Board for use at the Neothetics special meeting and any adjournments or postponements of the special meeting. This proxy statement/prospectus/information statement is first being furnished to stockholders of Neothetics on or about [●], 2017.

Purposes of the Neothetics Special Meeting

The purposes of the Neothetics special meeting are:

1. To consider and vote upon a proposal to approve the merger and the issuance of Neothetics common stock in the merger pursuant to the Agreement and Plan of Merger and Reorganization, dated as of October 17, 2017, by and among Neothetics, Merger Sub and Evofem, a copy of which is attached as Annex A to this proxy statement/prospectus/information statement;

2. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to effect a reverse stock split of Neothetics common stock in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, and approved by the Neothetics Board, within a range of one share of Neothetics common stock for every [●] to [●] shares of Neothetics common stock (or any number in between) in the form attached as Annex D to this proxy statement/prospectus/information statement;

3. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name “Neothetics, Inc.” to “Evofem Biosciences, Inc.” in the form attached as Annex D to this proxy statement/prospectus/information statement;

4. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to elect for Neothetics not to be governed by or subject to Section 203 of the DGCL in the form attached as Annex D to this proxy statement/prospectus/information statement;

5. To approve the issuance of Neothetics common stock in the Financing pursuant to the Securities Purchase Agreement, a copy of which is attached as Annex E to this proxy statement/prospectus/information statement;

6. To consider and vote upon a proposal to approve, on a non-binding advisory vote basis, compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger;

7. To consider and vote upon an adjournment of the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5, 6 and 7; and

8. To transact such other business as may properly come before the Neothetics special meeting or any adjournment or postponement thereof.

Recommendation of the Neothetics Board

The Neothetics Board has determined and believes that the merger and the issuance of shares of Neothetics common stock pursuant to the merger is in the best interests of Neothetics and its stockholders and has approved such items. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 1 to approve the Merger Agreement, the merger and the issuance of shares of Neothetics common stock in the merger.

 

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The Neothetics Board has determined and believes that it is advisable to, and in the best interests of, Neothetics and its stockholders to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the proposed Reverse Stock Split, as described in this proxy statement/prospectus/information statement. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 2 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the proposed Reverse Stock Split, as described in this proxy statement/prospectus/information statement.

The Neothetics Board has determined and believes that the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name of Neothetics to “Evofem Biosciences, Inc.” is advisable to, and in the best interests of, Neothetics and its stockholders and has approved such name change. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 3 to approve the name change.

The Neothetics Board has determined and believes that the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to elect for Neothetics not to be governed by or subject to Section 203 of the DGCL is advisable to, and in the best interests of, Neothetics and its stockholders and has approved the same. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 4 to elect for Neothetics as the post-merger combined entity not to be governed by or subject to Section 203 of the DGCL.

The Neothetics Board has determined and believes that the Securities Purchase Agreement and the issuance of Neothetics common stock under the Securities Purchase Agreement is in the best interests of Neothetics and its stockholders, and has approved such items. The Neothetics Board recommends the Neothetics stockholders vote “FOR” Neothetics Proposal No. 5 to approve the issuance of Neothetics common stock under the Securities Purchase Agreement.

The Neothetics Board has determined and believes that the compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger is appropriate, and accordingly recommends that the Neothetics stockholders vote “FOR” Neothetics Proposal No. 6 to approve, on a non-binding advisory vote basis, such compensation.

The Neothetics Board has determined and believes that adjourning the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6 is advisable to, and in the best interests of, Neothetics and its stockholders and has approved and adopted the proposal. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 7 to adjourn the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6.

Record Date and Voting Power

Only holders of record of Neothetics common stock at the close of business on the record date, [●], are entitled to notice of, and to vote at, the Neothetics special meeting. At the close of business on the record date, [●] shares of Neothetics common stock were issued and outstanding. Each share of Neothetics common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See the section entitled “ Principal Stockholders of Neothetics ” beginning on page 232 of this proxy statement/prospectus/information statement for information regarding persons known to the management of Neothetics to be the beneficial owners of more than five percent of the outstanding shares of Neothetics common stock.

Voting and Revocation of Proxies

The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of the Neothetics Board for use at the Neothetics special meeting.

 

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If you are a stockholder of record of Neothetics as of the record date referred to above, you may vote in person at the Neothetics special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the Neothetics special meeting, Neothetics urges you to vote by proxy to ensure your vote is counted. You may still attend the Neothetics special meeting and vote in person if you have already voted by proxy. As a stockholder of record, you have the right:

 

    to vote in person. Come to the Neothetics special meeting and Neothetics will give you a ballot when you arrive.

 

    to vote using the proxy card. Simply mark, sign and date your proxy card and return it promptly in the postage-paid envelope provided. If you return your signed proxy card to Neothetics before the Neothetics special meeting, Neothetics will vote your shares as you direct.

 

    to vote on the Internet. Go to the website on the proxy card or voting instruction form to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card. Your vote must be received by [●], 2017, Pacific Time to be counted.

If your Neothetics shares are held by your broker as your nominee, that is, in “street name,” the enclosed voting instruction card is sent by the institution that holds your shares. Please follow the instructions included on that proxy card regarding how to instruct your broker to vote your Neothetics shares. If you do not give instructions to your broker, your broker can vote your Neothetics shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of The NASDAQ Stock Market on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the Neothetics shares will be treated as broker non-votes. It is anticipated that Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6 will be non-discretionary items.

All properly executed proxies that are not revoked will be voted at the Neothetics special meeting and at any adjournments or postponements of the Neothetics special meeting in accordance with the instructions contained in the proxy. If a holder of Neothetics common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted “FOR” Neothetics Proposal No. 1 to approve the Merger Agreement, the merger and the issuance of shares of Neothetics common stock in the merger; “FOR” Neothetics Proposal No. 2 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the proposed Reverse Stock Split; “FOR” Neothetics Proposal No. 3 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name of “Neothetics, Inc.” to “Evofem Biosciences, Inc.”; “FOR” Neothetics Proposal No. 4 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to elect for Neothetics not to be governed by or subject to Section 203 of the DGCL; “FOR” Neothetics Proposal No. 5 to approve the issuance of Neothetics common stock pursuant to the Securities Purchase Agreement; “FOR” Neothetics Proposal No. 6 to approve, on a non-binding advisory vote basis, compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger; and “FOR” Neothetics Proposal No. 7 to adjourn the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6 in accordance with the recommendation of the Neothetics Board.

Neothetics stockholders of record may change their vote at any time before their proxy is voted at the Neothetics special meeting in one of three ways. First, a stockholder of record of Neothetics can send a written notice to the Secretary of Neothetics stating that the stockholder would like to revoke its proxy. Second, a stockholder of record of Neothetics can submit new proxy instructions either on a new proxy card or via the Internet or telephone. Third, a stockholder of record of Neothetics can attend the Neothetics special meeting and vote in person. Attendance alone will not revoke a proxy. If a Neothetics stockholder of record or a stockholder who owns Neothetics shares in “street name” has instructed a broker to vote its shares of Neothetics common stock, the stockholder must follow directions received from its broker to change those instructions.

 

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Required Vote

The presence, in person or represented by proxy, at the Neothetics special meeting of the holders of a majority of the shares of Neothetics common stock outstanding and entitled to vote at the Neothetics special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. Approval of Neothetics Proposal Nos. 1, 5, 6 and 7 requires the affirmative vote of the holders of a majority of the shares of Neothetics common stock having voting power present in person or represented by proxy at the Neothetics special meeting. Approval of Neothetics Proposal Nos. 2, 3 and 4 requires the affirmative vote of holders of a majority of the Neothetics common stock having voting power outstanding on the record date for the Neothetics special meeting. Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total for each proposal and will have the same effect as “AGAINST” votes. Broker non-votes will have the same effect as “AGAINST” votes for Neothetics Proposal Nos. 2, 3 and 4. For Neothetics Proposal Nos. 1, 5, 6 and 7, broker non-votes will have no effect and will not be counted towards the vote total, but will be used to determine whether a quorum is present at the Neothetics special meeting.

As of October 20, 2017, the directors and executive officers of Neothetics owned approximately 42% of the outstanding shares of Neothetics common stock entitled to vote at the Neothetics special meeting. As of October 20, 2017, Neothetics is not aware of any affiliate of Evofem owning any shares of Neothetics common stock entitled to vote at the Neothetics special meeting.

Solicitation of Proxies

In addition to solicitation by mail, the directors, officers, employees and agents of Neothetics may solicit proxies from Neothetics stockholders by personal interview, telephone, telegram or otherwise. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Neothetics common stock for the forwarding of solicitation materials to the beneficial owners of Neothetics common stock. Neothetics will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Neothetics has retained Philadelphia Stock Transfer to assist it in soliciting proxies using the means referred to above. Neothetics will pay the fees of Philadelphia Stock Transfer, which Neothetics expects to be approximately $10,000, plus reimbursement of out-of-pocket expenses.

Other Matters

As of the date of this proxy statement/prospectus/information statement, the Neothetics Board does not know of any business to be presented at the Neothetics special meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the Neothetics special meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.

 

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THE MERGER

This section and the section entitled “The Merger Agreement” beginning on page 108 of this proxy statement/prospectus/information statement describe the material aspects of the merger, including the Merger Agreement. While Neothetics and Evofem believe that this description covers the material terms of the merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the merger and the Merger Agreement, including the Merger Agreement itself which is attached as Annex A to this proxy statement/prospectus/information statement, and the other documents to which you are referred herein. See the section entitled “Where You Can Find More Information” beginning on page 240 of this proxy statement/prospectus/information statement.

Background of the Merger

The terms of the Merger Agreement between Neothetics and Evofem Biosciences (together, “the companies”) and the contractual arrangements related to the Financing, are the result of extensive arm’s-length negotiations among the management teams, and representatives of the management teams, of Neothetics and Evofem, under the guidance of each company’s board of directors, and involving outside advisors retained by each of the companies. From the beginning of the process, Neothetics followed a careful process assisted by experienced outside financial and legal advisors to rigorously examine potential merger partners in a broad and inclusive manner. Throughout the process, the Neothetics Board took affirmative steps to deal with potential conflicts of interest by establishing the Strategic Committee, comprised of two independent directors of Neothetics. Additionally, the Neothetics directors who had potential conflicting interests with respect to certain potential candidates disclosed their interests to the Neothetics Board, recused themselves from meetings, refrained from participating directly in price negotiations with potential candidates with whom they had some affiliation, and left discussions and decisions regarding the strategic process to our Strategic Committee, whose members had no such affiliation. The following is a summary of the background of the process, the negotiations, the merger, the Financing, and related transactions, including the circumstances surrounding Neothetics’ decision to review strategic alternatives available to it.

On June 24, 2017, the Operating Committee of the Neothetics Board, members of senior management and representatives of Neothetics’ outside legal counsel, DLA Piper LLP (US), or DLA, met to review and discuss the results from its Phase 2 proof-of-concept trial, LIPO-202-CL-31, for the reduction of submental subcutaneous fat. The study did not demonstrate improvement on any efficacy measurements or separation from placebo.

On June 26, 2017, Neothetics announced that the top-line safety and efficacy results from its Phase 2 proof-of-concept trial, LIPO-202-CL-31, for the reduction of submental subcutaneous fat, did not demonstrate improvement on any efficacy measurements or separation from placebo.

On June 26 and 27, 2017, at the request of several members of the Neothetics Board, Ms. Knudson met informally with several investment banks regarding their potential engagement as a financial advisor to Neothetics for a potential strategic process.

On June 29, 2017, the Neothetics Board, Ms. Knudson and representatives of DLA met with representatives of Oppenheimer to discuss Oppenheimer’s qualifications, capability and experience as a financial advisor.

On June 30, 2017, the Neothetics Board, Ms. Knudson and representatives of DLA met with representatives of H.C. Wainwright and Co., to discuss their qualifications, capability and experience as a financial advisor. After a representative from DLA described the Neothetics Board’s fiduciary duties in connection with an evaluation of strategic alternatives, the Neothetics Board discussed Neothetics’ strategic options. Based upon the results of the Phase 2 proof-of-concept trial, the Neothetics Board concluded a strategy to move forward with its current

 

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development candidates was not feasible, and the Neothetics Board and members of senior management discussed strategic alternatives as well as the potential engagement of an investment bank to serve as a financial advisor to the company. Following the meeting with H.C. Wainwright and Co., the Neothetics Board directed management to negotiate an engagement agreement with Oppenheimer to serve as the exclusive financial advisor for a potential strategic transaction.

On July 10, 2017, Neothetics executed an engagement agreement with Oppenheimer to serve as the exclusive financial advisor to the Strategic Committee. Also on July 10, 2017, Neothetics announced the initiation of a process to explore and review a range of strategic alternatives focusing on seeking an acquisition, business combination or partnership and that Neothetics had engaged Oppenheimer, to act as the exclusive financial advisor to the Strategic Committee for this process. Neothetics also announced a reduction in workforce and operational changes to decrease cash expenditures.

On July 11, 2017, the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer, met to review and discuss materials prepared by Oppenheimer. Representatives of Oppenheimer presented to the Neothetics Board the anticipated process, initial potential candidates, and the proposed transaction timeline, and an extensive discussion ensued, including substantial discussion regarding the process timeline. Representatives of Oppenheimer noted that a number of additional parties would likely initiate inquiries following the Neothetics press release on July 10, 2017. Beginning on July 11, 2017, inbound emails and calls were received by Neothetics and Oppenheimer by additional interested parties. Neothetics directed any and all inquiries to representatives of Oppenheimer. By August 1, 2017, Oppenheimer had identified or received unsolicited contact from a total of 36 companies. Representatives of Oppenheimer, Ms. Knudson and representatives of DLA prepared, delivered and executed nondisclosure agreements with many of the interested parties. During the period from July 11, 2017 to August 1, 2017, representatives of Oppenheimer and Ms. Knudson conducted initial diligence on certain of the interested companies, focusing on product pipeline, market opportunity, management team, capitalization, and overall ability to proceed with a potential business combination within the contemplated timeframe.

On July 18, 2017, several members of the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer met informally to discuss the screening process, as well as anticipated timing of the solicitation of bids. A total of 29 potential partners were presented and discussed, 26 of which had been contacted by representatives of Oppenheimer, including the exchange of seven nondisclosure agreements, two of which had been executed. The purpose of this screening was to rank the companies categorically. The companies were ranked in categories A, B and C with A being the potential strongest contenders and C being the weakest, with six companies included in “Category A.” After a representative from DLA described the Neothetics Board’s fiduciary duties in connection with a strategic process, the members of the Neothetics Board present at the meeting reviewed the diligence process, including the number of companies identified independently, the number of companies considered following an unsolicited indication of interest, the criteria utilized in the evaluation and the resulting categorical determinations. Following a discussion with representatives of Oppenheimer on the process and resulting categorical determination, the members of the Neothetics Board present at the meeting directed Oppenheimer to initiate the bid process solicitation for all companies under consideration.

Between July 18, 2017 and July 25, 2017, representatives of Oppenheimer contacted representatives of Evofem and Parties A, B, C, D and E, the companies included in “Category A” to conduct further discussions and deliver initial bid process letters. In addition, representatives of Oppenheimer contacted 27 additional companies, including the companies included in Categories B and C as well as seven new companies. In connection with outreach and in response to the discussion with the contacted companies, Oppenheimer delivered and had executed 20 nondisclosure agreements with parties continuing to express interest. Following execution of the nondisclosure agreements, Oppenheimer delivered to the 20 interested parties initial bid process letters requesting companies to submit their bids by August 1, 2017. On July 25, 2017, the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer, met to discuss the outreach process, including the parties contacted, timelines and overall progress. A total of 7 interested parties were included as

 

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“Category A” candidates. Following the meeting, Oppenheimer, in consultation with Ms. Knudson, continued its outreach to the identified companies. In addition, Oppenheimer contacted three additional candidates, each of whom executed a nondisclosure agreement and were subsequently provided with an initial bid process letter and instructions to provide their bids by August 1, 2017.

On August 1, 2017, the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer met to discuss the solicitation of bids and continuing outreach process. Representatives of Oppenheimer provided an overview of the 36 identified companies, including a detailed discussion of the three new companies to the process since the meeting on July 25, 2017. Representatives of Oppenheimer discussed their outreach process to the Neothetics Board, including an overview of the 23 companies continuing to express interest, each of whom executed a nondisclosure agreement following which initial bid process letters were delivered. Representatives of Oppenheimer informed the Neothetics Board that initial indications of interest had been received from 13 of the parties and that 14 parties had either declined to submit a bid, not yet responded to the initial bid process letter or not responded to the request for a nondisclosure agreement. Representatives of Oppenheimer discussed with the Neothetics Board the evaluation criteria utilized, previously outlined at the July 25, 2017 meeting, the bid process and initial discussions with the candidates, and evaluated the bids currently submitted. Following the discussion, representatives of Oppenheimer presented five companies considered as “Category A” candidates, each of whom had submitted initial bids for consideration. After a representative from DLA described the Neothetics Board’s fiduciary duties in connection with a strategic process, the Neothetics Board reviewed the companies and bids in detail in order to evaluate which bids might provide Neothetics stockholders the best value. Following the discussion, the Neothetics Board determined to proceed with negotiations with the “Category A” companies. The Neothetics Board directed members of senior management and Neothetics outside product development consultants to perform additional due diligence on the “Category A” companies, referred to herein as Evofem, Companies A, B, C and D, and arrange for introductory diligence calls involving the Neothetics Board and representatives of the respective companies.

On August 2, 2017, members of senior management and its development consultants conducted additional due diligence on Evofem and Companies A, B, C and D. On August 2, 2017, the Neothetics Board, members of senior management, Neothetics’ outside development consultants, representatives of DLA and representatives of Oppenheimer, held an initial diligence call with each of Evofem and Company B, at which the respective companies presented to the Neothetics Board an overview of their product pipeline, stage of clinical development, management team and capitalization.

On August 3, 2017, the Neothetics Board, members of senior management, Neothetics’ outside development consultants, representatives of DLA and representatives of Oppenheimer, held an initial diligence call with each of Companies A and C, at which the respective companies presented to the Neothetics Board an overview of their product pipeline, stage of clinical development, management team and capitalization.

On August 4, 2017, Ms. Knudson met with the chief executive officer and chief financial officer of Company B to further discuss Company B’s development pipeline, management team, near term value inflection milestones and overall capitalization.

On August 7, 2017, Ms. Knudson contacted the chief executive officer of Company A to further discuss Company A’s development pipeline, management team, near term value inflection milestones and overall capitalization.

On August 8, 2017, the Neothetics Board, members of senior management, Neothetics’ outside development consultants, representatives of DLA and representatives of Oppenheimer, held an initial diligence call with Company D, at which Company D presented to the Neothetics Board an overview of its product pipeline, stage of clinical development, management team and capitalization.

 

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On August 11, 2017, Ms. Knudson contacted the chief financial officer of Company D to further discuss the company’s development pipeline, management team, near term value inflection milestones and overall capitalization.

On August 11, 2017, the Neothetics Board, members of senior management, representatives of DLA and representatives of Oppenheimer held a telephonic meeting of the Neothetics Board to review the diligence process. A representative from DLA described the Neothetics Board’s fiduciary duties in connection with a strategic process and recommend that, in light of the potential conflicts of interest for certain members of the Neothetics Board with respect to Companies A and D under consideration, the Neothetics Board should establish a strategic transaction committee consisting solely of directors with no potential conflicts of interest in respect of the current targets. Following a discussion, the Neothetics Board approved the establishment of the Strategic Committee. The Neothetics Board, following a separate discussion of the Strategic Committee, and in light of the bids received, determined to continue discussions with each of the five companies under consideration.

On August 14, 2017, Oppenheimer delivered the final bid process letter together with a draft merger agreement to Companies A, B, and D.

On August 17, 2017, the Strategic Committee, members of senior management, representatives of DLA, and representatives of Oppenheimer, held an additional diligence call with Company B during which representatives of Company B presented a detailed overview of the company including pipeline, development data, milestones, management team, board of directors, cash position, operating expenses and current financing plans.

On August 24, 2017, the Strategic Committee, members of senior management, its outside development consultants, representatives of DLA and representatives of Oppenheimer, held an additional diligence call with representatives of Company A. Representatives of Company A’s team presented a detailed overview of the company including pipeline, development data, milestones, management team, board of directors, cash position, runway and near term financing plans. Neothetics participants asked many questions during the call.

On August 25, 2017, the Strategic Committee, members of senior management, its outside development consultants, representatives of DLA and representatives of Oppenheimer, held a diligence call with Company D. Company D’s team presented a detailed overview of the company including pipeline, development data, milestones, management team, board of directors, cash position, runway and near term financing plans. Following the presentation, the Strategic Committee, Ms. Knudson and representatives of DLA met to discuss the companies under consideration. After a representative from DLA described the Strategic Committee’s fiduciary duties in connection with evaluating the various indications of interest, the Strategic Committee evaluated the companies under consideration based upon the bids received and diligence completed and discussed which companies currently presented the best value to Neothetics stockholders in a business combination transaction and determined that, at the present time, a business combination with Company A on the terms included in its submitted bid presented the best value to Neothetics stockholders. The Strategic Committee determined to proceed with negotiations with Company A while continuing diligence and discussions with Companies B and D. The Strategic Committee directed Oppenheimer to contact Company A in order to notify Company A that is was currently the lead candidate Neothetics would move forward in the process. As well, Ms. Knudson was to follow up with Company A after confirmation from Oppenheimer of being contacted.

On August 25, 2017, representatives of Oppenheimer contacted Company A to inform Company A of the Neothetics Board determination and discuss the terms of a business combination. Ms. Knudson subsequently contacted the chief executive officer of Company A to discuss the process and timeline to negotiate and execute a definitive merger agreement, including negotiation of the related documents, additional diligence items and other actions necessary to enter into the definitive agreement. During this discussion the chief executive officer of Company A informed Ms. Knudson that he was conferring with management and his board of directors regarding Company A’s proposed financing plan which would be completed in connection with the transaction and would contact Ms. Knudson on August 28, 2017 following his internal discussion. Ms. Knudson promptly informed the Neothetics Board of the result of the conversation.

 

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On August 28, 2017, the chief executive officer of Company A called Ms. Knudson to discuss Company A’s financing options in connection with a proposed business combination, including Company A’s concerns about its ability to secure adequate financing to support the company through its near-term value inflection points. The chief executive officer of Company A discussed that management and the board of directors of Company A had significant doubts as to whether Company A’s involvement in a potential business combination would be viable at this time and agreed to inform Ms. Knudson of Company A’s decision by August 30, 2017. Ms. Knudson promptly informed the Neothetics Board of the conversation.

On August 30, 2017, the chief executive officer of Company A contacted Ms. Knudson to inform her that Company A had determined not to continue with a potential business combination. Following the conversation, on August 30, 2017, Ms. Knudson contacted the Neothetics Board, including the Strategic Committee, representatives of DLA and representatives of Oppenheimer, to discuss Company A’s decision to remove themselves from consideration. Ms. Knudson and representatives of Oppenheimer led a discussion considering the other candidates for a potential combination, including a recommendation to reengage Evofem and to continue to engage Companies B and D. After a representative from DLA described the Neothetics Board’s fiduciary duties in connection with a strategic process, the Strategic Committee instructed Ms. Knudson and Oppenheimer to submit final bid process letters to Evofem.

On August 31, 2017, Oppenheimer delivered the final bid process letter together with a draft merger agreement to Evofem. Ms. Knudson contacted Saundra Pelletier, chief executive officer of Evofem, and Ms. Pelletier confirmed Evofem remained interested in pursuing a business combination. Ms. Knudson asked that Evofem submit to Oppenheimer an improved bid for consideration. The Strategic Committee also instructed Ms. Knudson and representatives of Oppenheimer to request Companies B and D improve their previously submitted indications of interest.

On September 1, 2017, Company B submitted a revised bid to representatives of Oppenheimer. Representatives of Oppenheimer informed Ms. Knudson of the terms of the revised bid who promptly informed the Neothetics Board. Also on September 1, 2017, Company D informed Oppenheimer that Company D’s prior bid was their best and final offer.

On September 5, 2017, the Strategic Committee, the other members of the Neothetics Board, members of senior management, its development consultants, representatives of DLA and representatives of Oppenheimer, held an additional diligence session with Evofem. Representatives of Evofem presented a detailed overview of the company including pipeline, development data, milestones, management team, board of directors, cash position, operating expenses and near term financing plans. Following the diligence session, representatives of RBC Capital, financial advisor to Evofem, submitted a revised bid as well as a detailed response to the draft merger agreement.

On September 8, 2017, the Strategic Committee, Ms. Knudson, representatives of DLA and representatives of Oppenheimer, met informally to review the bids from Evofem and Companies B and D as well as review the detailed information of each candidate. The Strategic Committee instructed Oppenheimer and Ms. Knudson to request from each of the companies additional diligence information, including current cash positions, financing plans both in connection with a business combination and following any such combination in order to fund ongoing clinical development, and the impact of any such financing plans on the proposed ownership percentages described in the companies’ respective bids. Following the meeting, representatives of Oppenheimer and Ms. Knudson contacted each of the companies for the requested information. In addition, on September 7, 2017, DLA provided comments to the draft merger agreement to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., or Mintz, counsel to Evofem.

On September 10, 2017, the Strategic Committee, the other members of the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer held a telephonic meeting to review each of the companies after evaluating the impact of the intended financing options in connection with business combination

 

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and determine if there was sufficient data to support moving forward with a company as the lead contender in the process. A representative from DLA described the Strategic Committee’s fiduciary duties in connection with evaluating the various indications of interest and the comments received to the draft merger agreement from the various parties submitting bids. The Strategic Committee determined to proceed in negotiations with Evofem. Following the meeting, on September 10, 2017, representatives of Oppenheimer contacted Companies B and D to notify each company that they would not be moving forward in the process at this time.

On September 12, 2017, the Neothetics Board, Ms. Knudson and representatives of DLA met to discuss general company business. At the meeting, Ms. Knudson and representatives of DLA also provided the Neothetics Board a brief update on actions, process and timeline to finalize a definitive merger agreement. Also on September 12, 2017, Mintz provided additional comments to the draft merger agreement to DLA.

On September 13, 2017, Ms. Knudson, representatives from DLA, members of Evofem’s senior management, including Ms. Pelletier and Justin J. File, the chief financial officer of Evofem, and representatives of Mintz met to review the process, documentation and timelines to reach a definitive merger agreement. The parties also discussed the comments on the draft merger agreement provided by Mintz on September 12, 2017. The parties discussed Evofem’s current capitalization structure, including the impact of certain outstanding warrants on the post-merger ownership percentages of the combined company.

From September 13, 2017 until the execution of the definitive merger agreement on October 17, 2017, the companies and their respective advisors exchanged numerous drafts of the Merger Agreement and numerous messages and calls regarding due diligence matters and engaged in negotiations and discussions regarding the terms and conditions of the Merger Agreement. Significant areas of negotiation included the treatment of Neothetics’ and Evofem’s outstanding equity instruments, the post-closing capitalization of the combined company, including the amended and restated warrant, the terms of the Financing, the definition of the common stock exchange ratio and preferred stock exchange ratio, and the amount and triggers for the possible reimbursement of expenses and the payment of termination fees. Also during this time, Ms. Knudson and Ms. Pelletier had a series of meetings to negotiate the treatment of certain Evofem warrants in the merger.

On September 23, 2017, the Neothetics Board held a telephonic meeting with Ms. Knudson and representatives of DLA present. The Neothetics Board discussed, among other things, the progress of negotiations with Evofem, open issues and the potential timeline to execution of a definitive agreement. The Neothetics Board also discussed strategic alternatives in the event that a definitive agreement was unable to be reached on acceptable terms within the contemplated timeline.

On October 3, 2017, several members of the Neothetics Board, Ms. Knudson and representatives of DLA held an informal telephonic conference during which the parties discussed the progress of negotiations with Evofem, open issues and the potential timeline to execution of a definitive agreement.

On October 12, 2017, representatives of Neothetics, DLA, Evofem and Mintz met to discuss the remaining open items in the Merger Agreement. Following the meeting, the Merger Agreement was submitted to the Evofem Board and the Strategic Committee for review and approval.

On October 16, 2017, the Strategic Committee, the other members of the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer met to discuss the proposed merger agreement terms and related documents. At this meeting, representatives of Oppenheimer reviewed with the Neothetics Board and the Strategic Committee its financial analyses of the fairness, from a financial point of view, to Neothetics of the merger consideration to be paid by Neothetics in the merger and delivered to the Strategic Committee its oral opinion, to the effect that and subject to the various assumptions, qualifications and limitations set forth in its opinion, as of that date, the merger consideration to be paid by Neothetics in the merger was fair, from a financial point of view, to Neothetics. Also, at this meeting, representatives of DLA reviewed the terms of the proposed merger agreement and other transaction agreements, including conditions to closing, termination rights and any

 

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fees associated with terminations under circumstances, and Neothetics’ limited right to continue negotiations with other interested parties. After a representative from DLA described the Strategic Committee’s fiduciary duties, the Strategic Committee discussed the transaction, including Evofem’s business and the proposed terms of the merger agreement and Financing. The Strategic Committee unanimously voted to approve the Merger Agreement, the merger, the issuance of shares of Neothetics common stock to Neothetics stockholders pursuant to the terms of the Merger Agreement and the Financing, the change of control of Neothetics, and the other actions contemplated by the Merger Agreement.

On October 17, 2017, each of Evofem, Neothetics, and Merger Sub executed and delivered the merger agreement, effective as of October 17, 2017. Later on October 17, 2017, Evofem and Neothetics issued a joint press release announcing the execution of the merger agreement and the proposed transaction.

Neothetics Reasons for the Merger

The Strategic Committee considered the following factors in reaching its conclusion to approve and adopt the Merger Agreement and the transactions contemplated thereby and to recommend that the Neothetics stockholders approve the merger, adopt the Merger Agreement and approve the other transactions contemplated by the Merger Agreement, including the issuance of shares of Neothetics common stock in the merger, all of which the Strategic Committee viewed as supporting its decision to approve the business combination with Evofem:

 

    The Strategic Committee believes, based in part on the judgment, advice and analysis of Neothetics management with respect to the potential strategic, financial and operational benefits of the merger (which judgment, advice and analysis was informed in part on the business, technical, financial, accounting and legal due diligence investigation performed with respect to Evofem), that:

 

    the combined organization will be a clinical-stage women’s healthcare company that develops and commercializes novel products;

 

    Evofem has an ongoing Phase III study of Amphora as a vaginal contraceptive — AMPOWER;

 

    the combined organization will be led by experienced senior management from Evofem and a board of directors of six members designated by Evofem and one member designated by Neothetics;

 

    Evofem has delivered support agreements from certain of its stockholders, representing approximately 68% of Evofem’s outstanding capital stock on an as converted basis, in which each such individual or entity has agreed to vote in favor of the Merger Agreement and the related transactions; and

 

    the combined company’s ability to continue listing on The NASDAQ Capital Market.

 

    The Strategic Committee also reviewed with the management of Neothetics the current plans of Evofem for developing its product candidates to confirm the likelihood that the combined organization would possess sufficient financial resources to allow the management team to focus initially on the continued development of its product candidates. The Strategic Committee also considered the possibility that the combined organization would be able to take advantage of the potential benefits resulting from the combination of Neothetics and Evofem to raise additional funds in the future.

 

    The Strategic Committee considered the opportunity as a result of the merger for Neothetics stockholders to participate in the potential value that may result from development of the Evofem product candidate portfolio and the potential increase in value of the combined organization following the merger.

 

    The Strategic Committee concluded that the merger would provide the existing Neothetics stockholders with a significant opportunity to participate in the potential increase in value of the combined organization following the merger.

 

   

The Strategic Committee considered the analyses of Oppenheimer, and its opinion to the Strategic Committee as to the fairness, from a financial point of view and as of the date of such opinion, to

 

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Neothetics of the merger consideration to be paid by Neothetics in the merger, as more fully described below under the caption “ The Merger — Opinion of Oppenheimer  & Co., Inc. as Neothetics’ Financial Advisor .”

 

    The Strategic Committee also reviewed various factors impacting the financial condition, results of operations and prospects for Neothetics, including:

 

    the strategic alternatives of Neothetics to the merger, including potential transactions that could have resulted from discussions that Neothetics’ management conducted with other potential merger partners;

 

    the consequences of the negative results from the LIPO-202 clinical trial, and the likelihood that the resulting circumstances for the company would not change for the benefit of the Neothetics stockholders in the foreseeable future on a stand-alone basis;

 

    the risks associated with, and the uncertain value, timing and costs to stockholders of, liquidating Neothetics or effecting a sale of all or some of its assets and thereafter distributing the proceeds;

 

    the risks of continuing to operate Neothetics on a stand-alone basis, including Neothetics’ current financial situation, the need to rebuild the company’s product candidate development programs, infrastructure and management to continue its operations; and

 

    the risks associated with Neothetics’ inability to maintain its listing on The NASDAQ Capital Market without completing the merger.

The Strategic Committee also reviewed the terms and conditions of the proposed Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks, including:

 

    the fact that immediately following the consummation of the merger and completion of the Financing, Evofem stockholders will own approximately 87% of the issued and outstanding common stock of Neothetics, with Neothetics stockholders whose shares of Neothetics stock will remain outstanding after the merger, holding approximately 13% of the issued and outstanding common stock of Neothetics;

 

    the final exchange ratio used to establish the number of shares of Neothetics common stock to be issued in the merger is based upon Neothetics’ capitalization numbers immediately prior to the consummation of the merger; however, the estimated exchange ratios contained in this proxy statement/prospectus/information statement are based upon Neothetics’ capitalization numbers immediately prior to the date of this proxy statement/prospectus/information statement, and will be adjusted to account for the issuance of any additional shares of Neothetics common stock prior to the consummation of the merger;

 

    the limited number and nature of the conditions to the Evofem obligation to consummate the merger, including the absence of any financing contingency, and the limited risk of non-satisfaction of such conditions as well as the likelihood that the merger will be consummated on a timely basis;

 

    the respective rights of, and limitations on, Neothetics and Evofem under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances should Neothetics or Evofem receive a superior proposal;

 

    the reasonableness of the potential termination fee payable by Neothetics under certain circumstances of $1.5 million or the reasonableness of the potential termination fee payable by Evofem under certain circumstances of $1.5 million;

 

    the Support Agreements, pursuant to which certain stockholders of Evofem agreed to vote all of their shares of Evofem capital stock in favor of adoption of the Merger Agreement; and

 

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    the belief that the terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

In the course of its deliberations, the Strategic Committee also considered a variety of risks and other countervailing factors related to entering into the merger, including:

 

    the $1.5 million termination fee that may be payable to Evofem upon the occurrence of certain events, and the potential effect of such termination fee or reimbursement of transaction expenses in deterring other potential acquirers from proposing an alternative transaction that may be more advantageous to Neothetics stockholders;

 

    the substantial expenses to be incurred in connection with the merger;

 

    the possible volatility, at least in the short term, of the trading price of the Neothetics common stock resulting from the merger announcement;

 

    the risk that the merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the merger or on the delay or failure to complete the merger on the reputation of Neothetics;

 

    the risk to Neothetics’ business, operations and financial results in the event that the merger is not consummated;

 

    the strategic direction of the continuing entity following the completion of the merger, which will be determined by a board of directors, a majority of which will initially designated entirely by Evofem;

 

    the fact that the merger would give rise to substantial limitations on the utilization of Neothetics’ NOLs; and

 

    various other risks associated with the combined organization and the merger, including those described in the section entitled “ Risk Factors ” beginning on page 23 of this proxy statement/prospectus/information statement.

The foregoing information and factors considered by the Strategic Committee are not intended to be exhaustive but are believed to include all of the material factors considered by the Strategic Committee . In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the Strategic Committee did not find it useful to attempt, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the Strategic Committee may have given different weight to different factors. The Strategic Committee conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the Neothetics management team and the legal and financial advisors of Neothetics, and considered the factors overall to be favorable to, and to support, its determination.

Evofem Reasons for the Merger

The following discussion sets forth material factors considered by the Evofem Board in reaching its determination to authorize the Merger Agreement and approve the merger; however, it may not include all of the factors considered by the Evofem Board. In light of the number and wide variety of factors considered in connection with its evaluation of the Merger Agreement and the merger, the Evofem Board did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its determination. The Evofem Board viewed its position and determinations as being based on all of the information available and the factors presented to and considered by it.

 

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In the course of reaching its decision to approve the merger, the Evofem Board consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others:

 

    the Evofem Board’s belief, after reviewing the various alternative transactions that were considered by the Evofem Board and the likelihood of achieving any of these alternative transactions, that currently no alternatives to the merger were reasonably likely to create greater value for Evofem’s stockholders than the merger;

 

    the expectation that the merger and the concurrent Financing would be a more time and cost effective means to access capital than other alternatives considered, including an initial public offering of Evofem’s common stock and additional financings of Evofem as a non-publicly traded entity;

 

    the potential for access to public capital markets following the merger, including sources of capital from a broader range of investors to support the clinical development of Evofem’s product candidate than it could otherwise obtain if it continued to operate as a privately-held company;

 

    historical and current information concerning Evofem’s business, including its financial performance and condition, operations, ongoing clinical trial efforts for its current product candidate, management and prospective competitive position;

 

    the cash resources of the combined company expected to be available at the closing of the merger relative to the anticipated burn rate of the combined company;

 

    the potential to provide Evofem’s current stockholders with greater liquidity by owning stock in a public company;

 

    the fact that the shares of Neothetics common stock issued to Evofem stockholders will be registered pursuant to a registration statement on Form S-4 by Neothetics and will become freely tradable for Evofem’s stockholders who are not affiliates of Evofem and who are not party to the Lock-Up Agreements;

 

    the ability to obtain a NASDAQ listing and the fact that Neothetics will change its name to “Evofem Biosciences, Inc.” upon the closing of the merger;

 

    the competitive market conditions private companies currently face when seeking exchange traded merger or business combination partners;

 

    the belief, after conducting due diligence, that Neothetics had comparatively fewer and less significant ongoing obligations and material liabilities when compared to other potential exchange traded merger and business combination partners;

 

    the likelihood that the merger will be consummated on a timely basis; and

 

    the terms and conditions of the Merger Agreement, including, without limitation, the following:

 

    the determination by the Evofem Board that an exchange ratio that is not subject to adjustment based on trading prices or on Neothetics’ closing cash balance is appropriate to determine relative percentage ownership of Neothetics’ and Evofem’s security holders immediately following the merger;

 

    the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that the Evofem stockholders will not generally recognize taxable gain or loss for U.S. federal income tax purposes upon the exchange of Evofem capital stock for Neothetics common stock pursuant to the merger;

 

    the Support Agreements, pursuant to which certain stockholders of Evofem, have agreed, solely in their capacity as stockholders of Evofem, to vote all of their shares of Evofem capital stock in favor of the adoption or approval, respectively, of the Merger Agreement and the transactions contemplated by the Merger Agreement;

 

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    the conclusion of the Evofem Board that the potential termination fee of $1.5 million, or in some situations the reimbursement of certain transaction expenses incurred in connection with the transactions contemplated by the Merger Agreement of up to $250,000, payable by Neothetics to Evofem, and the circumstances when such fees may be payable, were reasonable; and

 

    the belief that the other terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations in these agreements, were reasonable in light of the entire transaction.

The Evofem Board also considered a number of uncertainties and risks in its deliberations concerning the merger and the other transactions contemplated by the Merger Agreement, including the following:

 

    the possibility that the merger might not be completed and the potential adverse effect of the public announcement of the merger on the reputation of Evofem and the ability of Evofem to obtain financing in the future in the event the merger is not completed;

 

    the risk that the merger might not be consummated in a timely manner or at all;

 

    the substantial expenses to be incurred in connection with the merger;

 

    the fact that the representations and warranties in the Merger Agreement do not survive the closing of the merger and the potential risk of liabilities that may arise post-closing;

 

    the additional public company expenses and obligations that Evofem’s business will be subject to following the merger to which it has not previously been subject; and

 

    various other risks associated with the combined company and the merger, including the risks described in the section entitled “ Risk Factors ” beginning on page 23 of this proxy statement/prospectus/information statement.

The Evofem Board weighed the benefits, advantages and opportunities of a potential transaction against the uncertainties and risks described above, as well as the possible diversion of management attention for an extended period of time. After taking into account these and other factors, the Evofem Board approved and authorized the Merger Agreement and the transactions contemplated thereby, including the merger.

Interests of the Evofem Directors and Executive Officers in the Merger

In considering the recommendation of the Evofem Board with respect to adopting the Merger Agreement, Evofem stockholders should be aware that certain members of the board of directors and executive officers of Evofem have interests in the merger that may be different from, or in addition to, interests they may have as Evofem stockholders. The Evofem Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement, the merger and related transactions, and to recommend that the Evofem stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.

 

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Ownership Interests

Restricted Common Stock and Restricted Common Stock Unit Awards

Certain of Evofem’s executive officers and directors currently hold shares of Evofem unvested restricted common stock and restricted common stock unit awards as set forth below. In connection with the merger, and as an inducement for Neothetics to enter into the Merger Agreement, these executive officers have entered into agreements pursuant to which these shares of Evofem restricted common stock will be cancelled prior to and contingent upon the completion of the merger.

 

Name and Title   Shares of Evofem Restricted
Common Stock
    Restricted Evofem
Common Stock Units
 

Thomas Lynch, Chairman of the Board

    —         100,000  

Saundra Pelletier, Chief Executive Officer

    3,259,091       —    

Justin J. File, Chief Financial Officer

    1,400,000       —    

Kelly Culwell M.D., Chief Medical Officer

    50,000       —    

Russ Barrans, Chief Commercial Officer

    50,000       —    

Preferred Stock

Thomas Darden, a member of the Evofem Board, is the managing member of an Evofem stockholder, Brickhaven II, LLC. As of October 20, 2017, Brickhaven II, LLC held 8,179,897 shares of Evofem common stock and 707,557 shares of Evofem Series C Preferred Stock. Each share of Evofem Series C Preferred Stock will convert into one share of Evofem common stock immediately prior to the completion of the merger. See the section entitled “ Principal Stockholders of Evofem ” beginning on page 235 of this proxy statement/prospectus/information statement.

 

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Stock Options

Certain of Evofem’s directors and executive officers hold options to purchase shares of Evofem common stock, which, pursuant to the Merger Agreement, will be converted into options to purchase shares of Neothetics common stock. In connection with the conversion of the options, the number of shares subject to the options and the option exercise prices will be adjusted pursuant to the terms of the Merger Agreement. The number of shares subject to each option will be multiplied by the common stock exchange ratio, rounding any resulting fractional shares down to the nearest whole share, and the exercise price of each option will be divided by the common stock exchange ratio, rounding up to the nearest whole cent.

 

Optionholder Name    Grant Date      Expiration
Date
     Exercise
Price ($)
     Number of Shares
of Common
Stock Underlying
Option as of
October 20,
2017
     Number of Shares
Vested
as of
October 20,
2017
 

Saundra Pelletier

     6/3/2013        6/3/2023        2.05        261,784        261,784  
     9/28/2016        9/28/2026        1.19        430,000        235,000  
     9/28/2016        9/28/2026        1.19        320,000        140,000  
     9/28/2016        9/28/2026        1.19        420,000        125,000  
     9/28/2016        9/28/2026        1.19        80,000        —    
     9/28/2016        9/28/2026        1.19        389,404        389,404  

Justin J. File

     9/28/2016        9/28/2026        1.19        180,000        110,000  
     9/28/2016        9/28/2026        1.19        320,000        140,000  
     9/28/2016        9/28/2026        1.19        325,000        100,000  
     9/28/2016        9/28/2026        1.19        75,000        —    

Kelly Culwell, M.D.

     9/28/2016        9/28/2026        1.19        13,750        13,750  
     9/28/2016        9/28/2026        1.19        286,250        136,250  

Russ Barrans

     9/28/2016        9/28/2026        1.19        150,000        75,000  
     9/28/2016        9/28/2026        1.19        50,000        12,500  

David R. Friend, Ph.D.

     9/28/2016        9/28/2026        1.19        140,000        87,500  
     3/8/2017        3/8/2017        1.12        40,000        —    

Thomas Lynch

     10/13/2016        10/13/2026        1.19        150,000        150,000  

Natalie Douglas

     3/8/2017        3/8/2027        1.12        30,000        7,500  

Colin Rutherford

     3/8/2017        3/8/2027        1.12        30,000        7,500  

Simon Best

     3/8/2017        3/8/2027        1.12        30,000        7,500  

Thomas Darden II

     3/8/2017        3/8/2027        1.12        30,000        7,500  

Management Following the Merger

As described elsewhere in this proxy statement/prospectus/information statement, including in the section entitled “ Management Following the Merger ” beginning on page 188 of this proxy statement/prospectus/information statement, certain of Evofem’s directors and executive officers are expected to become directors and executive officers of the combined company upon the closing of the merger.

Indemnification and Insurance

Under the Merger Agreement, from and after the closing of the merger, Neothetics must fulfill and honor in all respects the obligations of Evofem and Neothetics existing prior to the date of the Merger Agreement to indemnify Evofem’s and Neothetics’ present and former directors and officers and their heirs, executors and assigns.

In accordance with the Merger Agreement, the certificate of incorporation and bylaws of Evofem, as the surviving corporation in the merger, shall contain provisions at least as favorable with respect to indemnification

 

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and elimination of liability for monetary damages as are presently set forth in the certificate of incorporation and bylaws of Evofem, and the provisions relating to the indemnification and elimination of liability for monetary damages set forth in the certificate of incorporation and bylaws of Evofem and Neothetics shall not be amended, repealed or otherwise modified for a period of six years’ time from the closing of the merger in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the closing of the merger, were officers, directors, employees or agents of Evofem or Neothetics.

The Merger Agreement also provides that Evofem will maintain “tail” director and officer liability insurance coverage on Evofem’s existing directors and officers for six years from the closing.

Limitations on Liability and Indemnification

In addition to the indemnification required in the Merger Agreement, Evofem has entered into indemnification agreements with each of its directors and executive officers. These agreements provide for the indemnification of the directors and executive officers of Evofem for all liabilities and actual and reasonable expenses incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were serving as an Evofem officer or director or, at the request of Evofem, as an officer, director or employee of another corporation, partnership, joint venture, trust or other enterprise. Evofem anticipates that the directors and officers of the combined company will enter into substantially similar agreements with the combined company, effective upon consummation of the merger.

Stock Options and Warrants

Neothetics Options and Warrants

All options and warrants to purchase shares of Neothetics common stock that are outstanding immediately prior to the effective time of the merger will remain outstanding following the effective time of the merger.

Evofem Options

As of October 20, 2017, an aggregate of 6,248,595 shares of Evofem common stock were issuable upon the exercise of outstanding Evofem Options at a weighted average exercise price of $1.45 per share. At the effective time of the merger, each outstanding Evofem Option, whether or not vested, unexercised immediately prior to the effective time of the merger will be converted into a Neothetics Option to purchase that number of shares of Neothetics common stock as determined pursuant to the common stock exchange ratio described in more detail below. All rights with respect to each Evofem Option will be assumed by Neothetics in accordance with its terms. Accordingly, from and after the effective time of the merger, each Evofem Option assumed by Neothetics may be exercised solely for shares of Neothetics common stock.

The number of shares of Neothetics common stock subject to each outstanding Evofem Option assumed by Neothetics will be determined by multiplying the number of shares of Evofem capital stock that were subject to such Evofem Option by the common stock exchange ratio and rounding the resulting number down to the nearest whole number of shares of Neothetics common stock. The per share exercise price for the shares of Neothetics common stock issuable upon exercise of each Evofem Option assumed by Neothetics will be determined by dividing the per share exercise price of Evofem capital stock subject to such option by the common stock exchange ratio and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any Evofem Option will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option will otherwise remain unchanged.

Evofem Warrants

In connection with Evofem’s issuance of shares of its Series D Preferred Stock, Evofem issued the Evofem Warrants to the purchasers of its Series D Preferred Stock. The number of shares of Evofem capital stock

 

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issuable upon the full exercise of the Evofem Warrants would be equal to (i) 75% of the aggregate purchase price to be paid by the purchasers of Evofem’s Series D Preferred Stock divided by (ii) the per share price of the shares of Evofem capital stock to be issued in the next equity financing completed by Evofem. Evofem did not complete any such next equity financing triggering the exercisability of the Evofem Warrants. The exercise price for the shares of Evofem capital stock issuable upon exercise of the Evofem Warrants would be the exercise price paid by the investors in Evofem’s next completed equity financing. As of October 20, 2017, the Evofem Warrants were not yet exercisable for shares of Evofem capital stock. As such, the Audited Consolidated Financial Statements of Evofem for the years ended December 31, 2015 and 2016 beginning on page F-3 of this proxy statement/prospectus/information statement and the Unaudited Consolidated Financial Statements of Evofem for the nine months ended September 30, 2017 refer to the Evofem Warrants as “Warrant Rights” in the financial notes set forth therein.

Pursuant to the Merger Agreement, the Evofem Warrants will be assumed by Neothetics upon completion of the merger and then immediately amended and restated to be the Neothetics Post-Merger Warrants. The exercise price for the Neothetics Post-Merger Warrants will be an exercise price equal to the average of the closing sale prices of Neothetics’ common stock as quoted on The NASDAQ Capital Market for the 30 consecutive trading day period commencing with the first trading day immediately after the effective time of the merger and will be exercisable commencing on the first anniversary of the effective time of the merger and ending on the fourth anniversary of the effective time of the merger.

Per the terms of the Securities Purchase Agreement, Evofem will issue warrants to the Investors, or the Investor Warrants, to purchase up to 158,999,371 shares of Evofem common stock (subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement) at an exercise price of $0.001 (subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement) per share immediately prior to the merger that will be automatically exercised on a cashless basis immediately prior to the merger. As a result, the shares of Evofem common stock issued upon exercise of the Investor Warrants will be eligible to receive shares of Neothetics common stock at the common stock exchange ratio. For more information regarding the Securities Purchase Agreement and the Investor Warrant, see the section entitled “ Agreements Related to the Merger — Securities Purchase Agreemen t” beginning on page 127 of this proxy statement/prospectus/information statement. For more information regarding the common stock exchange ratio, see “ The Merger Agreement — Exchange Ratios ” beginning on page 109 of this proxy statement/prospectus/information statement.

Form of Merger

The Merger Agreement provides that at the effective time of the merger, Merger Sub will be merged with and into Evofem. Upon the consummation of the merger, Evofem will continue as the surviving corporation and will be a wholly owned subsidiary of Neothetics.

In connection with the merger, assuming Proposal No. 3 is approved by the Neothetics stockholders at the Neothetics special meeting, Neothetics will be renamed “Evofem Biosciences, Inc.” and expects shares of its common stock to trade on The NASDAQ Capital Market under the symbol “EVFM.”

Merger Consideration

Immediately prior to the effective time of the merger, each outstanding share of Evofem Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock will be converted into one share of Evofem common stock. Shares of Evofem Series D Preferred Stock will not be converted into shares of Evofem common stock prior to the merger. At the effective time of the merger, upon the terms and subject to the conditions set forth in the Merger Agreement:

 

   

each share of Evofem common stock issued and outstanding immediately prior to the effective time of the merger (including shares of Evofem common stock issued upon conversion of shares of Evofem

 

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preferred stock and shares of Evofem common stock issued upon exercise of the Investor Warrants described in the section entitled “ Agreements Related to the Merger — Securities Purchase Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement) will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the common stock exchange ratio, as described below;

 

    each share of Evofem Series D Preferred Stock issued and outstanding immediately prior to the effective time of the merger will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the Series D Preferred Stock exchange ratio, as described below;

 

    each Evofem Option will be assumed by Neothetics and will become a Neothetics Option multiplied by the common stock exchange ratio (and rounding the resulting number down to the nearest whole share), at an exercise price equal to the per share exercise price of such Evofem Option divided by the common stock exchange ratio (and rounding the resulting number up to the nearest whole cent); and

 

    Evofem Warrants will be assumed by Neothetics and then immediately amended and restated to become the Neothetics Post-Merger Warrants.

No fractional shares of Evofem common stock will be issuable pursuant to the merger to Evofem stockholders. Instead, each Evofem stockholder who would otherwise be entitled to receive a fraction of a share of Evofem common stock, after aggregating all fractional shares of Evofem common stock issuable to such stockholder, will be entitled to receive in cash the dollar amount, rounded down to the nearest whole cent, without interest, determined by multiplying such fraction by the average closing prices of a share of Neothetics common stock as quoted on The NASDAQ Capital Market for the ten consecutive trading days ending with the trading day immediately preceding the date of the closing of the Merger Agreement, subject to adjustments as necessary to reflect any stock split, reverse stock split, stock dividend or other like change to Neothetics’ common stock.

The Merger Agreement provides that, as soon as practicable after the effective time of the merger, Neothetics will deposit with Neothetics’ transfer agent or another reputable bank or trust company reasonably acceptable to Evofem, (i) non-certificated shares of Neothetics common stock represented by book-entry shares of Neothetics common stock issuable to the Evofem stockholders and (ii) a sufficient amount of cash to make payments in lieu of fractional shares.

If any Evofem stock certificate has been lost, stolen or destroyed, the exchange agent will require the owner of such lost, stolen or destroyed certificate to deliver an appropriate affidavit claiming such certificate has been lost, stolen or destroyed and providing indemnity against any claim that may be made against the Exchange Agent, Neothetics or Evofem as the surviving corporation against any claim suffered by such parties related to the lost, stolen or destroyed certificate.

Regulatory Approvals

Neothetics must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Stock Market in connection with the issuance of shares of Neothetics common stock and the filing of this proxy statement/prospectus/information statement with the SEC.

Tax Treatment of the Merger

Neothetics and Evofem intend the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. Each of Neothetics and Evofem will use its commercially reasonable efforts to cause the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and not to permit or cause any affiliate or any subsidiary of Neothetics or Evofem to take any action or cause any action to be taken which would cause the merger to fail to qualify as a reorganization under Section 368(a) of the Code. For a description of material U.S. federal income tax consequences of the merger, please see the section entitled “ The Merger — Material U.S. Federal Income Tax Consequences of the Merger ” below.

 

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Material U.S. Federal Income Tax Consequences of the Merger

In the opinion of Mintz, counsel to Evofem, and DLA, counsel to Neothetics, the following is a discussion of material U.S. federal income tax consequences of the merger applicable to U.S. holders (as defined below) who exchange their Evofem capital stock for Neothetics common stock in the merger assuming the merger is consummated as in the manner described in this proxy statement/prospectus/information statement. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local, or non-U.S. tax laws are not discussed. This discussion is based on the Code, U.S. Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service, or the IRS, each as in effect as of the date of the merger. These authorities are subject to differing interpretations or change. Any such change, which may or may not be retroactive, could alter the tax consequences to holders of Evofem capital stock as described in this proxy statement/prospectus/information statement.

This discussion does not address all U.S. federal income tax consequences relevant to the particular circumstances of an Evofem stockholder. In addition, it does not address consequences relevant to holders of Evofem capital stock that are subject to particular U.S. or non-U.S. tax rules, including, without limitation:

 

    persons who have a functional currency other than the U.S. dollar;

 

    persons who hold Evofem capital stock that constitutes “qualified small business stock” under Section 1202 of the Code or as “Section 1244 stock” for purposes of Section 1244 of the Code;

 

    persons holding Evofem capital stock as part of an integrated investment (including a “straddle,” pledge against currency risk, “constructive” sale or “conversion” transaction or other integrated or risk reduction transactions) consisting of shares of Evofem capital stock and one or more other positions;

 

    persons who are not U.S. holders as defined below;

 

    banks, insurance companies, mutual funds, tax-exempt entities, financial institutions, broker-dealers, real estate investment trusts or regulated investment companies;

 

    persons who do not hold their Evofem capital stock as a “capital asset” within the meaning of Section 1221 of the Code;

 

    partnerships or other entities or arrangements classified as partnerships or disregarded entities for U.S. federal income tax purposes, S corporations or other pass-through entities (including hybrid entities);

 

    persons who acquired their Evofem capital stock pursuant to the exercise of warrants or conversion rights under convertible instruments;

 

    persons holding Evofem capital stock who exercise dissenters’ rights;

 

    persons who acquired their Evofem capital stock in a transaction subject to the gain rollover provisions of Section 1045 of the Code; and

 

    persons who hold their Evofem capital stock through individual retirement accounts or other tax-deferred accounts.

For purposes of this discussion, a “U.S. holder” is a beneficial owner of Evofem capital stock that, for U.S. federal income tax purposes, is or is treated as:

 

    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 in or 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 taxation regardless of its source; or

 

   

a trust if either (i) a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States persons (within the meaning of Section

 

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7701(a)(30) of the Code) are authorized or have the authority to control all substantial decisions of such trust, or (ii) the trust was in existence on August 20, 1996 and has a valid election in effect under applicable Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes.

If an entity treated as a partnership for U.S. federal income tax purposes holds Evofem capital stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. If you are a partnership or a partner of a partnership holding Evofem capital stock or any other person excluded from this discussion, you should consult your tax advisor regarding the tax consequences of the merger.

In addition, the following discussion does not address (i) any U.S. federal non-income tax consequences of the merger, including estate, gift or other tax consequences, (ii) any state, local or non-U.S. tax consequences of the merger, (iii) the Medicare contribution tax on net investment income or the alternative minimum tax, (iv) the tax consequences of transactions effectuated before, after or at the same time as the merger (whether or not they are in connection with the merger), including, without limitation, transactions in which Evofem capital stock is acquired or Evofem preferred stock is converted to Evofem common stock, and (v) the tax consequences to holders of convertible debt or options, warrants or similar rights to purchase or acquire Evofem capital stock.

IN LIGHT OF THE FOREGOING, HOLDERS OF EVOFEM CAPITAL STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES, AND ANY TAX REPORTING REQUIREMENTS OF THE MERGER AND RELATED TRANSACTIONS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

In connection with the filing of the registration statement of which this proxy statement/prospectus/information statement is a part, Mintz will deliver to Evofem and DLA will deliver to Neothetics opinions that the statements under the section entitled “ The Merger — Material U.S. Federal Income Tax Consequences of the Merger ” beginning on page 92 of this proxy statement/prospectus/information statement constitute the opinions of Mintz and DLA, respectively. In rendering their opinions, counsel assume that the statements and facts concerning the merger set forth in this proxy statement/prospectus/information statement and in the Merger Agreement, are true and accurate in all respects, and that the merger will be completed in accordance with this proxy statement/prospectus/information statement and the Merger Agreement. Counsels’ opinions also assume the truth and accuracy of certain representations and covenants as to factual matters made by Neothetics, Evofem and Merger Sub in tax representation letters provided to counsel. In addition, counsel base their tax opinions on the law in effect on the date of the opinions and assume that there will be no change in applicable law between such date and the time of the merger. If any of these assumptions is inaccurate, the tax consequences of the merger could differ from those described in this proxy statement/prospectus/information statement.

No ruling from the IRS has been or will be requested with respect to the tax consequences of the merger. Opinions of counsel do not bind the courts or the IRS, nor will they preclude the IRS from adopting a position contrary to those expressed in the opinions. Subject to the qualifications and assumptions described in this proxy statement/prospectus/information statement, the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Accordingly, the tax consequences to U.S. holders of Evofem capital stock will be as follows:

 

    a U.S. holder will not recognize gain or loss upon the exchange of Evofem capital stock for Neothetics common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Neothetics common stock as described below;

 

    a U.S. holder who receives cash in lieu of a fractional share of Neothetics common stock in the merger will recognize capital gain or loss in an amount equal to the difference between the amount of cash received instead of a fractional share and the stockholder’s tax basis allocable to such fractional share;

 

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    a U.S. holder’s aggregate tax basis for the shares of Neothetics common stock received in the merger (including any fractional share interest for which cash is received) will equal the stockholder’s aggregate tax basis in the shares of Evofem capital stock surrendered in the merger; and

 

    the holding period of the shares of Neothetics common stock received by a U.S. holder in the merger will include the holding period of the shares of Evofem capital stock surrendered in exchange therefor.

Gain or loss recognized by a U.S. holder who receives cash in lieu of a fractional share of Evofem capital stock will constitute capital gain or loss and any such gain or loss will constitute long-term capital gain or loss if the U.S. holder’s holding period in the Evofem Capital stock surrendered in the merger is more than one year as of the effective date of the merger. Under current law, long-term capital gains of non-corporate taxpayers are taxed at a reduced U.S. federal income tax rate. Under current law, the deductibility of capital losses is subject to limitations. In addition, for purposes of the above discussion of the bases and holding periods for shares of Evofem capital stock and Neothetics common stock, U.S. holders who acquired different blocks of Evofem capital stock at different times for different prices must calculate their gains and losses and holding periods separately for each identifiable block of such stock exchanged in the merger.

As provided in Treasury Regulations Section 1.368-3(d), each U.S. holder who receives shares of Neothetics common stock in the merger is required to retain permanent records pertaining to the merger, and make such records available to any authorized IRS officers and employees. Such records should specifically include information regarding the amount, basis, and fair market value of all transferred property, and relevant facts regarding any liabilities assumed or extinguished as part of such reorganization. Additionally, U.S. holders who owned immediately before the merger at least one percent (by vote or value) of the total outstanding stock of Evofem are required to attach a statement to their tax returns for the year in which the merger is consummated that contains the information listed in Treasury Regulation Section 1.368-3(b). Such statement must include the U.S. holder’s tax basis in such holder’s Evofem capital stock surrendered in the merger, the fair market value of such stock, the date of the merger and the name and employer identification number of each of Evofem and Neothetics.

If the merger fails to qualify as a reorganization within the meaning of Section 368(a) of the Code, then a U.S. holder would recognize gain or loss upon the exchange of Evofem capital stock for Neothetics common stock equal to the difference between the fair market value, at the time of the merger, of the Neothetics common stock received in the merger (including any cash received in lieu of a fractional share of Neothetics common stock) and such U.S. holder’s tax basis in the Evofem capital stock surrendered in the merger. Such gain or loss would be long-term capital gain or loss if the Evofem capital stock was held for more than one year at the time of the merger. In such event, the aggregate tax basis of Neothetics common stock received in the merger would equal its fair market value at the time of the closing of the merger, and the holding period of such Neothetics common stock would commence the day after the closing of the merger.

Information Reporting and Backup Withholding

A U.S. holder of Evofem capital stock may be subject to information reporting and backup withholding for U.S. federal income tax purposes on cash paid in lieu of fractional shares in connection with the merger. The current backup withholding rate is 28%. Backup withholding will not apply, however, to a holder who (i) furnishes a correct taxpayer identification number and certifies the holder is not subject to backup withholding on IRS Form W-9 or a substantially similar form, (ii) provides a certification of foreign status on an appropriate IRS Form W-8 or successor form or (iii) certifies the holder is otherwise exempt from backup withholding. U.S. holders of Evofem capital stock should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption. If a U.S. holder does not provide a correct taxpayer identification number on IRS Form W-9 or other proper certification, the stockholder may be subject to penalties imposed by the IRS. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against a U.S. holder of Evofem capital stock’s federal income tax liability, if

 

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any, provided the required information is timely furnished to the IRS. In the event of backup withholding see your tax advisor to determine if you are entitled to any tax credit, tax refund or other tax benefit as a result of such backup withholding.

U.S. HOLDERS OF EVOFEM CAPITAL STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES, AND ANY TAX REPORTING REQUIREMENTS OF THE MERGER AND RELATED TRANSACTIONS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

NASDAQ Stock Market Listing

Neothetics’ common stock currently is listed on The NASDAQ Capital Market under the symbol “NEOT.” Neothetics shall use commercially reasonable efforts to (i) to the extent required by the rules and regulations of The NASDAQ Stock Market, prepare and submit to The NASDAQ Stock Market a notification form for the listing of the shares of Neothetics common stock to be issued in connection with the merger and the Securities Purchase Agreement, and to cause such shares to be approved for listing (subject to official notice of issuance) on or prior to the merger; and (ii) to the extent required by NASDAQ Marketplace Rule 5110, file an initial listing application for the shares of Neothetics common stock issued in connection with the merger and the Securities Purchase Agreement and to cause such listing application to be approved prior to the merger. In addition, under the Merger Agreement, Evofem’s obligation to complete the merger is subject to the satisfaction or its waiver, at or prior to the merger, of various conditions, including a condition that the NASDAQ initial listing application for the combined company be approved. If such application is accepted, Neothetics anticipates that its common stock will be listed on The NASDAQ Capital Market following the closing of the merger under the trading symbol “EVFM.”

Anticipated Accounting Treatment

Although Neothetics is the legal acquirer and will issue shares of its common stock to affect the merger with Evofem, Evofem is considered the accounting acquirer. In accordance with the accounting guidance under ASU 2017-01, the merger is considered an asset acquisition. Accordingly, the assets and liabilities of Private Evofem will be recorded as of the merger closing date at their respective carrying values and the acquired net assets of Neothetics will be recorded as of the merger closing date at their fair value. Determination of fair value of certain assets acquired is dependent upon certain valuations that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated fair values, which cannot be made prior to the completion of the transaction, will be based on the actual net tangible assets of Neothetics that exist as of the date of the completion of the transaction. Therefore, the actual purchase price allocation may differ from the amounts reflected in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed consolidated financial statements include the accounts of Evofem since the effective date of merger and Neothetics since inception.

Appraisal Rights and Dissenters’ Rights

Delaware Law

If the merger is completed, Evofem stockholders who do not deliver a written consent approving the merger are entitled to appraisal rights under Section 262 of the DGCL, provided that they comply with the conditions established by Section 262. Holders of Neothetics common stock are not entitled to appraisal rights under Delaware law in connection with the merger.

The discussion below is not a complete summary regarding an Evofem stockholder’s appraisal rights under Delaware law and is qualified in its entirety by reference to the text of the relevant provisions of Delaware law,

 

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which is attached as Annex C. Stockholders intending to exercise appraisal rights should carefully review Annex C . Failure to follow precisely any of the statutory procedures set forth in Annex C may result in a termination or waiver of these rights. This summary does not constitute legal or other advice, nor does it constitute a recommendation that Evofem stockholders exercise their appraisal rights under Delaware law.

Under Section 262 of the DGCL, or Section 262, where a merger is adopted by stockholders by written consent in lieu of a meeting of stockholders pursuant to Section 228 of the DGCL, either the constituent corporation before the effective date of the merger or the surviving corporation, within 10 days after the effective date of the merger, must notify each stockholder of the constituent corporation entitled to appraisal rights of the approval of the merger, the effective date of the merger and that appraisal rights are available.

If the merger is completed, within 10 days after the effective date of the merger Evofem will notify its stockholders that the merger has been approved, the effective date of the merger and that appraisal rights are available to any stockholder who has not approved the merger. Holders of shares of Evofem capital stock who desire to exercise their appraisal rights must deliver a written demand for appraisal to Evofem within 20 days after the date of mailing of that notice, and that stockholder must not have delivered a written consent approving the merger. A demand for appraisal must reasonably inform Evofem of the identity of the stockholder and that such stockholder intends thereby to demand appraisal of the shares of Evofem capital stock held by such stockholder. Failure to deliver a written consent approving the merger will not in and of itself constitute a written demand for appraisal satisfying the requirements of Section 262. All demands for appraisal should be addressed to Evofem Biosciences, Inc., 12400 High Bluff Drive, Suite 600, San Diego, CA 92130, Attention: Secretary, and should be executed by, or on behalf of, the record holder of shares of Evofem capital stock. ALL DEMANDS MUST BE RECEIVED BY EVOFEM WITHIN 20 DAYS AFTER THE DATE EVOFEM MAILS A NOTICE TO ITS STOCKHOLDERS NOTIFYING THEM THAT THE MERGER HAS BEEN APPROVED, THE EFFECTIVE DATE OF THE MERGER AND THAT APPRAISAL RIGHTS ARE AVAILABLE TO ANY STOCKHOLDER WHO HAS NOT APPROVED THE MERGER.

If an Evofem stockholder fails to deliver a written demand for appraisal within the time period specified above, the stockholder will be entitled to receive the merger consideration for its shares of Evofem capital stock as provided for in the Merger Agreement, but the Evofem stockholder will have no appraisal rights with respect to its shares of Evofem capital stock.

To be effective, a demand for appraisal by a holder of shares of Evofem capital stock must be made by, or in the name of, the registered stockholder, fully and correctly, as the stockholder’s name appears on the stockholder’s stock certificate(s). Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to Evofem. The beneficial owner must, in these cases, have the registered owner, such as a broker, bank or other custodian, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a custodian for others, may exercise the record owner’s right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner. In addition, the stockholder must continuously hold the shares of record from the date of making the demand through the effective time of the merger.

If you hold your shares of Evofem capital stock in a brokerage account or in other custodian form and you wish to exercise appraisal rights, you should consult with your bank, broker or other custodian to determine the appropriate procedures for the making of a demand for appraisal by the custodian.

 

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At any time within 60 days after the effective time of the merger, any stockholder who has demanded an appraisal, but has neither commenced an appraisal proceeding or joined an appraisal proceeding as a named party, has the right to withdraw such stockholder’s demand and accept the terms of the merger by delivering a written withdrawal to Evofem. If, following a demand for appraisal, you have withdrawn your demand for appraisal in accordance with Section 262, you will have the right to receive the merger consideration for your shares of Evofem capital stock.

Within 120 days after the effective date of the merger, any stockholder who has delivered a demand for appraisal in accordance with Section 262 will, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the Merger Agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of these shares. This written statement will be mailed to the requesting stockholder within 10 days after the stockholder’s written request is received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective date of the merger, either the surviving corporation or any stockholder who has delivered a demand for appraisal in accordance with Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all such stockholders. Upon the filing of the petition by a stockholder, service of a copy of the petition must be made upon the surviving corporation. The surviving corporation has no obligation to file a petition in the Delaware Court of Chancery in the event there are dissenting stockholders, and Evofem, which is expected to be the surviving corporation, has no present intent to file a petition in the Delaware Court of Chancery. Accordingly, the failure of a stockholder to file a petition within the period specified could nullify the stockholder’s previously written demand for appraisal.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Delaware Court of Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

After determination of the stockholders entitled to appraisal of their shares, the Delaware Court of Chancery will appraise the “fair value” of the shares owned by those stockholders. This value will be exclusive of any element of value arising from the accomplishment or expectation of the merger, but may include a fair rate of interest, if any, upon the amount determined to be the fair value.

In determining fair value, and, if applicable, a fair rate of interest, the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc. , the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.”

Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede  & Co. v. Technicolor, Inc. , the Delaware Supreme Court stated that this exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of

 

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the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

You should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the Merger Agreement.

When the value is determined, the Delaware Court of Chancery will direct the payment of the value, with interest thereon accrued during the pendency of the proceeding, if the Delaware Court of Chancery so determines, to the stockholders entitled to receive the same, upon surrender by the holders of the certificates representing those shares. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter only upon the sum of (i) the difference, if any, between the amount so paid and the fair value of the shares subject to appraisal as determined by the Delaware Court of Chancery and (ii) interest theretofore accrued, unless paid at that time.

Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination of assessment, each party bears its own expenses. Any stockholder who had demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time; however, if no petition for appraisal is filed within 120 days after the effective time of the merger, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within 60 days after the effective time of the merger, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the merger consideration for shares of his or her Evofem capital stock pursuant to the Merger Agreement. Any withdrawal of a demand for appraisal made more than 60 days after the effective time of the merger may only be made with the written approval of the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the court.

Failure to follow the steps required by Section 262 for perfecting appraisal rights may result in the loss of appraisal rights. In view of the complexity of Section 262, stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

Opinion of Oppe nheimer & Co. Inc. as Neothetics’ Financial Advisor

The Strategic Committee retained Oppenheimer on July 10, 2017 to act as Neothetics’ financial advisor in connection with a possible sale or other transfer of all or substantially all of the assets or at least a majority of the securities of Neothetics, or a transaction, and, if requested, to render an opinion as to the fairness, from a financial point of view, of a transaction. Pursuant to that engagement, the Strategic Committee requested that Oppenheimer render an opinion as to the fairness, from a financial point of view, to Neothetics of the merger consideration, as defined below, to be paid by Neothetics in the merger pursuant to the Merger Agreement.

On October 16, 2017, Oppenheimer rendered its oral opinion to the Strategic Committee (which was subsequently confirmed in writing by delivery of Oppenheimer’s written opinion dated the same date) to the effect that, based upon and subject to the assumptions, factors, qualifications and limitations set forth in the written opinion described herein, as of October 16, 2017, the merger consideration to be paid by Neothetics in the merger was fair, from a financial point of view, to Neothetics. As used in the opinion, the term merger consideration meant the 82,893,740 shares of Neothetics common stock to be issued in the merger to holders of Evofem’s capital stock as specified in the Merger Agreement.

 

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Oppenheimer’s opinion was prepared for the information of the Strategic Committee and only addressed the fairness, from a financial point of view, to Neothetics of the merger consideration to be paid by Neothetics in the merger. Oppenheimer was not engaged to, and did not consider or render any opinion as to the fairness to Neothetics, from a final point of view, of the assumption of the Neothetics Post-Merger Warrants and the Financing. Oppenheimer was not requested to opine as to, and Oppenheimer’s opinion does not address, the relative merits of the merger or any alternatives to the merger, Neothetics’ underlying decision to proceed with or effect the merger, or any other aspect of the merger. Oppenheimer’s opinion does not address the fairness of the merger to the holders of any class of securities, creditors or other constituencies of Neothetics and is not a valuation of Neothetics or its assets or any class of its securities. Oppenheimer did not express an opinion about the fairness of the amount or nature of any compensation payable or to be paid to any of the officers, directors or employees of Neothetics, whether or not relative to the merger.

The summary of Oppenheimer’s opinion in this proxy statement/prospectus/information statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex B to this proxy statement/prospectus/information statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Oppenheimer in preparing its opinion. Oppenheimer’s opinion was prepared for the information of the Strategic Committee for its use in connection with its consideration of the merger. Neither Oppenheimer’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus/information statement are intended to be, and they do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the merger or any other matter.

The terms of the merger, the consideration to be paid in the merger, and the related transactions were determined through arm’s length negotiations between Neothetics and Evofem and were approved unanimously by the Neothetics Board. Oppenheimer did not determine the consideration to be paid by Neothetics in connection with the merger. For purposes of its opinion, management of Neothetics advised Oppenheimer and, with the consent of the Strategic Committee, Oppenheimer assumed without independent verification that as a result of the merger, the former holders of Evofem capital stock would own approximately 85.7% of the outstanding equity of Neothetics immediately following the effective time of the merger and the holders of the outstanding equity of Neothetics immediately prior to the merger would own approximately 14.3% of the outstanding equity of Neothetics immediately following the effective time of the merger.

In connection with rendering the opinion described above and performing its related financial analyses, Oppenheimer, among other things:

 

    reviewed the financial terms of the merger described in the draft Merger Agreement, dated October 12, 2017;

 

    reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of Neothetics and Evofem that were furnished to Oppenheimer by Neothetics and Evofem;

 

    conducted discussions with members of senior management and representatives of Neothetics and Evofem concerning the matters described in the prior clause;

 

    reviewed publicly available information relating to the respective businesses of Neothetics and Evofem;

 

    reviewed the pro forma ownership structure of the combined entity resulting from the merger;

 

    discussed the past and current operations and financial condition and the prospects of Neothetics and Evofem with members of senior management of Neothetics and of Evofem, respectively;

 

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    reviewed the financial terms of the Securities Purchase Agreement and, to the extent publicly available, of selected acquisition transactions and conducted comparable companies and discounted cash flow analyses; and

 

    performed such other analyses and considered such other factors as Oppenheimer deemed appropriate for the purpose of rendering its opinion.

In arriving at its opinion, Oppenheimer assumed and relied upon, without verifying independently, the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available to Oppenheimer, or discussed with or reviewed by or for Oppenheimer, and further assumed that the financial information provided to Oppenheimer had been prepared by the respective managements of Neothetics and Evofem on a reasonable basis in accordance with industry practice, and that the managements of Neothetics and Evofem were not aware of any information or facts that would make any information provided to Oppenheimer incomplete or misleading.

With respect to the financial forecasts, estimates and other forward-looking information reviewed by Oppenheimer, Oppenheimer assumed that such information had been reasonably prepared by the respective managements of Neothetics and Evofem based on assumptions reflecting their best currently available estimates and judgments as to the expected future results of operations and financial condition of Neothetics and Evofem, respectively. Oppenheimer was not engaged to assess the achievability of any such financial forecasts, estimates or forward-looking information or the assumptions on which they were based, and Oppenheimer expressed no opinion as to such information or assumptions. In addition, Oppenheimer did not assume any responsibility for, and did not perform, any appraisals or valuation of any specific assets or liabilities (fixed, contingent or other) of Neothetics or Evofem, nor was Oppenheimer furnished or provided with any such appraisals or valuations. Without limiting the generality of the foregoing, Oppenheimer was not engaged to, and did not undertake, any independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Neothetics, Evofem or any of their respective affiliates is a party or may be subject, and at the direction of Neothetics and with its consent, Oppenheimer’s opinion made no assumption concerning, and did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters.

Oppenheimer relied upon and assumed, without independent verification, that the representations and warranties of all parties set forth in the Merger Agreement and all related documents and instruments that are referred to therein are true and correct, that each party will fully and timely perform all of the covenants and agreements required to be performed by such party, that the merger will be consummated pursuant to the terms of the Merger Agreement, without amendment thereto, and that all conditions to the consummation of the merger will be satisfied without waiver by any party of any conditions or obligations thereunder. Oppenheimer further assumed that the Merger Agreement was in all material respects identical to the draft of the Merger Agreement provided to Oppenheimer. Finally, Oppenheimer also assumed that all the necessary regulatory approvals and consents required for the merger, including the approval of the stockholders of Neothetics, will be obtained in a manner that will not adversely affect Neothetics.

In connection with its opinion, Oppenheimer assumed and relied upon, without independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it. Oppenheimer’s opinion does not address any legal, regulatory, tax or accounting issues. Oppenheimer’s fairness opinion was approved by its fairness opinion committee prior to delivering it to Neothetics.

Oppenheimer’s opinion is necessarily based upon the information available to Oppenheimer and facts and circumstances as they existed and were subject to evaluation as of October 16, 2017, which is the date of the Oppenheimer opinion. Although events occurring after the date of the Oppenheimer opinion could materially affect the assumptions used in preparing the opinion, Oppenheimer does not have any obligation to update, revise

 

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or reaffirm its opinion and Oppenheimer expressly disclaims any responsibility to do so. Oppenheimer did not express any opinion as to the value of the merger consideration or the prices at which shares of Neothetics’ common stock may trade following announcement of the merger or at any future time. The terms of the merger, the consideration to be paid in the merger, and the related transactions were determined through arm’s length negotiations between Neothetics and Evofem and were approved unanimously by Neothetics’ Board of Directors. Oppenheimer did not determine the consideration to be paid by Neothetics in connection with the merger. Oppenheimer’s opinion and its presentation to the Strategic Committee was one of many factors taken into consideration by the Strategic Committee in deciding to approve, adopt and authorize the Merger Agreement. Consequently, the analyses as described herein should not be viewed as determinative of the opinion of Neothetics’ Board of Directors with respect to the consideration to be paid by Neothetics in the merger or of whether the Neothetics Board would have been willing to agree to different consideration.

The following is a summary of the material financial analyses performed by Oppenheimer in connection with the preparation of its fairness opinion, which opinion was rendered orally to the Strategic Committee (and subsequently confirmed in writing by delivery of Oppenheimer’s written opinion dated the same date) on October 16, 2017. The preparation of analyses and a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description and this summary does not purport to be a complete description of the analyses performed by Oppenheimer or the delivery of Oppenheimer’s opinion to the Strategic Committee.

In furnishing its opinion, Oppenheimer did not attempt to combine the analyses described herein into one composite valuation range, nor did Oppenheimer assign any quantitative weight to any of the analyses or the other factors considered. Furthermore, in arriving at its opinion, Oppenheimer did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor in light of one another. Accordingly, Oppenheimer has stated that it believes that its analyses must be considered as a whole and that considering any portion of its analyses, without considering all of the analyses, could create a misleading or incomplete view of the process underlying its opinion or the conclusions to be drawn therefrom.

In conducting the analysis as to the fairness to Neothetics, from a financial point of view, of the merger consideration to be paid by Neothetics pursuant to the terms of the Merger Agreement, Oppenheimer evaluated the stand-alone valuations of Neothetics and Evofem. Oppenheimer then compared Neothetics’ ownership based on the Merger Agreement with Neothetics’ implied ownership based on the relative valuation between Neothetics and Evofem.

The results of the application by Oppenheimer of each of the valuation methodologies utilized in connection with its fairness opinion are summarized below.

Consideration to be Paid in the Merger

As specified in the Merger Agreement, Neothetics agreed to issue 82,893,740 shares of Neothetics common stock in the merger to holders of Evofem’s capital stock. For purposes of its opinion, management of Neothetics advised Oppenheimer and, with the consent of the Strategic Committee, Oppenheimer assumed without independent verification that as a result of the merger, the former holders of shares of Evofem capital stock would own approximately 85.7% of the outstanding equity of Neothetics immediately following the effective time of the merger and the holders of the outstanding equity of Neothetics immediately prior to the merger would own approximately 14.3% of the outstanding equity of Neothetics immediately following the effective time of the merger.

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Neothetics’ clinical set back in June 2017 and calculated the theoretical number of shares of Neothetics common stock Neothetics would have to issue to acquire Evofem using a number of different valuation methods and then compared the resulting ownership interest in Neothetics that would have been retained by holders of Neothetics common stock to the 14.3% ownership stake estimated by Neothetics management based on the 82,893,740 shares of Neothetics common stock to be issued in the merger to holders of Evofem’s capital stock.

Estimated Neothetics St and-Alone Valuation

Neothetics Public Market Valuation

Oppenheimer evaluated the value of Neothetics on a stand-alone basis using a public market valuation methodology. Oppenheimer noted that since Neothetics’ clinical set-back in June 2017, Neothetics’ closing stock price had ranged from a high of $0.68 per share to a low of $0.32 per share. Based on that range, Oppenheimer estimated that Neothetics had a total market capitalization of between $9.3 million and $4.4 million. Based on the last reported sale per share of $0.54 on October 13, 2017, Oppenheimer estimated that Neothetics’ enterprise value was approximately $1.9 million.

Estimated Evofem Stand-Alone Valuation

Oppenheimer evaluated the value of Evofem on a stand-alone basis, using the following valuation methodologies:

 

    Comparable Companies Analysis — Women’s Health;

 

    Precedent Women’s Health M&A Transactions;

 

    Discounted Cash Flow Analysis; and

 

    Implied Valuation from the Securities Purchase Agreement.

Utilizing the various valuation methodologies listed above, Oppenheimer used the estimated valuations of Evofem to calculate a range of the theoretical number of shares of Neothetics common stock that would have to be issued by Neothetics based on the high and low prices of Neothetics common stock since described above. The high end of the range was calculated based on the high valuation of Evofem divided by the low Neothetics common stock price per share and the low end of the range was calculated based on the low valuation of Evofem divided by the high Neothetics common stock price per share. Using this methodology, Oppenheimer estimated a range of Neothetics common stock utilizing the Comparable Companies Analysis — Women’s Health of 752,512,077 shares to 291,883,472 shares; Precedent Women’s Health M&A Transactions of 1,199,343,750 to 465,200,000 shares; Discounted Cash Flow Analysis of 1,341,473,298 shares to 550,011,708 shares; and Implied Valuation from the Securities Purchase Agreement of 661,824,820 shares to 256,707,809 shares.

 

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Comparable Companies Analysis — Women’s Health

Oppenheimer reviewed the total enterprise values of publicly traded companies with women’s health product candidates in development. The comparable companies’ analysis uses data from comparable guideline companies to develop a measure of current value for Evofem. The theory underlying the comparable companies’ valuation is that companies in the same industry with similar operating characteristics should have certain valuation benchmarks in common. The goal of the analysis is to develop a premise for relative value, which when coupled with other valuation approaches, presents a foundation for determining a range of firm value. On that basis, Oppenheimer calculated that Neothetics would be required to issue between 752,512,077 shares of Neothetics common stock and 291,883,472 shares of Neothetics common stock, resulting in an implied ownership stake of existing holders of Neothetics common stock of 1.8% to 4.5%, compared to the 14.3% calculated pursuant to the Merger Agreement. The list of comparable companies used by Oppenheimer in its analysis is below:

Mithra Pharmaceuticals SA

Starpharma Holdings Limited

ObsEva SA

Agile Therapeutics, Inc.

Veru Inc.

Precedent Women’s Health M&A Transactions

The precedent women’s health M&A analysis uses data based on the values acquirers have previously placed on comparable companies in a merger or acquisition to develop a measure of current value for Evofem. Oppenheimer examined precedent transactions, from October 7, 2010 through September 18, 2017, involving women’s health companies that it viewed as similar to Evofem. On that basis, Oppenheimer calculated that Neothetics would be required to issue between 1,199,343,750 shares of Neothetics common stock and 465,200,000 shares of Neothetics common stock, resulting in an implied ownership stake of existing holders of Neothetics common stock of 1.1% to 2.9%, compared to the 14.3% calculated pursuant to the Merger Agreement. The list of precedent transactions used by Oppenheimer in its analysis is below:

 

Announcement
Date

  

Target

  

Acquiror

9/18/17    Teva (Women’s Health Products)    CVC Capital Partners Fund
9/18/17    Teva (Emergency Contraception Products)    Foundation Consumer
4/2/17    Ogeda SA    Astellas Pharma Inc.
6/30/16    FINOX Biotech    Gedeon Richter
2/2/15    Jai Pharma    Mylan
9/29/14    Lumara Health (Women’s Healthcare Business)    Perrigo Company
1/23/13    Uteron Pharma    Allergan
11/3/10    Grünenthal GmbH (Oral Contraceptive Portfolio)    Gedeon Richter
10/28/10    Laboratoire Théramex    Teva Pharmaceutical Industries
10/7/10    PregLem    Gedeon Richter

Discounted Cash Flow Analysis

The discounted cash flow analysis is a “forward looking” methodology and is based on projected future cash flows to be generated by Evofem which are then discounted back to the present. This methodology has three primary components: (1) the present value of projected unlevered cash flows for a determined period; (2) the present value of the terminal value of cash flows based on the declining growth method (representing firm value beyond the time horizon on the projections); (3) the weighted average cost of capital, or WACC, used to discount such future cash flows and terminal value back to the present. In the discounted cash flow analysis, Oppenheimer used projections provided to it by Evofem’s management. The future cash flows plus the terminal value of such cash flows are discounted by the WACC, to derive a present value.

 

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In conducting its discounted cash flow analysis for the purpose of determining the enterprise value of Evofem, Oppenheimer applied the projected unlevered free cash flow that Evofem is expected to generate during fiscal years 2018 to 2033 based upon financial projections prepared by Evofem’s management. Terminal values based on declining cash flow at a rate of -3.0% to -2.0% were applied to management’s cash flow estimates in year 2033 to complete the basis for calculating the present value of future free cash flows. The future free cash flows are then discounted by the WACC, to derive a present value. In selecting an appropriate discount rate, Oppenheimer took into account the industry’s book value debt to market value equity ratio of 2.4%, the industry’s book value debt to total market capitalization ratio of 7.1%, the industry’s market value equity to total market capitalization ratio of 92.9% and the industry’s after-tax cost of debt of 5.4%. Application of the foregoing principles resulted in a 14.9% WACC. Oppenheimer performed a sensitivity analysis in both cases using discount rates from 14.4% to 15.4% to arrive at a range of present values.

On that basis, Oppenheimer calculated that Neothetics would be required to issue between 1,341,473,298 shares of Neothetics common stock and 550,011,708 shares of Neothetics common stock, resulting in an implied ownership stake of existing holders of Neothetics common stock of 1.0% to 2.5%, compared to the 14.3% calculated pursuant to the Merger Agreement. In evaluating the foregoing, it should be noted that the WACC does not take into consideration the specific firm risks such as bankruptcy. As a result, Evofem’s true WACC may be higher when taking into consideration the risks of default and negative operating profit history of the business which would have the effect of reducing the enterprise value range. By conducting an analysis of a range of discount rates rather than relying on one specific WACC, Oppenheimer is comfortable that the analysis is appropriate.

Implied Valuation from the Securities Purchase Agreement

Oppemheimer also reviewed the terms of the Financing pursuant to which, immediately after the effective time of the merger, certain investors had agreed to purchase 9,672,550 shares of Neothetics common stock for an aggregate purchase price of $20 million. Based on the valuation implied in that transaction, Oppenheimer calculated that Neothetics would be required to issue between 661,824,820 shares of Neothetics common stock and 256,707,809 shares of Neothetics common stock, resulting in an implied ownership stake of existing holders of Neothetics common stock of 2.0% to 5.1%, compared to the 14.3% calculated pursuant to the Merger Agreement.

As discussed above, Oppenheimer performed a variety of financial and comparative analyses for the purpose of rendering its opinion. While the preceding summary describes several analyses and examinations that Oppenheimer deems material to its evaluation and opinion, they are not a comprehensive description of all analyses and examinations actually conducted by Oppenheimer.

General

Oppenheimer is a nationally recognized investment banking firm that provides financial advisory services and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The Strategic Committee retained Oppenheimer to render an opinion as to the fairness, from a financial point of view, to Neothetics of the merger consideration to be paid in the merger by Neothetics based upon the foregoing qualifications, experience and expertise.

Neothetics paid Oppenheimer a fee of $75,000 at the time of its engagement and a fee of $225,000 for rendering its fairness opinion delivered in connection with the merger. An additional fee of $200,000 is contingent on the success of the merger. The $225,000 opinion fee was not contingent on the success of the merger or on the results of Oppenheimer’s evaluation and analysis or upon the conclusions reached in Oppenheimer’s opinion. In addition, Neothetics agreed to reimburse Oppenheimer up to $50,000 for its reasonable, documented,

 

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out-of-pocket expenses, including reasonable fees and disbursements of its counsel. Neothetics has also agreed to indemnify Oppenheimer against certain liabilities and other items that may arise out of the Neothetics’ engagement of Oppenheimer. The Strategic Committee did not limit Oppenheimer in any way in the investigations it made or the procedures it followed in rendering its opinion.

Oppenheimer has not had a material relationship with, nor otherwise received fees from, Neothetics, Evofem or any other party to the merger within the two years preceding the date of the Merger Agreement. Oppenheimer may in the future provide investment banking and other financial services to Neothetics and its affiliates for which Oppenheimer and its affiliates may receive compensation. Oppenheimer is a full service investment firm engaged in securities trading and brokerage activities, as well as providing investment banking and other financial services. In the ordinary course of business, Oppenheimer and its affiliates may acquire, hold or sell, for its and its affiliates’ own accounts and for the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of Neothetics and the other parties to the merger, and, accordingly, may at any time hold a long or short position in such securities.

Consistent with applicable legal and regulatory requirements, Oppenheimer has adopted policies and procedures to establish and maintain the independence of its research departments and personnel. As a result, Oppenheimer’s research analysts may hold views, make statements or investment recommendations and/or publish research reports with respect to Neothetics, Evofem and/or the merger that differ from the views of its investment banking personnel.

Information Regarding Financial Projections Used for Fairness Opinion Analysis

The forward looking financial information of Neothetics and Evofem used in the discounted cash flow analyses referenced in the Oppenheimer fairness opinion was not prepared with a view towards compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation, presentation of prospective financial information. Such forward looking financial information included in this proxy statement/prospectus/information statement is the responsibility of the management of Neothetics or Evofem, as applicable, who prepared the information. Neither Ernst & Young LLP nor Deloitte & Touche LLP have examined, compiled nor performed any procedures with respect to this forward looking financial information and, accordingly, neither Ernst & Young LLP nor Deloitte & Touche LLP express an opinion or any other form of assurance with respect thereto. The Ernst & Young LLP nor Deloitte & Touche LLP reports included in this proxy statement/prospectus/information statement relate solely to the historical financial information. They do not extend to the forward looking financial information and should not be read to do so.

Interests of the Neothetics Directors and Executive Officers in the Merger

In considering the recommendation of the Neothetics Board that you vote to approve the proposal to adopt the Merger Agreement, you should be aware that Neothetics’ directors and executive officers have interests in the merger that are different from, or in addition to, those of Neothetics’ stockholders generally. The Neothetics Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the mergers, and in recommending that the Merger Agreement be adopted by Neothetics’ stockholders.

Severance Arrangements

On October 15, 2014, Neothetics entered into an executive employment agreement with Ms. Knudson which provides that, if Ms. Knudson is terminated by us without cause or if she resigns for good reason, she will be entitled to a severance package consisting of (a) a payment equal to six months of her then in effect base salary payable in accordance with our regular payroll cycle beginning on the first regular payday occurring 60 days following the termination date and (b) payment by us of the premiums required to continue Ms. Knudson’s group health coverage for a period of six months following termination.

 

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2017 Retention Bonus

In July 2017, following the recommendation of its Compensation Committee, the Neothetics Board approved a cash incentive award of $150,000 to Susan A. Knudson under the Neothetics, Inc. 2014 Equity Incentive Plan, or the 2014 Plan. Payment of the cash award is contingent upon consummation of the merger and that Ms. Knudson’s service has not terminated prior to the consummation of the merger.

Potential Benefits upon Change in Control of Neothetics

Pursuant to the executive employment agreement, dated October 15, 2014, by and between Neothetics and Ms. Knudson, in the event that Ms. Knudson is terminated within 12 months following a change in control, she will be entitled to a severance package consisting of (a) a lump sum payment equal to 12 months of her then in effect base salary, (b) payment by us of the premiums required to continue Ms. Knudson’s group health coverage for a period of 12 months following termination and (c) full acceleration of all unvested equity awards under the 2007 Stock Plan and 2014 Plan.

Golden Parachute Compensation

The following table and related footnotes present information about the compensation payable to Ms. Knudson, Neothetics’ sole remaining named executive officer, in connection with the merger and her associated termination without cause from Neothetics. The compensation shown in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about compensation for each named executive officer that is based on or otherwise relates to the merger. Ms. Knudson is not entitled to any pension or non-qualified deferred compensation benefits or enhancements or any tax reimbursements in connection with the merger.

 

Named Executive Officer

   Cash
($) (1)
     Equity
($) (2)
     Pension/
NDQC ($)
     Perquisites/
Benefits
($) (3)
     Tax
Reimbursements
($)
     Other
($) (4)
     Total
($)
 

Susan Knudson

   $ 317,000      $ 5,828        —        $ 24,939        —        $ 150,000      $ 497,767  

 

(1) Amounts in this column represent lump sum severance amount equal to 12 months of base salary for Ms. Knudson payable in accordance with Ms. Knudson’s executive employment agreement with Neothetics upon termination without cause.
(2) These amounts represent the estimated intrinsic value of Ms. Knudson’s unvested stock options that will accelerate and vest upon the consummation of the merger if Ms. Knudson is terminated without cause following the closing of the merger as is currently expected. “Intrinsic value” refers to the excess of the average closing market price of Neothetics’ common stock over the first five business days following October 17, 2017, the date of the first announcement of the merger, over the aggregate exercise price of the Neothetics stock options held by Ms. Knudson that were unvested as of October 20, 2017. In addition, Ms. Knudson holds underwater options to purchase 129,527 having a weighted average exercise price of $2.54.
(3) Amounts equal the premiums necessary to continue under COBRA the health insurance coverage in effect for Ms. Knudson prior to termination under the terms of their respective executive severance agreements in the event Ms. Knudson is terminated without cause following the merger.
(4) Amounts represent the cash bonuses payable contingent upon consummation of the merger, as approved the Neothetics Board in July 2017 and discussed in more detail above under “2017 Retention/Performance Bonus.”

Ownership Interest

As of October 20, 2017, the directors and executive officers of Neothetics beneficially owned 42.39% of the outstanding shares of Neothetics common stock. See the section entitled “ Principal Stockholders of Neothetics ” beginning on page 233 of this proxy statement/prospectus/information statement for more information.

 

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Other Neothetics Director Interests

It is anticipated that [●] will serve as a director of the combined company following the effective time of the merger.

Indemnification of the Neothetics Officers and Directors

The Merger Agreement provides that, for a period of six years following the effective time of the merger, Neothetics will, to the fullest extent permitted by Delaware law, indemnify and hold harmless all individuals who are present or former directors and officers or who become, prior to the effective date of the merger, director or officers of Neothetics or Evofem, against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that such person is or was a director or officer of Neothetics or Evofem. In addition, for a period of six years following the effective time of the merger, the certificate of incorporation and bylaws of Neothetics will contain provisions no less favorable with respect to indemnification of present and former directors and officers of Evofem than are presently set forth in the certificate of incorporation and bylaws of Neothetics.

The Merger Agreement also requires that Neothetics purchase an insurance policy which maintains in effect for six years from the closing the current directors’ and officers’ liability insurance policies currently maintained by Neothetics; provided, that Neothetics may substitute such policies with policies of at least the same coverage containing terms and conditions that are not materially less favorable.

 

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THE MERGER AGREEMENT

The following is a summary of the material terms of the Merger Agreement. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus/information statement and is incorporated by reference into this proxy statement/prospectus/information statement. The Merger Agreement has been attached to this proxy statement/prospectus/information statement to provide you with information regarding its terms. It is not intended to provide any other factual information about Neothetics, Evofem or Merger Sub. The following description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. You should refer to the full text of the Merger Agreement for details of the merger and the terms and conditions of the Merger Agreement.

The Merger Agreement contains representations and warranties that Neothetics and Merger Sub, on the one hand, and Evofem, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the Merger Agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in the representations and warranties are qualified by information in confidential disclosure schedules exchanged by the parties in connection with signing the Merger Agreement. While Neothetics and Evofem do not believe that these disclosure schedules contain information required to be publicly disclosed under the applicable securities laws, other than information that has already been so disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached Merger Agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about Neothetics or Evofem, because they were made as of specific dates, may be intended merely as a risk allocation mechanism between Neothetics and Merger Sub, and Evofem and are modified by the disclosure schedules.

General

Under the Merger Agreement, Nobelli Merger Sub, Inc., or Merger Sub, a wholly owned subsidiary of Neothetics formed by Neothetics in connection with the merger, will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics.

Merger Consideration

Immediately prior to the effective time of the merger, each share of Evofem preferred stock (other than shares of Evofem Series D Preferred Stock) outstanding at such time will be converted into one share of Evofem common stock in accordance with the Evofem certificate of incorporation then in effect. Shares of Evofem Series D Preferred Stock will not convert into shares of Evofem common stock in connection with the merger. At the effective time of the merger,

 

    each share of Evofem common stock issued and outstanding immediately prior to the effective time of the merger (including shares of Evofem common stock issued upon conversion of shares of Evofem preferred stock and shares of Evofem common stock issued upon exercise of the Investor Warrants described in the section entitled “ Agreements Related to the Merger — Securities Purchase Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement) will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the common stock exchange ratio, as described below;

 

    each share of Evofem Series D Preferred Stock issued and outstanding immediately prior to the effective time of the merger will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the Series D Preferred Stock exchange ratio, as described below;

 

   

each Evofem Option will be assumed by Neothetics and will become a Neothetics Option, multiplied by the common stock exchange ratio (and rounding the resulting number down to the nearest whole

 

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share), at an exercise price equal to the per share exercise price of such Evofem Option divided by the common stock exchange ratio (and rounding the resulting number up to the nearest whole cent); and

 

    Evofem Warrants will be assumed by Neothetics and then immediately amended and restated to become the Neothetics Post-Merger Warrants.

No fractional shares of Neothetics common stock will be issuable pursuant to the merger to Evofem stockholders. Instead, each Evofem stockholder who would otherwise be entitled to receive a fraction of a share of Neothetics common stock, after aggregating all fractional shares of Neothetics common stock issuable to such stockholder, will be entitled to receive in cash the dollar amount, rounded down to the nearest whole cent, without interest, determined by multiplying such fraction by the average of the closing prices of a share of Neothetics common stock as quoted on The NASDAQ Capital Market for the ten consecutive trading days ending with the second to last trading day immediately preceding the effective time of the merger.

Exchange Ratios

The exchange ratios are calculated using formulas intended to allocate to the existing Neothetics securityholders a percentage of the combined company based on (i) the relative valuations agreed upon by the parties of $171.4 million for Evofem and $28.6 million for Neothetics and (ii) imputing the aggregate value of investments made by existing Evofem investors in the Financing immediately following the merger. The exchange ratios are also intended to take into account the liquidation preference and accrued dividends payable to the holders of Evofem Series D Preferred Stock in connection with the merger pursuant to the terms of Section 2(a) of Article IV(B) of Evofem’s amended and restated certificate of incorporation. See the section entitled “ Comparison of the Rights of Neothetics Stock and Evofem Stock — Liquidation Preference ” beginning on page 223 of this proxy statement/prospectus/information statement.

Per the exchange ratio formulas in the Merger Agreement, the aggregate number of shares of Neothetics common stock to be issued to the holders of Evofem capital stock in the merger, or Evofem Merger Shares, is 82,893,740 shares subject to adjustment for the Reverse Stock Split and as set forth in Section 1.12(b) of the Merger Agreement.

The Series D exchange ratio means the quotient obtained by dividing the Series D Preference Merger Shares (as defined below) by the number of issued and outstanding shares of Evofem Series D Preferred Stock immediately prior to the effective time of the merger.

 

    Series D Preference Merger Shares means the number of Evofem Merger Shares (rounded up to the nearest whole share) equal to the quotient of the Series D Preference Amount (as defined below) divided by $2.0677.

 

    The Series D Preference Amount is the aggregate amount (in United States dollars) payable to holders of outstanding shares of Evofem Series D Preferred Stock pursuant to Section 2(a) of Article IV(B) of Evofem’s amended and restated certificate of incorporation in connection with the consummation of the merger.

The common stock exchange ratio means the quotient obtained by dividing the Common Merger Shares by the number of Common Exchange Ratio Outstanding Shares (as defined below).

 

    Common Merger Shares means the number of Evofem Merger Shares equal to the difference of the aggregate number of Evofem Merger Shares minus the Series D Preference Merger Shares.

 

    Common Exchange Ratio Outstanding Shares means the total number of Evofem common stock outstanding immediately prior to the consummation of the merger (on an as converted to common stock basis with respect to shares of Evofem Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock) and assuming full net exercise of the Investor Warrants.

 

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The number of Evofem Common Merger Shares, the number of Evofem Series D Merger Shares, and the number of Evofem Merger Shares is subject to adjustment to reflect the ownership percentages set forth on Schedule 1.12(d) of the Merger Agreement and to reflect the proposed Reverse Stock Split. No adjustment will be made to the common stock exchange ratio or Series D Preferred Stock exchange ratio in respect of the Financing.

The Merger Agreement does not include a price-based termination right, so there will be no adjustment to the total number of shares of Neothetics common stock that Evofem stockholders, option holders and warrant holders will be entitled to receive for changes in the market price of Neothetics common stock. Accordingly, the market value of the shares of Neothetics common stock issued pursuant to the merger will depend on the market value of the shares of Neothetics common stock at the time of the merger, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

Procedures for Exchanging Evofem Stock Certificates

The Merger Agreement provides that, as soon as practicable after the effective time of the merger, Neothetics will issue and deposit with the exchange agent non-certificated shares of Neothetics common stock represented by book-entry issuable to the Evofem stockholders and a sufficient amount of cash to make payments in lieu of fractional shares.

The Merger Agreement provides that, as soon as reasonably practicable after the effective time of the merger, the exchange agent will mail to each record holder of Evofem capital stock a letter of transmittal and instructions for surrendering and exchanging the record holder’s Evofem stock certificates for shares of Neothetics common stock. Upon surrender of an Evofem stock certificate for exchange to the Exchange Agent, together with a duly signed letter of transmittal and such other documents as the exchange agent or Neothetics may reasonably require, the Evofem stock certificate surrendered will be cancelled and the holder of the Evofem stock certificate will be entitled to receive the following:

 

    non-certificated shares of Neothetics common stock represented by book-entry that such holder has the right to receive pursuant to the provisions of the Merger Agreement; and

 

    cash in lieu of any fractional share of Neothetics common stock.

At the effective time of the merger, all shares of Evofem capital stock outstanding immediately prior to the effective time of the merger will be cancelled and all holders of Evofem capital stock that was outstanding immediately prior to the effective time of the merger will cease to have any rights as stockholders of Evofem. In addition, the stock transfer books of Evofem will be closed with respect to all shares of Evofem capital stock outstanding immediately prior to the effective time of the merger and no transfer of any shares of Evofem capital stock will be made after the effective time of the merger on such stock transfer books.

If any Evofem stock certificate has been lost, stolen or destroyed, Neothetics’ transfer agent, Philadelphia Stock Transfer, Inc. acting as exchange agent for the merger, or the Exchange Agent, will, as a condition to the delivery of any shares of Neothetics common stock, require the owner of such lost, stolen or destroyed certificate to provide an appropriate affidavit and as indemnity against any claim that may be made against the Exchange Agent, Neothetics or the surviving corporation with respect to a lost, stolen or destroyed certificate.

From and after the effective time of the merger, until it is surrendered, each certificate that previously evidenced Evofem capital stock will be deemed to represent only the right to receive shares of Neothetics common stock and cash in lieu of any fractional share of Neothetics common stock. No dividends or distributions declared or made with respect to Neothetics common stock with a record date after the effective time of the merger will be paid to the holder of any unsurrendered certificate representing shares of Evofem capital stock with respect to the shares of Neothetics common stock that such holder has the right to receive in the merger until such holder surrenders such certificate for exchange to the Exchange Agent.

 

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Treatment of Evofem Options

At the effective time of the merger, each Evofem Option, whether vested or not vested, will be converted into a Neothetics Option and each Neothetics Option may be exercised solely for shares of Neothetics common stock. Neothetics will assume the Evofem Equity Incentive Plan. The number of shares of Neothetics common stock subject to each Neothetics Option will be determined by multiplying (i) the number of shares of Evofem common stock that were subject to the underlying Evofem Option by (ii) the common stock exchange ratio, with the resulting number rounded down to the nearest whole number of shares of Neothetics common stock. The per share exercise price for the Neothetics common stock subject to such Neothetics Option will be determined by dividing (i) the per share exercise price of the underlying Evofem Option by (ii) the common stock exchange ratio, with the resulting number rounded up to the nearest whole cent.

Any restrictions on the exercise of assumed Evofem Options will continue in full force and effect following the conversion and the term, exercisability, vesting schedules, status as an “incentive stock option” under Section 422 of the Code, if applicable, and other provisions of the assumed Evofem Options will generally remain unchanged; provided, that any Evofem Options assumed by Neothetics may be subject to adjustment to reflect changes in Neothetics’ capitalization after the effective time of the merger and that the Neothetics Board or any committee thereof will succeed to the authority of the Evofem Board with respect to each assumed Evofem Option.

Treatment of Evofem Warrants

The Evofem Warrants will be assumed by Neothetics at the effective time and then immediately amended and restated to become the Neothetics Post-Merger Warrants to purchase up to an aggregate of 12 million shares of the Neothetics common stock. The exercise price for the Neothetics Post-Merger Warrants will be equal to the average of the closing sale prices of the Neothetics common stock as quoted on The NASDAQ Capital Market for the 30 consecutive trading day period commencing immediately following the effective time of the merger and will be exercisable for a period commencing on the one year anniversary of the effective time of the merger and ending on the fourth anniversary of the effective time of the merger. Each of the three Neothetics Post-Merger Warrants will be issued as a unit with one Unit Share. Per the terms of the Neothetics Post-Merger Warrants, the Unit Shares may not be transferred separately from the Neothetics Post-Merger Warrants. The Neothetics Post-Merger Warrants will be subject to adjustment for the Reverse Stock Split as well as any other changes in Neothetics’ capitalization after the effective time of the merger.

Directors and Executive Officers of Neothetics Following the Merger

Pursuant to the Merger Agreement, the Neothetics Board immediately after the effective time of the merger will consist of six members designated by Evofem, or the Evofem Appointees, and one independent director designated by Neothetics. Each current director of Neothetics that will no longer be a member of the Neothetics Board after the effective time of the merger will resign effective as of the effective time of the merger. From and after the effective time of the merger, the Neothetics Board will maintain an independent audit committee, and it is anticipated that the company appointees, together with the independent director designated by Neothetics, will allow the Neothetics Board to comply with the requisite NASDAQ independence requirements and all applicable securities laws. Each new director of Neothetics that was not a member of the Neothetics Board immediately before the effective time of the merger will enter into an indemnification agreement with Neothetics within

 

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15 days of their respective appointment. It is anticipated that the Neothetics Board will include the following Evofem appointees [●] 5/ , as well as [●] 5/ , who was appointed by Neothetics. Effective as of the effective time of the merger, Evofem will direct the Neothetics Board to appoint each of the following as executive officers of Neothetics:

 

Name

  

Title

Saundra Pelletier

  

Chief Executive Officer

Justin J. File

  

Chief Financial Officer

Kelly Culwell, M.D.

  

Chief Medical Officer

Russ Barrans

  

Chief Commercial Officer

David R. Friend, Ph.D.

  

Chief Scientific Officer

Alexander A. Fitzpatrick, Esq.

  

General Counsel and Secretary

Amendment to the Amended and Restated Certificate of Incorporation of Neothetics

Stockholders of record of Neothetics common stock on the record date for the Neothetics special meeting will also be asked to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to (i) effect the proposed Reverse Stock Split, (ii) cause the post-merger combined entity not to be governed by Section 203 of the DGCL, and (iii) change the name of the corporation from “Neothetics, Inc.” to “Evofem Biosciences, Inc.” in connection with the merger, each of which requires the affirmative vote of holders of a majority of the outstanding common stock on the record date for the Neothetics special meeting.

Conditions to the Completion of the Merger

Each party’s obligation to effect the merger is subject to the satisfaction or waiver by each of the parties, at or prior to the effective time of the merger, of various conditions, which include the following:

 

    the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, must have been declared effective by the SEC in accordance with the Securities Act and must not be subject to any stop order or proceedings seeking a stop order;

 

    there must not have been any temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the merger that is in effect, and there must not be any proceeding brought by any administrative agency or commission or other governmental body or instrumentality, domestic or foreign, seeking any temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the merger that is pending, and there must not have been any action taken, or any statute, rule, regulation, or order enacted, entered, enforced or deemed applicable to the merger, which makes the consummation of the merger illegal;

 

    the holders of a majority in voting power of the outstanding shares each class of Evofem preferred stock on the applicable record date, each voting as a separate class, and the holders of a majority in voting power of the outstanding shares of all Evofem capital stock must have adopted the Merger Agreement and approved the merger, and the holders of a majority of the outstanding shares of Neothetics common stock must have approved the merger, the issuance of Neothetics common stock in the merger and the amended and restated certificate of incorporation of Neothetics, including for purposes of effectuating the Reverse Stock Split;

 

    the shares of Neothetics common stock to be issued in the merger must have been approved for listing on The NASDAQ Capital Market (subject to official notice of issuance); and

 

    any waiting period applicable to the consummation of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR Act, must have expired or been terminated.

 

5/   To be provided by amendment.

 

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In addition, the obligation of Neothetics to effect the merger is also subject to the satisfaction or waiver of certain conditions, including the following:

 

    the (i) representations and warranties of Evofem in the Merger Agreement with respect to its capital structure and authorization must be true and correct in all material respects and as of the closing date of the merger, with the same force and effect as if made on and as of the closing date of the merger, except for those representations and warranties which address matters only as of a particular date (which must be true and correct in all material respects as of such date) and (ii) representations and warranties of Evofem in the Merger Agreement, other than those with respect to its capital structure, non-contravention and authorization, must be true and correct in all respects on and as of the closing date of the merger, with the same force and effect as if made on and as of the closing date of the merger, expect for those representations and warranties which address matters only as of a particular date (which must be true and correct in all material respects as of such date), or contain inaccuracies that, individually or in the aggregate, do not constitute and would not reasonably be expected to constitute a material adverse effect, provided that for purposes of clause (ii), all “material adverse effect” qualifications and other materiality qualifications limiting the scope of the representations and warranties of Evofem in the Merger Agreement will be disregarded. The merger and the transactions contemplated in connection with the merger must not constitute a breach of Evofem’s representations and warranties with respect to its capital structure;

 

    Evofem must have performed or complied with in all material respects its agreements and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the effective time of the merger;

 

    since the date of the Merger Agreement, there must not have been any change, occurrence or circumstance in the business, results of operations or financial condition of Evofem or any subsidiary of Evofem that (i) prevents Evofem from consummating the merger or (ii) had, individually or in the aggregate, a material adverse effect on the business, financial condition, operations or result of operations of Evofem or its subsidiaries taken as a whole that is continuing, provided, however, that in no event will any of the following, alone or in combination, be deemed to constitute, nor will any of the following be taken into account in determining whether there has occurred a material adverse effect on Evofem:

 

    conditions generally affecting the industries in which Evofem or its subsidiaries participate, or the United States or global economy or capital markets as a whole (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Evofem and its subsidiaries taken as a whole);

 

    any failure by the Evofem or any of its subsidiaries to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending (or for which revenues or earnings are released) on or after the date of the Merger Agreement (however, any effect causing or contributing to such failures to meet projections or predictions may, if not otherwise to be disregarded pursuant to the terms of the Merger Agreement, constitute a material adverse effect and may be taken into account in determining whether a material adverse effect has occurred);

 

    any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Evofem and its subsidiaries taken as a whole); or

 

    any changes (after the date of the Merger Agreement) in GAAP or applicable laws (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Evofem and its subsidiaries taken as a whole).

 

    Neothetics must have received written resignations from each resigning member of the board of directors of Evofem and each of its subsidiaries;

 

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    The Lock-Up Agreements must be in full force and effect immediately following the completion of the Merger (see section entitled “ Agreements Related to the Merger — Lock-Up Agreements ” beginning on page 127 of this proxy statement/prospectus/information statement);

 

    Evofem must have delivered a certificate setting forth the allocation of the Evofem Merger Shares to its securityholders;

 

    The Securities Purchase Agreement must be in full force and effect so that the Financing may be completed immediately following the merger;

 

    Evofem must have terminated the Evofem Stockholder Agreement (see the section entitled “ Certain Relationships and Related Party Transactions of Evofem — Evofem Stockholder Agreement ” beginning on page 209 of this proxy statement/prospectus/information statement) and the Evofem Registration Rights Agreement (see the section entitled “ Certain Relationships and Related Party Transactions of Evofem — Registration Rights Agreement ” beginning on page 208 of this proxy statement/prospectus/information statement);

 

    Evofem must have delivered to Neothetics certain other officer certificates and deliverables; and

 

    Evofem must have effected a conversion of its preferred stock into common stock (other than the Evofem Series D Preferred Stock) immediately prior to the effective time of the merger.

In addition, the obligation of Evofem to complete the merger is further subject to the satisfaction or waiver of certain conditions, including the following:

 

    the (i) representations and warranties of Neothetics and Merger Sub in the Merger Agreement with respect to their capital structure, non-contravention and authorization must be true and correct in all material respects on and as of the closing date of the merger, with the same force and effect as if made on and as of the closing date of the merger, except for those representations and warranties which address matters only as of a particular date (which must be true and correct in all material respects as of such date) and (ii) representations and warranties of Neothetics and Merger Sub in the Merger Agreement, other than those with respect to their capital structure and authorization, must be true and correct in all respects on and as of the closing date of the merger, with the same force and effect as if made on and as of the closing date of the merger, expect for those representations and warranties which address matters only as of a particular date (which must be true and correct in all material respects as of such date), or contain inaccuracies that, individually or in the aggregate, do not constitute and would not reasonably be expected to constitute a material adverse effect, provided that for purposes of clause (ii), all “material adverse effect” qualifications and other materiality qualifications limiting the scope of the representations and warranties of Neothetics and Merger Sub in the Merger Agreement will be disregarded;

 

    Neothetics and Merger Sub must have performed or complied with in all material respects its agreements and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the effective time of the merger;

 

    since the date of the Merger Agreement, there must not have been any change, occurrence or circumstance in the business, results of operations or financial condition of Neothetics or any subsidiary of Neothetics that (i) prevents Neothetics or Merger Sub from consummating the merger or (ii) had, individually or in the aggregate, a material adverse effect on the business, financial condition, operations or result of operations of Neothetics or its subsidiaries taken as a whole, that is continuing, provided, however, that in no event will any of the following, alone or in combination, be deemed to constitute, nor will any of the following be taken into account in determining whether there has occurred a material adverse effect on Neothetics:

 

    conditions generally affecting the industries in which Neothetics participates, or the United States or global economy or capital markets as a whole (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Neothetics and its subsidiaries taken as a whole);

 

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    changes in the trading price or trading volume of Neothetics common stock (however, any effect causing or contributing to such changes in the trading price or trading volume of Neothetics common stock may if not otherwise to be disregarded pursuant to the Merger Agreement, constitute a material adverse effect and may be taken into account in determining whether a material adverse effect has occurred);

 

    any failure by Neothetics or any of its subsidiaries to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending (or for which revenues or earnings are released) on or after the date of the Merger Agreement (however, any effect causing or contributing to such failures to meet projections or predictions may, if not otherwise to be disregarded pursuant to the terms of the Merger Agreement, constitute a material adverse effect and may be taken into account in determining whether a material adverse effect has occurred);

 

    any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Neothetics and its subsidiaries taken as a whole); or

 

    any changes (after the date of the Merger Agreement) in GAAP or applicable laws (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Neothetics and its subsidiaries taken as a whole).

 

    Evofem must have received written resignations from each resigning member of the Neothetics Board and each of its subsidiaries, with such resignation to be effective as of the effective time of the merger;

 

    each of the Evofem appointees has been elected to the Neothetics Board;

 

    Neothetics’ amended and restated investor rights agreement, by and among Neothetics and the stockholders set forth must be terminated on or prior to the date of the merger;

 

    Shares of Neothetics common stock must be approved for listing on The NASDAQ Capital Market and NASDAQ must have approved the listing of shares of Neothetics common stock on The NASDAQ Capital Market following the merger; and

 

    Neothetics must deliver a fully executed Post-Merger Registration Rights Agreement. See the section entitled “ Agreements Related to the Merger — Post-Merger Registration Rights Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement.

Representations and Warranties

The Merger Agreement contains customary representations and warranties of Neothetics and Evofem for a transaction of this type relating to, among other things:

 

    corporate organization and power, and similar corporate matters;

 

    capital structure;

 

    financial statements, undisclosed liabilities and with respect to Neothetics, documents filed with the SEC and the accuracy of information contained in those documents;

 

    absence of material changes or events;

 

    title to assets;

 

    real property and leaseholds;

 

    intellectual property;

 

    the validity of material contracts to which the parties or their subsidiaries are a party and any violation, default or breach to such contracts;

 

    liabilities;

 

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    regulatory compliance, permits and restrictions;

 

    tax matters;

 

    inapplicability of anti-takeover statutes;

 

    employee benefit plans;

 

    insurance;

 

    compliance with legal requirements;

 

    legal proceedings and orders;

 

    authority to enter into the Merger Agreement and the transactions contemplated by the Merger Agreement;

 

    transactions with affiliates;

 

    votes required for adoption of the Merger Agreement, approval of the merger and approval of the proposals that will come before the Neothetics special meeting;

 

    except as otherwise specifically identified in the Merger Agreement, the fact that the consummation of the merger would not contravene organizational documents, applicable laws or require the consent of any third party;

 

    any brokerage or finder’s fee or other fee or commission in connection with the merger;

 

    with respect to Evofem, labor matters;

 

    with respect to Evofem, environmental matters;

 

    with respect to Evofem, its ability to bid on government contracts;

 

    with respect to Evofem, the availability and accuracy of its books and records;

 

    with respect to Neothetics, that it is not a shell company;

 

    with respect to Neothetics, the opinion of the financial advisor to the Strategic Committee, Oppenheimer, that the merger consideration to be paid by Neothetics in the merger was fair, from a financial point of view, to Neothetics;

 

    with respect to Neothetics, the truth, accuracy and completeness of its representations or warranties in the Merger Agreement and the information contained in its disclosure schedule to the Merger Agreement;

 

    with respect to Neothetics, the valid issuance in the merger of the Neothetics common stock; and

 

    the truth, accuracy and completeness of the information supplied by the parties in this proxy statement/prospectus/information statement.

The representations and warranties are, in many respects, qualified by materiality and knowledge, and will not survive the merger, but their accuracy forms the basis of one of the conditions to the obligations of Neothetics and Evofem to complete the merger.

No Solicitation

Each of Neothetics and Evofem agreed that, except as described below, Neothetics and Evofem will not, and will not authorize or permit any of their respective subsidiaries or any of their respective controlled affiliates, officers, directors, employees, partners, attorneys, accountants, advisors, agents or representatives of such parties or of any such party’s subsidiaries or other controlled affiliates to, directly or indirectly:

 

    solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any “acquisition proposal,” as defined below, or take any action that would reasonably be expected to lead to an acquisition proposal;

 

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    furnish any nonpublic information regarding it to any person in connection with or in response to an acquisition proposal or an inquiry or indication of interest that could lead to an acquisition proposal;

 

    engage in discussions or negotiations with any person with respect to any acquisition proposal;

 

    approve, endorse or recommend an acquisition proposal; or

 

    enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to an acquisition transaction.

An “acquisition proposal” means any offer, proposal or indication of interest contemplating or which would reasonably be interpreted to be lead to the contemplation of an “acquisition transaction,” as defined below.

An “acquisition transaction” means the following:

 

    any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction (i) in which Evofem (or its subsidiaries) or Neothetics (or its subsidiaries) is a constituent corporation, (ii) in which a person or “group” (as defined in the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder) of persons directly or indirectly acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of Evofem (or its subsidiaries) or Neothetics (or its subsidiaries), or (iii) in which Evofem (or its subsidiaries) or Neothetics (or its subsidiaries) issues securities representing more than 15% of the outstanding securities of any class of voting securities of any such entity (other than as contemplated under the Merger Agreement);

 

    any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 15% or more of the consolidated net revenues, net income or assets of Evofem (or its subsidiaries) or Neothetics (or its subsidiaries); or

 

    any liquidation or dissolution of any of Evofem (or its subsidiaries) or Neothetics (or its subsidiaries).

However, before obtaining the applicable Neothetics or Evofem stockholder approvals required to adopt the Merger Agreement, each party may furnish nonpublic information regarding such party and its respective subsidiaries to, may enter into discussions with, or facilitate or cooperate with the submission of an acquisition proposal made by any person in response to any such acquisition proposal, that after consultation with a financial advisor and outside legal counsel, such party’s board of directors determines in good faith is, or would reasonably be expected to result in a “superior offer,” as defined below, (and is not withdrawn) if:

 

    such acquisition proposal did not result from a breach of the no solicitation provisions of the Merger Agreement described above;

 

    such party’s board of directors concludes in good faith, after having taken into account the advice of its outside legal counsel, that such action is required in order for the board of directors to comply with its fiduciary duty obligations to its stockholders under applicable legal requirements;

 

    at least two business days prior to furnishing any information or entering into discussions with a third party, such party must (i) give the other party written notice of the identity of the third party, the terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) made thereby and of that party’s intention to furnish information to, or enter into discussions with such third party and (ii) such party must receive from the third party an executed confidentiality agreement on terms no less favorable to such party than those in the confidentiality agreement between Neothetics and Evofem, with such new confidentiality agreement to contain customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such third party on or behalf of such party (as well as customary “standstill” provisions if Neothetics is the party entering into a new confidentiality agreement with the third party); and

 

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    substantially contemporaneous with furnishing of any information to a third party, such party furnishes the same information to the other party to the extent not previously furnished. Notwithstanding the non-solicitation provisions of the Merger Agreement described above, Evofem is permitted to take, or refrain from taking, any action described above to the extent any such action is taken in connection with or view a view towards consummating a post-closing financing or refinancing, and no such action or omission will be deemed a violation of the non-solicitation provisions of the Merger Agreement.

A “superior offer” means an unsolicited, bona fide written offer made by a third party to purchase all of the outstanding shares of capital stock of either Neothetics or Evofem, as applicable, on terms that the Evofem Board or Neothetics Board, as applicable, determines, in its reasonable judgment, based upon a written opinion of an independent financial advisor of nationally recognized reputation, to be more favorable to its stockholders from a financial point of view than the terms of the merger; provided, however, that any such offer will not be deemed to be a “superior offer” if any financing required to consummate the transaction contemplated by such offer is not committed and is not reasonably capable of being obtained by such third party.

The Merger Agreement also provides that each party will promptly (and in no event later than 24 hours after receipt of any acquisition proposal, any inquiry or indication of interest that could lead to an acquisition proposal or any request for nonpublic information) advise the other orally and in writing of any acquisition proposal, any inquiry or indication of interest that could lead to an acquisition proposal or any request for nonpublic information relating to such party or its subsidiaries (including the identity of the third party making or submitting such acquisition proposal, inquiry, indication of interest or request, the material terms thereof and copies of any written material submitted therewith) that is made or submitted by any third party between the date of the Merger Agreement and the consummation of the merger. Each party will keep the other informed on a prompt basis in all material respects with respect to the status of any such acquisition proposal, inquiry, indication of interest or request and any modification or proposed modification thereto and shall deliver copies of any written material submitted therewith.

The Merger Agreement provides that each party must have immediately ceased and caused to be terminated any discussions that existed at the date the Merger Agreement was signed with any third party that related to any acquisition proposal and such party must have promptly requested from each third party that executed a confidentiality agreement in connection with its consideration of making an acquisition proposal prior to the date of the Merger Agreement to return or destroy all confidential information concerning Evofem or Neothetics, as applicable, or any of their subsidiaries, as applicable, and promptly terminated all physical and electronic data access previously granted to such third party.

Meetings of Stockholders

Neothetics is obligated under the Merger Agreement to take all action necessary under applicable legal requirements to call, give notice of and hold a special meeting of its stockholders to vote on the merger, the issuance of Neothetics common stock in the merger, the proposed certificate of amendment to the amended and restated certificate of incorporation of Neothetics, including for purposes of effectuating the Reverse Stock Split. The Neothetics special meeting will be held as promptly as practicable after the effective date of the registration statement on Form S-4.

If on a date preceding the date on which or the date on which the Neothetics special meeting is scheduled, Neothetics reasonably believes that (i) it will not receive proxies sufficient to obtain the requisite stockholder approval, whether or not a quorum would be present or (ii) it will not have sufficient shares of Neothetics common stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Neothetics special meeting, Neothetics may (or will, at the Evofem’s direction) postpone or adjourn, or make one or more successive postponements or adjournments of, the Neothetics special meeting as long as the date of the Neothetics special meeting is not postponed or adjourned more than an aggregate of 60 calendar days in connection with any postponements or adjournments in reliance on the preceding sentence.

 

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Evofem is obligated under the Merger Agreement to obtain written consents of its stockholders sufficient for purposes of (i) adopting the Merger Agreement and approving the merger and all other transactions contemplated by the Merger Agreement, (ii) acknowledging that such approval given is irrevocable and that such stockholder is aware of its rights to demand appraisal for its shares pursuant to Section 262 of the DGCL, and that such stockholder has received and read a copy of Section 262 of the DGCL, (iii) acknowledging that by its approval of the merger such stockholder is not entitled to appraisal rights with respect to its shares in connection with the merger and thereby waives any rights to receive payment of the fair value of its Evofem capital stock under Delaware Law and (iv) providing for the conversion of all Evofem preferred stock into Evofem common stock immediately prior to, and contingent upon the occurrence of, the effective time of the merger (clauses (i) though (iv) collectively, the Evofem stockholder matters) no later than 11:59 pm on the date that is second business day following the effective date of this registration statement. Stockholders of Evofem that execute written consents approving the Evofem stockholder matters may revoke such consent until 11:59 pm on the date that is second business day following the effective date of this registration statement.

Covenants; Conduct of Business Pending the Merger

Evofem agreed that to carry on its business in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, and in substantially the same manner as conducted previously. Evofem also agreed that, subject to certain limited exceptions, without the written consent of Neothetics, it will not, and will not permit its subsidiaries to do any of the following during the period prior to closing of the merger:

 

    amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise; sell, issue or grant, or authorize the issuance of, or make any commitments to do any of the foregoing, other than as contemplated by the Merger Agreement: any capital stock or other security (except for options or common stock issued to Evofem employees, officers, or directors pursuant to the Evofem Equity Incentive Plan or shares of Evofem common stock issued upon the valid exercise of options); any option, warrant or right to acquire any capital stock or any other security; or any instrument convertible into or exchangeable for any capital stock or other security;

 

    redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Evofem capital stock (other than pursuant a repurchase right in favor of Evofem with respect to unvested shares at no more than cost);

 

    incur any indebtedness or sell any debt securities or guarantee any debt securities or other obligations of others or sell, pledge, dispose of or create an encumbrance over any assets (except (i) for sales of assets in the ordinary course of business and in a manner consistent with past practice; (ii) for dispositions of obsolete or worthless assets or (iii) in connection with a post-closing financing or permitted bridge financing);

 

    accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any Evofem Options, except as may be required under the Evofem Equity Incentive Plan, any other contract, the Merger Agreement or as may be required by applicable legal requirements;

 

    (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except that a wholly owned subsidiary may declare and pay a dividend to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its subsidiaries (except pursuant to any contract to which Evofem or one of its subsidiaries is a party as of the date of the Merger Agreement), or propose to do any of the foregoing;

 

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    sell, assign, transfer, license, sublicense or otherwise dispose of any Evofem intellectual property rights (other than in the ordinary course of business consistent with past practice);

 

    (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets; (ii) without the consent of Neothetics, which will not be unreasonably withheld, conditioned or delayed, enter into or amend any material terms of any Evofem contract or grant any release or relinquishment of any material rights under any Evofem contract; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $100,000, taken as a whole not reflected or accounted for in the Evofem budget; or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by any of the foregoing;

 

    forgive any loans to any person, including its employees, officers, directors or affiliates (provided that the conversion or settlement of any indebtedness of Evofem or one of its subsidiaries into or for equity securities of Evofem or one of its subsidiaries will not be deemed a forgiveness of such indebtedness);

 

    except as contemplated by Evofem’s then existing budget, increase the compensation payable or to become payable to Evofem directors, officers, employees or consultants or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer (except for officers who are terminated on an involuntary basis), employee or consultant, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any such director, officer, consultant or employee, except for bonus awards in the ordinary course of business consistent with past practice or bonus awards contingent upon the completion of the transactions contemplated by this Merger Agreement (of which there are none);

 

    take any action, other than as required by applicable legal requirements or GAAP, to change accounting policies or procedures;

 

    make or change any material tax election inconsistent with past practices; adopt or change any tax accounting method; settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations for any assessment of any tax;

 

    pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice;

 

    enter into any material partnership arrangements, joint development agreements or strategic alliances, other than in connection with a post-closing financing or refinancing;

 

    initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration;

 

    make any material expenditure that is inconsistent with those expenditures contemplated by the Evofem budget (provided that nothing herein shall prevent Evofem from making payments on expenses incurred prior to the date of the Merger Agreement and, provided further, that nothing herein shall be deemed to permit Evofem to make any expenditures relating to the consummation of a public offering of Evofem’s capital stock); or

 

    amend, modify, waive or otherwise alter the Evofem Support Agreements in any material respect or consent to the transfer of any Evofem stock held or managed by the signatories thereto.

Neothetics agreed that to carry on its business in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, and in substantially the same manner as conducted previously. Neothetics also agreed that, subject to certain limited exceptions, without the written consent of Evofem, it will

 

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not, and will not permit its subsidiaries to do any of the following during the period prior to closing of the merger:

 

    except for the amendment to its amended and restated certificate of incorporation to effect the proposed Reverse Stock Split, amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise, or form any subsidiary);

 

    issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest), other than the issuance of shares of common stock issuable pursuant to employee stock options under currently existing employee stock option plans or pursuant to currently outstanding warrants, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date of the Merger Agreement;

 

    redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Neothetics capital stock, other than as may be required by the Reverse Stock Split;

 

    incur any indebtedness or sell, pledge, dispose of or create an encumbrance over any assets (except for (i) sales of assets in the ordinary course of business and in a manner consistent with past practice or (ii) dispositions of obsolete or worthless assets;

 

    accelerate, amend, or change the period (or permit any acceleration, amendment, or change) of exercisability of options or warrants or authorize cash payments in exchange for any options, except as may be provided under Neothetics’ stock plan, contract, or the Merger Agreement, or as may be required by applicable legal requirements;

 

    (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except that a wholly owned subsidiary may declare and pay a dividend to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its subsidiaries (except pursuant to any contract to which Neothetics or one of its subsidiaries is a party as of the date of the Merger Agreement), or propose to do any of the foregoing;

 

    (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets, or allow any material property or assets to become subject to any encumbrance; (ii) enter into or amend any material terms of any material contract (other than solely to decrease any payment obligation of Neothetics or one of its subsidiaries) or grant any release or relinquishment of any material rights under any material contract, with new obligations or losses of rights in excess of $100,000 in the aggregate; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $100,000, taken as a whole; or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by any of the foregoing;

 

    forgive any loans to any person, including its employees, officers, directors or affiliates;

 

    increase the compensation payable or to become payable to its directors, officers, employees or consultants or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer (except for officers who are terminated on an involuntary basis), employee or consultant, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any such director, officer, consultant or employee (other than securing a liability “tail” policy for the directors’ and officers’);

 

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    take any action, other than as required by applicable legal requirements or GAAP, to change accounting policies or procedures;

 

    make or change any material tax election inconsistent with past practices, adopt or change any tax accounting method, or settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations for any assessment of any tax;

 

    pay, discharge, satisfy, modify or renegotiate any claims or liabilities, other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the financial statements of Neothetics, or payments, discharges or satisfactions made in the ordinary course of business and consistent with past practice;

 

    enter into any material partnership arrangements, joint development agreements or strategic alliances; or

 

    initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration.

Regulatory Approvals

Neothetics and Evofem agreed:

 

    that each party would use its commercially reasonable efforts to file or otherwise submit, all applications, notices, reports and other documents reasonably required to be filed by such party with or otherwise submitted by such party to any governmental entity with respect to the merger and to submit promptly any additional information requested by any such governmental entity;

 

    to prepare and file, if any, (a) the notification and report forms required to be filed under the HSR Act and (b) any notification or other document required to be filed in connection with the merger under any applicable foreign legal requirement relating to antitrust or competition matters; and

 

    to respond as promptly as is practicable in compliance with: (i) any inquiries or requests received from the Federal Trade Commission or the Department of Justice for additional information or documentation; and (ii) any inquiries or requests received from any state attorney general, foreign antitrust or competition authority or other governmental entity in connection with antitrust or competition matters.

Access to Information

Neothetics and Evofem agreed to:

 

    provide reasonable access to the other party during the period prior to the closing of the merger, to such party’s properties, books, contracts, commitments and records (including tax records) and, during such period, to furnish promptly to the other all information concerning its business, properties and personnel as such other party may reasonably request, and each will make available to the other the appropriate individuals (including attorneys, accountants and other professionals) for discussion of the other’s business, properties and personnel as either party may reasonably request; provided that each party reserved the right to withhold any information if access to such information would be reasonably likely to result in any such party forfeiting attorney-client privilege between it and its counsel with respect to such information;

 

   

promptly provide the other party with copies of: (i) all material operating and financial reports prepared by such party (or their respective their representatives), as applicable, for such party’s senior management; (ii) any written materials or communications sent by or on behalf of such party to its stockholders; (iii) any material notice, document or other communication sent by or on behalf of any of such party to any third party to any material contract, as applicable, or sent to such party by any third

 

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party to any material contract, as applicable, (other than any communication that relates solely to routine commercial transactions and that is of the type sent in the ordinary course of business and consistent with past practices); (iv) any notice, report or other document filed with or sent to any governmental entity in connection with the merger or any of the transactions contemplated thereby; and (v) any material notice, report or other document received from any governmental entity; and

 

    keep such information confidential in accordance with the terms of the currently effective confidentiality agreement between the parties; provided that Evofem may make disclosure of such information pursuant to the terms of the Merger Agreement, including in connection with a post-closing financing or refinancing (provided that any third party receiving such information shall be required to execute a non-disclosure agreement on customary terms with respect to any information disclosed in connection therewith).

Other Agreements

Neothetics and Evofem agreed that:

 

    from and after the effective time of the merger, Neothetics and the surviving corporation will fulfill and honor in all respects the obligations of Evofem and Neothetics which existed prior to the date of the Merger Agreement to indemnify each of Evofem and Neothetics’ present and former directors and officers, and their heirs, executors and assigns;

 

    Evofem will maintain a “tail” policy on its existing directors and officers’ liability insurance policy for a period of six years;

 

    Neothetics must secure a directors and officers’ liability “tail” policy on Neothetics’ existing directors and officers for a period of six years;

 

    the parties will consult with each other before issuing any press release or otherwise making any public statements with respect to the merger and Merger Agreement and will not issue any such press release or make any such public statement without the prior consent of the other party, subject to certain exceptions;

 

    each party must promptly notify the other party of any litigation brought, or threatened, against such party and/or members of its board of directors or any of its officers relating to the Merger Agreement and the transactions contemplated thereby, or otherwise, and must keep the other party informed on a reasonably current basis with respect to the status thereof. Each party must also give the other party the right to review and comment on all material filings or responses to be made by such party in connection with the foregoing and, no settlement shall be agreed to in connection with the foregoing without the other party’s prior written consent;

 

    each party will give prompt notice to the other of (i) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which would be reasonably likely to cause any representation or warranty contained in the Material Agreement to be untrue or inaccurate such that the conditions to closing applicable to such party would fail to be satisfied as of the closing of the merger and (ii) any failure of such party materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under the Merger Agreement such that the conditions to closing applicable to such party would fail to be satisfied as of the closing of the merger;

 

    each party will give prompt notice to the other of: (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the merger or other transactions contemplated by the Merger Agreement; (ii) any notice or other communication from any governmental entity in connection with the merger or other transactions contemplated by the Merger Agreement; (iii) the occurrence of a default or event that, with notice or lapse of time or both, will become a default under an Evofem material contract; and (iv) any change that would be considered reasonably likely to result in a material adverse effect;

 

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    each party will cooperate in the preparation, execution and filing of all materials regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes which become payable in connection with the with the merger and other transactions contemplated by the Merger Agreement that are required or permitted to be filed on or before the effective time of the merger;

 

    Neothetics will file the certificate of amendment to its amended and restated certificate of incorporation (effecting the Reverse Stock Split and the name change from “Neothetics, Inc.” to “Evofem Biosciences, Inc.”) with the Secretary of State of the State of Delaware to become effective immediately prior to the effective time of the merger;

 

    to take all such steps as may be required (to the extent permitted under applicable legal requirements) to cause any acquisition of Neothetics common stock (including derivative securities with respect to such stock) by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Neothetics, to be exempt under Rule 16b-3 under the Securities and Exchange Act of 1934, as amended, or the Exchange Act;

 

    Evofem will obtain written consent of its stockholders to, effective upon the date of the closing of the merger, terminate the Evofem Stockholder Agreement and Evofem Registration Rights Agreement;

 

    Neothetics will terminate, at Evofem’s request, each Neothetics 401K plan or any other Neothetics employment plan related to medical, dental, life insurance or similar benefits, with such terminations to be effective as of the day immediately preceding the date of the closing of the merger or as soon as reasonably practicable after the consummation of the merger, as applicable;

 

    the parties will use their respective reasonable best efforts to cause the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, including by executing and delivering customary tax representation letters to Evofem’s and/or Neothetics’ counsel, as applicable. None of the parties may take any actions, fail to take any actions, or cause any action to be taken which would reasonably be expected to prevent the merger from qualifying as a “reorganization” under Section 368(a) of the Code;

 

    the parties will treat the merger as a reorganization within the meaning of Section 368(a) of the Code for U.S. federal, state and other relevant tax purposes, unless otherwise required;

 

    Neothetics must submit to the holders of Neothetics common stock at the Neothetics special meeting a proposal to approve and adopt the certificate of amendment to the amended and restated certificate of incorporation of Neothetics authorizing the Neothetics Board to effect a reverse stock split at a ratio to be mutually agreed upon by Neothetics and Evofem of all shares of Neothetics common stock. Neothetics must cause the Reverse Stock Split to be implemented and take effect immediately prior to the effective time of the merger;

 

    prior to the closing of the merger, Evofem must deliver the Lock-Up Agreements to each of its stockholders and must use its commercially reasonable efforts to cause its stockholders to enter into such Lock-up Agreements;

 

    at or immediately following the effective time of the merger, Neothetics will enter into voting agreements, or Post-Merger Voting Agreements, with certain holders of shares of Neothetics common stock then representing more than 19.5% of the then issued and outstanding Neothetics common stock (see the section entitled “ Agreements Relating to the Merger — Post-Merger Voting Agreement ” beginning on page 129 of this proxy statement/prospectus/information statement); and

 

   

Neothetics will (i) to the extent required by the rules and regulations of the NASDAQ Stock Market (A) prepare and submit to The NASDAQ Capital Market an application for the listing of the shares of Neothetics common stock to be issued in the merger and use its reasonable commercial efforts to cause such shares to be approved for listing, (B) approve the Reverse Stock Split, and (C) approve the new NASDAQ Capital Market ticker symbol, and (ii) to the extent required by the rules and regulations of

 

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the NASDAQ Stock Market, file an initial listing for Neothetics common stock on The NASDAQ Capital Market, or the NASDAQ Capital Market listing application, and use its reasonable commercial efforts to cause such NASDAQ Capital Market listing application to be approved prior to the effective time of the merger.

Termination of the Merger Ag reement

The Merger Agreement may be terminated at any time before the completion of the merger, whether before or after the required stockholder approvals to complete the merger have been obtained, as set forth below:

 

1. by mutual written consent of Evofem and Neothetics duly authorized by each of their respective board of directors;

 

2. by either Neothetics or Evofem if the merger has not been consummated by February 17, 2018 (provided, however, that the right to terminate the Merger Agreement will not be available to any party whose failure to fulfill any obligation under the Merger Agreement has been a primary cause of the failure of the merger to occur on or before such date, and Neothetics may not terminate the Merger Agreement until 65 days after the Neothetics special meeting is initially held);

 

3. by Neothetics or Evofem if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission has issued a nonappealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the merger;

 

4. by Neothetics or Evofem if Evofem does not obtain the written consent of a requisite number of its stockholders necessary to adopt the Merger Agreement and approve the merger and related matters by 11:59 pm on the date that is two business days after the effectiveness of the registration statement on Form S-4, but this right to terminate the Merger Agreement will not be available to any party whose failure to fulfill any obligation under the Merger Agreement was a primary cause of Evofem’s failure to obtain the written consent of a requite number of its stockholders necessary to adopt the Merger Agreement and approve the merger and related matters;

 

5. by Neothetics or Evofem if the Neothetics special meeting has been held, and stockholders of Neothetics do not approve the merger or the issuance of Neothetics common stock in the merger at the Neothetics special meeting (including any adjournments and postponements thereof), but the right to terminate the Merger Agreement pursuant to this provision will not be available (i) to any party whose failure to fulfill any obligation under the Merger Agreement has been a primary cause of the failure of the Neothetics stockholders to approve the merger or the issuance of Neothetics common stock in the merger at the Neothetics special meeting and (ii) to Neothetics until 65 days after the date the Neothetics special meeting is initially held. In addition, if Neothetics changes or withdraws its recommendation for Proposal Nos. 1, 2 or 3 in a manner adverse to Evofem, Evofem may terminate the Merger Agreement before the expiration of the 60 day period following the date the Neothetics special meeting is initially held;

 

6. by Neothetics if Evofem has breached any of its representations, warranties, covenants or agreements contained in the Merger Agreement or if any representation or warranty of Evofem has become inaccurate, in either case such that the conditions to the closing of the merger would not be satisfied as of the time of such breach or as of the time such representation or warranty has become inaccurate, but if such breach or inaccuracy is curable, then the Merger Agreement will not terminate pursuant to this provision as a result of such particular breach or inaccuracy unless such or inaccuracy remains uncured as of the tenth business day following the date Neothetics delivers written notice to Evofem of such breach or inaccuracy and its intention to terminate the Merger Agreement pursuant to this provision; provided that no termination may be made pursuant to this provision solely as a result of failure Evofem to receive the requisite approval of its stockholders to adopt and approve the Merger Agreement; and

 

7.

by Evofem if Neothetics has breached any of its representations, warranties, covenants or agreements contained in the Merger Agreement or if any representation or warranty of Neothetics has become

 

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  inaccurate, in either case such that the conditions to the closing of the merger would not be satisfied as of the time of such breach or as of the time such representation or warranty has become inaccurate, but if such breach or inaccuracy is curable, then the Merger Agreement will not terminate pursuant to this provision as a result of such particular breach or inaccuracy unless such or inaccuracy remains uncured as of the tenth business day following the date Evofem delivers written notice to Neothetics of such breach or inaccuracy and its intention to terminate the Merger Agreement pursuant to this provision; provided that no termination may be made pursuant to this provision solely as a result of failure of Neothetics to receive the requisite approval of its stockholders to approve the merger, the issuance of Neothetics common stock or the certificate of amendment to the amended and restated certificate of incorporation of Neothetics, including for purposes of effectuating the Reverse Stock Split.

 

8. by Evofem or Neothetics if the other experiences an event or circumstances that would qualify as a “Material Adverse Effect” as defined in the Merger Agreement and the event or the circumstances causing the Material Adverse Effect are not cured within a 15 day period. See the section entitled “ The Merger Agreement — Conditions to the Completion of the Merger ” beginning on page 112 of this proxy statement/prospectus/information statement.

Termination Fees

Fees payable by Neothetics

Neothetics must pay Evofem a termination fee of $1.25 million if the Merger Agreement is terminated by Neothetics pursuant to clause 5 above and must pay Evofem an additional $250,000 if an acquisition proposal with respect to Neothetics has been publicly announced, disclosed or otherwise communicated to the Neothetics Board or to Neothetics’ stockholders generally and within 12 months after the date of such termination, Neothetics enters into a definitive agreement with respect to any acquisition transaction or consummates an acquisition transaction as defined above in the section entitled “ The Merger Agreement — No Solicitation ” beginning on page 116 of this proxy statement/prospectus/information statement.

If the Merger Agreement is terminated by Evofem pursuant to clauses 5 or 7 above Neothetics must reimburse Evofem for all reasonable fees and expenses incurred by Evofem in connection with the Merger Agreement and the transactions contemplated thereby, up to a maximum of $250,000.

Fees payable by Evofem

Evofem must pay Neothetics a termination fee of $1.25 million if the Merger Agreement is terminated pursuant to clause 4 above and Evofem must pay Neothetics an additional $250,000 if an acquisition proposal with respect to Evofem has been publicly announced, disclosed or otherwise communicated to the Evofem Board or to Evofem’s stockholders generally within 12 months after the date of such termination, Evofem enters into a definitive agreement with respect to any acquisition transaction or consummates an acquisition transaction as defined above in the section entitled “ The Merger Agreement — No Solicitation ” beginning on page 116 of this proxy statement/prospectus/information statement

If the Merger Agreement is terminated by Neothetics pursuant to clauses 4 or 6 above Evofem must reimburse Neothetics for all reasonable fees and expenses incurred by Neothetics in connection with the Merger Agreement and the transactions contemplated thereby, up to a maximum of $250,000.

Amendment

The Merger Agreement may be amended by the parties at any time prior to the effective time of the merger, except that after the Merger Agreement has been adopted and approved by the stockholders of Neothetics or Evofem, no amendment which by legal requirements requires further approval by the stockholders of Neothetics or Evofem, as the case may be, shall be made without such further approval.

 

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AGREEMENTS RELATED TO THE MERGER

Support Agreements

Certain Evofem securityholders that beneficially own or control approximately 68% of the voting power of Evofem’s outstanding capital stock on an as-converted to common stock basis entered the Support Agreements, pursuant to which, among other things, these Evofem stockholders agreed to vote all of their shares of Evofem capital stock in favor of the adoption of the Merger Agreement and the approval of the merger, the other transactions contemplated by the Merger Agreement, and any other matter reasonably necessary to facilitate the consummation of the merger and/or the other transactions contemplated by the Merger Agreement. The Evofem stockholder also agreed to vote all of their shares of Evofem capital stock against any “Adverse Proposal,” as defined in the Merger Agreement, and against any other matter that would reasonably be expected to impede, interfere with, delay, postpone or adversely affect the merger or any of the transactions contemplated by the Merger Agreement. The Support Agreements will terminate at the earlier of the effective time of the merger or the termination of the Merger Agreement in accordance with its terms.

Lock-Up Agreements

Certain officers and directors of Evofem entered into Lock-Up Agreements with Evofem and Neothetics pursuant to which the officers and directors agreed, except in certain limited circumstances, to refrain from the following Lock-Up Restrictions, (i) offering, pledging, selling, contracting to sell, selling any option or contract purchase, purchasing any option or contract to sell, granting any option, right or warrant to purchase, making any short sale or otherwise transferring or disposing of or lending any shares of Neothetics common stock or securities convertible into, exercisable or exchangeable for or that represent the right to receive Neothetics common stock whether then owned or thereafter acquired, or the Lock-Up Securities, (ii) entering into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, (iii) making any demanded for or exercise any right with respect to the registration of any Neothetics common stock or any security convertible into or exercisable or exchangeable for Neothetics common stock or (iv) publicly disclosing the intention to do any of the foregoing.

The restrictions in the Lock-Up Agreements automatically terminate 180 days following the effective time of the merger.

Securities Purchase Agreement

On October 17, 2017, Neothetics, the Investors and Evofem entered into the Securities Purchase Agreement pursuant to which Neothetics agreed to sell 9,672,550 (subject adjustment for the Reverse Stock Split and pursuant to Section 1.12(b) of the Merger Agreement) shares of Neothetics common stock for an aggregate purchase price of $20,000,000. The shares of Neothetics common stock will be issued as a private placement exempt from the registration requirements of Section 5 of the Securities Act contained in Section 4(a)(2) thereof and/or Regulation D thereunder. As a condition of, material inducement to, and consideration for the willingness of the Investors to enter into the Securities Purchase Agreement, Evofem will, immediately prior to the effective time of the merger, issue the Investor Warrants to the Investors. The Investor Warrants will be exercisable for the purchase an aggregate of 158,999,371 shares of Evofem common stock at an exercise price of $0.001 (subject to adjustment pursuant to Section 1.12(b) of the Merger Agreement) per share. The Investor Warrants will be automatically exercised on a cashless basis at the effective time of the merger, and the shares of Evofem common stock issued upon exercise of the Investor Warrants will be eligible to receive shares of Neothetics common stock in an amount equal to the common stock exchange ratio upon completion of the merger.

The conditions to close the Financing include: (i) the performance by Evofem and Neothetics of all obligations, covenants and agreements required by the Securities Purchase Agreement, (ii) the requirement that all corporate and other proceedings are completed prior to closing and that any documents incidental to the closing and

 

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Securities Purchase Agreement are delivered at or prior to closing, (iii) the Evofem Board’s authorization of the issuance of the Investor Warrants, (iv) Evofem and Neothetics’ receipt of all the relevant governmental and stockholder approvals for the Financing, (v) the prohibition on amendments to Merger Agreement in a manner that (A) would decrease the merger consideration payable for Evofem Options and Evofem Warrants held by the Investors, (B) imposes any material restriction or additional conditions on the payment of merger consideration to the Investors, (C) imposes any material restrictions or obligations on the Investors or (D) or that materially amends the Merger Agreement, (vi) Evofem and Neothetics’ delivery of certain certificates, (vii) a requirement that the representation and warranties of Neothetics and Evofem must be true and correct in all material respects, expect to the extent such representations and warranties were made as of a particular date, (viii) Neothetics’ and Evofem’s compliance with applicable laws, (ix) and delivery of a fully executed registration rights agreement for the benefit of the Investors and certain stockholders of Neothetics, or the Post-Merger Registration Rights Agreement. The Securities Purchase Agreement will automatically terminate upon the earlier of the termination of the Merger Agreement or, at the Investors’ written election, the filing of any action, suit or other legal proceeding before a court, in each case, by Evofem, Neothetics or the other an Evofem stockholder party to the Support Agreement, in each case, against the Investors or any of their affiliates arising from the Merger Agreement or the transactions contemplated by the Merger Agreement.

The issuance of shares of Neothetics common stock in accordance with the Securities Purchase Agreement would dilute, and thereby reduce, each existing stockholder’s proportionate ownership in Neothetics common stock. The stockholders do not have preemptive rights to subscribe for additional shares that may be issued by Neothetics in order to maintain their proportionate ownership of Neothetics common stock.

Post-Merger Registration Rights Agreement

Upon closing the Financing, Neothetics will enter into the Post-Merger Registration Rights Agreement with the Investors and certain other current holders of Evofem and Neothetics capital stock. Pursuant to the Post-Merger Registration Rights Agreement, the Company is required to file a shelf registration statement with respect to shares of Neothetics capital stock, or the Registrable Securities, held by the Evofem stockholders who are party to this agreement, or the Rights Holders, within 60 days of the effective date of the merger. Subject to limited exceptions, the post-merger combined company will be required to maintain the effectiveness of any this shelf registration statement until the Registrable Securities covered by the this shelf registration have been disposed of or are no longer Registrable Securities. In addition, the Rights Holders have the right to demand that Neothetics’ effect the registration of any or all of the Registrable Securities and/or effectuate the distribution of any or all of their Registrable Securities subject to certain exceptions and limitations. The Rights Holders also have customary piggyback registration rights, subject to the limitations set forth in the Registration Rights Agreement.

These registration rights granted under the Post-Merger Registration Rights Agreement are subject to certain conditions and limitations, including the right of the underwriters to limit the number of shares to be included in a registration statement and Neothetics’ right to delay or withdraw a registration statement under certain circumstances. The registration rights granted in the Post-Merger Registration Rights Agreement are subject to customary indemnification and contribution provisions.

 

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Post-Merger Voting Agreement

At or immediately following the effective time of the merger, Neothetics will enter into Post-Merger Voting Agreements with certain holders, or the Voting Agreement Holders, of shares of Neothetics common stock then representing more than 19.5% of the then issued and outstanding Neothetics common stock, or the Threshold. The Post-Merger Voting Agreements will grant Neothetics or its designee a proxy to vote on matters presented to Neothetics’ stockholders, or the Proxy Matters, any and all shares of Neothetics common stock held by a Voting Agreement Holder in excess of the Threshold, or the Proxy Shares. In accordance with the proxies granted to Neothetics by the Post-Merger Voting Agreements, the Proxy Shares shall be voted in the same proportions as the shares voted by all other Neothetics stockholders voting on the Proxy Matters. The Post-Merger Voting Agreements may not be revoked by a Voting Agreement Holder so long as such holder holds shares of Neothetics common stock in excess of the Threshold.

 

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MATTERS BEING SUBMITTED TO A VOTE OF NEOTHETICS STOCKHOLDERS

Neothetics Proposal No. 1: Approval of the Merger Agreement, the Merger and the Issuance of Common Stock in the Merger

At the Neothetics special meeting, Neothetics stockholders will be asked to approve the merger and the issuance of Neothetics common stock pursuant to the Merger Agreement. Immediately following the merger and the Financing, it is expected that Evofem stockholders will own approximately 87% of the common stock of Neothetics, with existing Neothetics stockholders holding approximately 13% of the common stock of Neothetics.

The terms of, reasons for and other aspects of the Merger Agreement, the merger and the issuance of Neothetics common stock pursuant to the Merger Agreement are described in detail in the other sections in this proxy statement/prospectus/information statement.

Required Vote; Recommendation of Board of Directors

Presuming a quorum is present, the affirmative vote of the holders of a majority of the shares of Neothetics common stock having voting power present in person or represented by proxy at the Neothetics special meeting is required for approval of Neothetics Proposal No. 1 . Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3 .

THE NEOTHETICS BOARD UNANIMOUSLY RECOMMENDS THAT THE NEOTHETICS STOCKHOLDERS VOTE “FOR” NEOTHETICS PROPOSAL NO. 1 TO APPROVE THE MERGER AGREEMENT, THE MERGER AND THE ISSUANCE OF NEOTHETICS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.

 

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Neothetics Proposal No. 2: Approval of the Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Neothetics Effecting the Reverse Stock Split

General

At the Neothetics special meeting, Neothetics stockholders will be asked to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting a reverse stock split of the issued and outstanding shares of Neothetics common stock, in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, and approved by the Neothetics Board, within a range of one share of Neothetics common stock for every [●] to [●] shares of Neothetics common stock (or any number in between), or the Reverse Stock Split. Upon the effectiveness of the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the Reverse Stock Split, or the split effective time, the shares of Neothetics common stock immediately prior to the split effective time will be reclassified into a smaller number of shares such that a Neothetics stockholder will own one share of Neothetics common stock for each [●] to [●] shares of issued common stock (or some number in between as applicable) held by that stockholder immediately prior to the split effective time.

If the Neothetics stockholders approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics, Neothetics and Evofem will mutually agree, subject to the determination of the Neothetics Board that it is in the best interests of Neothetics and its stockholders, whether to effect the Reverse Stock Split and, if so, the number of shares of common stock within the stockholder-approved range (between [●] to [●] shares) which will be combined into one share of Neothetics common stock. The Neothetics Board believes that stockholder approval of this range of reverse stock split ratios (as opposed to approval of a single reverse stock split ratio) provides the Neothetics Board with appropriate flexibility to achieve the purposes of the reverse stock split and, therefore, is in the best interests of Neothetics and its stockholders. If Neothetics Proposal No. 2 is approved, Neothetics anticipates the Reverse Stock Split would become effective in connection with the closing of the merger.

The Neothetics Board may determine to effect the Reverse Stock Split, if it is approved by the stockholders, even if the other proposals to be acted upon at the meeting are not approved, including the merger and the issuance of shares of Neothetics common stock pursuant to the Merger Agreement.

The form of the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to effect the Reverse Stock Split, as more fully described below, will effect the Reverse Stock Split but will not change the number of authorized shares of common stock or preferred stock, or the par value of Neothetics common stock or preferred stock.

Purpose

The Neothetics Board approved the proposal approving the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the Reverse Stock Split for the following reasons:

 

    the Neothetics Board believes effecting the Reverse Stock Split is necessary to help avoid a delisting of Neothetics common stock in the future;

 

    the Reverse Stock Split would bring the share price of the combined company to a level that is customary among successful companies listed on the major US stock exchanges;

 

    the increased share price resulting from the Reverse Stock Split could broaden the pool of potential investors into the combined company by meeting the requirements of certain institutional investors who have internal policies prohibiting them from purchasing stocks below a certain minimum share price, and by meeting the requirements of certain financial advisors who have policies to discourage their clients from investing into such stocks; and

 

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    the increased share price resulting from the Reverse Stock Split could allow inclusion of the combined company’s common stock in certain biotech indices, and thereby allow investment in the combined company by certain index funds.

Potential Increased Investor Interest

On [●], 2017, Neothetics common stock closed at $[●] per share. An investment in Neothetics common stock may not appeal to brokerage firms that are reluctant to recommend lower priced securities to their clients. Investors may also be dissuaded from purchasing lower priced stocks because the brokerage commissions, as a percentage of the total transaction, tend to be higher for such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise provide coverage of lower priced stocks. Also, the Neothetics Board believes that most investment funds are reluctant to invest in lower priced stocks.

There are risks associated with the Reverse Stock Split, including that the Reverse Stock Split may not result in an increase in the per share price of Neothetics common stock.

Neothetics cannot predict whether the Reverse Stock Split will increase the market price for Neothetics common stock. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:

 

    the market price per share of Neothetics common stock after the Reverse Stock Split will rise in proportion to the reduction in the number of shares of Neothetics common stock outstanding before the Reverse Stock Split;

 

    the Reverse Stock Split will result in a per share price that will attract brokers and investors who do not trade in lower priced stocks;

 

    the Reverse Stock Split will result in increased trading volume in Neothetics common stock;

 

    the Reverse Stock Split will result in a per share price that will increase the ability of Neothetics to attract and retain employees; or

 

    that Neothetics will otherwise meet the requirements of The NASDAQ Capital Market or other national securities exchange.

The market price of Neothetics common stock will also be based on performance of Neothetics and other factors, some of which are unrelated to the number of shares outstanding. If the Reverse Stock Split is effected and the market price of Neothetics common stock declines, the percentage decline as an absolute number and as a percentage of the overall market capitalization of Neothetics may be greater than would occur in the absence of the Reverse Stock Split. Furthermore, the liquidity of Neothetics common stock could be adversely affected by the reduced number of shares that would be outstanding after the Reverse Stock Split.

Principal Effects of the Reverse Stock Split

The certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the Reverse Stock Split is set forth in Annex D to this proxy statement/prospectus/information statement.

The Reverse Stock Split will be effected simultaneously for all outstanding shares of Neothetics common stock. The Reverse Stock Split will affect all of the Neothetics stockholders uniformly and will not affect any stockholder’s percentage ownership interests in Neothetics, except to the extent that the Reverse Stock Split results in any of the Neothetics stockholders owning a fractional share. Common stock issued pursuant to the Reverse Stock Split will remain fully paid and nonassessable. The Reverse Stock Split does not affect the total proportionate ownership of Neothetics following the merger. The Reverse Stock Split will not affect Neothetics continuing to be subject to the periodic reporting requirements of the Exchange Act.

 

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Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates

If the Neothetics stockholders approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the Reverse Stock Split, and if the Neothetics Board still believes that a Reverse Stock Split is in the best interests of Neothetics and its stockholders, Neothetics will file the certificate of amendment to the amended and restated certificate of incorporation with the Secretary of State of the State of Delaware at such time as the Neothetics Board has determined to be the appropriate split effective time. The Neothetics Board may delay effecting the Reverse Stock Split without resoliciting stockholder approval. Beginning at the split effective time, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.

As soon as practicable after the split effective time, stockholders will be notified that the Reverse Stock Split and/or corporate name change have been effected. Neothetics expects that the Neothetics transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-split shares will be asked to surrender to the exchange agent certificates representing pre-split shares in exchange for certificates representing post-split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by Neothetics. In the event that Neothetics Proposal No. 3 is approved by Neothetics, the certificates reflecting the post-split shares will also reflect the change of the Neothetics corporate name to “Evofem Biosciences, Inc.” No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Any pre-split shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-split shares. Stockholders should not destroy any stock certificate(s) and should not submit any certificate(s) unless and until requested to do so.

Fractional Shares

No fractional shares will be issued in connection with the Reverse Stock Split. Stockholders of record who otherwise would be entitled to receive fractional shares because they hold a number of pre-split shares not evenly divisible by the number of pre-split shares for which each post-split share is to be reclassified, will be entitled, upon surrender to the exchange agent of certificates representing such shares, to a cash payment in lieu thereof at a price equal to the fraction to which the stockholder would otherwise be entitled multiplied by the closing price of the common stock on The NASDAQ Capital Market or other national securities exchange on the first trading day immediately following the split effective time. The ownership of a fractional interest will not give the holder thereof any voting, dividend, or other rights except to receive payment therefor as described herein.

By approving the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the Reverse Stock Split, stockholders will be approving the combination of every [●] to [●] shares of Neothetics common stock (or some number in between) into one share of Neothetics common stock.

Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where Neothetics is domiciled, and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective date of the split may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by Neothetics or the exchange agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds will have to seek to obtain them directly from the state to which they were paid.

Potential Anti-Takeover Effect

Although the increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover effect, for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of the Neothetics Board or contemplating a

 

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tender offer or other transaction for the combination of Neothetics with another company, the Reverse Stock Split proposal is not being proposed in response to any effort of which Neothetics is aware to accumulate shares of Neothetics common stock or obtain control of Neothetics, other than in connection with the merger, nor is it part of a plan by management to recommend a series of similar amendments to the Neothetics Board and stockholders. Other than the proposals being submitted to the Neothetics stockholders for their consideration at the Neothetics special meeting, the Neothetics Board does not currently contemplate recommending the adoption of any other actions that could be construed to affect the ability of third parties to take over or change control of Neothetics. For more information, please see the section entitled “Risk Factors — Risks Related to the Combined Organization beginning on page 63 of this proxy statement/prospectus/information statement.

Material U.S. Federal Income Tax Consequences of the Reverse Stock Split

The following is a discussion of the material U.S. federal income tax consequences of the Reverse Stock Split to holders of Neothetics common stock, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local, or foreign tax laws are not discussed. This discussion is based on the Code, U.S. Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the IRS in effect as of the date of the merger. These authorities may change or be subject to differing interpretations. Any such change may be applied retroactively in a manner that could adversely affect a holder of Neothetics common stock.

This discussion is limited to holders who hold their Neothetics common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to the particular circumstances of a Neothetics common stockholder, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to holders of Neothetics common stock that are subject to particular rules, including, without limitation:

 

    persons subject to the alternative minimum tax or Medicare contribution tax on net investment income;

 

    persons whose functional currency is not the U.S. dollar;

 

    persons holding Evofem common stock as part of a hedge, straddle, or other risk reduction strategy or as part of a conversion transaction or other integrated investment;

 

    persons who are not U.S. Holders;

 

    banks, insurance companies, and other financial institutions;

 

    mutual funds, real estate investment trusts or regulated investment companies;

 

    brokers, dealers, or traders in securities;

 

    partnerships, other entities or arrangements treated as partnerships for U.S. federal income tax purposes, and other pass-through entities (and investors therein);

 

    tax-exempt organizations or governmental organizations;

 

    persons deemed to sell Evofem common stock under the constructive sale provisions of the Code;

 

    persons who hold or receive Evofem common stock pursuant to the exercise of any employee stock options or otherwise as compensation;

 

    persons who hold Evofem common stock as “qualified small business stock” pursuant to Section 1202 of the Code;

 

    persons holding Evofem common stock who exercise dissenters’ rights; and

 

    tax-qualified retirement plans.

 

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This discussion is limited to holders of Neothetics common stock that are U.S. Holders. For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Neothetics common stock that, for U.S. federal income tax purposes, is or is treated as:

 

    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 if either a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States persons (within the meaning of Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of such trust, or the trust has a valid election in effect under applicable Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes.

If an entity treated as a partnership for U.S. federal income tax purposes holds Neothetics common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding Neothetics common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

In addition, the following discussion does not address the tax consequences of the Reverse Stock Split under state, local and foreign tax laws. Furthermore, the following discussion does not address any tax consequences of transactions effectuated before, after or at the same time as the Reverse Stock Split, whether or not they are in connection with the Reverse Stock Split.

INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

Tax Consequences of the Reverse Stock Split

The Reverse Stock Split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder of Neothetics common stock generally should not recognize gain or loss upon the Reverse Stock Split, except with respect to cash received in lieu of a fractional share of Neothetics common stock, as discussed below. A U.S. Holder’s aggregate tax basis in the shares of Neothetics common stock received pursuant to the Reverse Stock Split should equal the aggregate tax basis of the shares of the Neothetics common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of Neothetics common stock), and such U.S. Holder’s holding period in the shares of Neothetics common stock received should include the holding period in the shares of Neothetics common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of Neothetics common stock surrendered to the shares of Neothetics common stock received in a recapitalization pursuant to the Reverse Stock Split. U.S. Holders of shares of Neothetics common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.

Cash in Lieu of Fractional Shares

A U.S. Holder of Neothetics common stock that receives cash in lieu of a fractional share of Neothetics common stock pursuant to the Reverse Stock Split should recognize capital gain or loss in an amount equal to the

 

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difference between the amount of cash received and the U.S. Holder’s tax basis in the shares of Neothetics common stock surrendered that is allocated to such fractional share of Neothetics common stock. Such capital gain or loss should be long-term capital gain or loss if the U.S. Holder’s holding period for Neothetics common stock surrendered exceeded one year at the effective time of the Reverse Stock Split.

Information Reporting and Backup Withholding

A U.S. Holder of Neothetics common stock may be subject to information reporting and backup withholding on cash paid in lieu of fractional shares in connection with the Reverse Stock Split. A U.S. Holder of Neothetics common stock will be subject to backup withholding if such holder is not otherwise exempt and such holder does not provide its taxpayer identification number in the manner required or otherwise fails to comply with applicable backup withholding tax rules.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against a U.S. Holder of Neothetics common stock’s federal income tax liability, if any, provided the required information is timely furnished to the IRS. U.S. Holders of Neothetics common stock should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.

Required Vote; Recommendation of Board of Directors

The affirmative vote of holders of a majority of the shares of Neothetics common stock having voting power outstanding on the record date for the Neothetics special meeting is required to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the Reverse Stock Split of Neothetics common stock. Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3.

THE NEOTHETICS BOARD UNANIMOUSLY RECOMMENDS THAT NEOTHETICS STOCKHOLDERS VOTE “FOR” NEOTHETICS PROPOSAL NO. 2 TO APPROVE THE CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NEOTHETICS EFFECTING THE REVERSE STOCK SPLIT.

 

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Neothetics Proposal No. 3: Approval of Name Change

At the Neothetics special meeting, holders of Neothetics stock will be asked to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name of the corporation from “Neothetics, Inc.” to “Evofem Biosciences, Inc.” by filing the certificate of amendment to the amended and restated certificate of incorporation at the effective time of the merger. The primary reason for the corporate name change is that management believes this will allow for brand recognition of Evofem product candidates and product candidate pipeline following the consummation of the merger. Neothetics management believes that the current name will no longer accurately reflect the business of Neothetics and the mission of Neothetics subsequent to the consummation of the merger.

Required Vote; Recommendation of Board of Directors

The affirmative vote of holders of a majority of the shares of Neothetics common stock having voting power outstanding on the record date for the Neothetics special meeting is required to approve the certificate of amendment to the amended and restated certificate of incorporation to change the name “Neothetics, Inc.” to “Evofem Biosciences, Inc.” Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3.

THE NEOTHETICS BOARD UNANIMOUSLY RECOMMENDS THAT NEOTHETICS STOCKHOLDERS VOTE “FOR” NEOTHETICS PROPOSAL NO. 3 TO APPROVE THE NAME CHANGE.

 

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Neothetics Proposal No. 4: To Approve the Certificate of Amendment to the Amended and Restated Certificate of Incorporation Causing Neothetics as the Post-Merger Combined Entity Not to be Subject to Section 203 of the DGCL.

The Proposal

Section 203 of the DGCL provides that any person or entity who acquires 15% or more in voting power of a corporation’s voting stock (thereby becoming an “interested stockholder”) may not engage in a wide range of transactions (referred to as “business combinations”) with the corporation for a period of three years following the date the person became an interested stockholder, subject to certain exceptions. The exceptions are (i) the board of directors of the corporation has approved, prior to that acquisition date, either the business combination or the transaction that resulted in the person becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in the person becoming an interested stockholder, that person owns at least 85% in voting power of the corporation’s voting stock outstanding at the time the transaction commenced (excluding certain shares), or (iii) the business combination is approved by the board of directors and authorized, at a stockholder meeting and not by written consent, by the affirmative vote of at least 66 2/3% in voting power of the outstanding voting stock not owned by the interested stockholder. Under Section 203 of the DGCL, a corporation can elect not to be subject to Section 203 if the corporation inserts a provision to that effect in its certificate of incorporation or if the stockholders of the corporation insert a provision to that effect in the bylaws of the corporation. The purpose of this amendment is to give the post-merger combined entity greater flexibility in the future to enter into any potential business combinations (such as mergers, asset sales and securities issuances) with any future “interested stockholder” without having to go through the time and expense in waiving the application of Section 203 with respect to such future “interested stockholder.”

By approving this Proposal No. 4 Neothetics stockholders are also approving the certificate of amendment to the amended and restated certificate of incorporation, attached hereto as Annex D , reflecting the amendment contemplated by this Proposal No. 4. The proposed certificate of amendment to the amended and restated certificate of incorporation reflecting the changes contemplated by this Proposal No. 4 will only be filed with the office of the Secretary of State of the State of Delaware and, therefore, become effective, if the merger is consummated.

Vote Required; Recommendation of Board of Directors

The affirmative vote of holders of a majority of the shares of Neothetics common stock having voting power outstanding on the record date for the Neothetics special meeting is required to approve the certificate of amendment to the amended and restated certificate of incorporation to cause the post-merger combined entity not to be governed by or subject to Section 203 of the DGCL.

THE NEOTHETICS BOARD UNANIMOUSLY RECOMMENDS THAT NEOTHETICS STOCKHOLDERS VOTE “FOR” NEOTHETICS’ PROPOSAL NO. 4 TO ELECT FOR NEOTHETICS AS THE POST-MERGER COMBINED ENTITY NOT TO BE GOVERNED BY OR SUBJECT TO SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW.

 

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Neothetics Proposal No. 5: Approval of the Issuance of Neothetics Common Stock in the Financing

The Proposal

Neothetics common stock is currently listed on The NASDAQ Capital Market and Neothetics is subject to the listing rules of The NASDAQ Stock Market. NASDAQ Listing Rule 5635(d) requires Neothetics to obtain stockholder approval prior to the issuance of Neothetics common stock in connection with certain non-public offerings involving the sale, issuance or potential issuance by Neothetics of Neothetics common stock (and/or securities convertible into or exercisable for Neothetics common stock) equal to 20% or more of the Neothetics common stock outstanding before the issuance. Shares of Neothetics common stock issuable upon the exercise or conversion of warrants, options, debt instruments, preferred stock or other equity securities issued or granted in such non-public offerings will be considered shares issued in such a transaction in determining whether the 20% limit has been reached, except in certain circumstances such as issuing warrants that are not exercisable for a minimum of six months and have an exercise price that exceeds market value.

Pursuant to the Merger Agreement, the obligations of Neothetics, Merger Sub and Evofem to consummate the Merger are subject to the satisfaction of various conditions, including the completion of the transactions contemplated by the Securities Purchase Agreement. Pursuant to the Securities Purchase Agreement, Neothetics agreed to sell 9,672,550 (subject to adjustment of the Reverse Stock Split and pursuant to Section 1.12(b) of the Merger Agreement) shares of Neothetics common stock for an aggregate purchase price of $20,000,000, pursuant to a private placement exempt from the registration requirements of Section 5 of the Securities Act contained in Section 4(a)(2) thereof and/or Regulation D thereunder, or the Financing. We are seeking stockholder approval for the issuance of shares of Neothetics common stock in the Financing.

The issuance of shares of Neothetics common stock in accordance with the Financing would dilute, and thereby reduce, each existing stockholder’s proportionate ownership in Neothetics common stock. The stockholders do not have preemptive rights to subscribe for additional shares that may be issued by Neothetics in order to maintain their proportionate ownership of Neothetics common stock.

Assuming a quorum is present at the Neothetics special meeting, approval of the Financing requires the affirmative vote of a majority of the total votes cast on this matter, in accordance with NASDAQ Listing Rule 5635(e)(4).

Proposed Financing

Upon the approval of this Proposal 5, our stockholders will have agreed to the closing of the transactions contemplated under the Securities Purchase Agreement, including the issuance of in excess of 20% of Neothetics’ issued and outstanding Neothetics common stock, consisting of 9,672,550 (subject to adjustment for the Reverse Stock Split and pursuant to Section 1.12(b) of the Merger Agreement).

The Neothetics common stock will be sold to accredited investors affiliated with Evofem at a purchase price of approximately $2.06 per share. Descriptions of the Neothetics common stock are set forth in this proxy statement/prospectus/information statement in the section entitled “ Description of Neothetics Capital Stock ” beginning on page 218 of this proxy statement/prospectus/information statement and additional information regarding the Financing and the Securities Purchase Agreement is set forth in the section entitled “ Agreements Related to the Merger — Securities Purchase Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement.

Under NASDAQ Listing Rule 5635, we may not issue securities representing more than 19.99% of the outstanding Neothetics common stock prior to stockholder approval. If we do not obtain stockholder approval for this Proposal 5, the merger may not close, since the Financing and resulting issuance of Neothetics common stock is a condition to each party’s obligation to consummate the transactions contemplated by the Merger Agreement. If the merger is not consummated, we will not consummate the Financing.

 

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Vote Required; Recommendation of Board of Directors

Approval of the Financing Proposal No. 5 requires the affirmative vote of the holders of a majority of the shares of Neothetics common stock having voting power present in person or represented by proxy at the Neothetics special meeting. If you vote to abstain, or if you fail to vote or fail to instruct your bank, broker, custodian or other record holder how to vote, it will have no effect on the voting outcome of this Proposal No. 5.

THE NEOTHETICS BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” NEOTHETICS PROPOSAL NO. 5 TO APPROVE THE ISSUANCE OF SHARES OF NEOTHETICS COMMON STOCK IN CONNECTION WITH THE FINANCING.

 

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Neothetics Proposal No. 6: Advisory Non-Binding Vote on Merger-Related Executive Compensation Arrangements

Section 14A of the Exchange Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires that Neothetics provide stockholders with the opportunity to vote to approve, on a non-binding advisory vote basis, the payment of certain compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger, as disclosed in the section entitled “ The Merger — Interests of the Neothetics Directors and Executive Officers in the Merger ,” beginning on page 105 of this proxy statement/prospectus/information statement.

Upon the consummation of the merger, the combined company expects to terminate each Neothetics named executive officer without cause. Therefore, Neothetics is asking stockholders to indicate their approval of the compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger and the associated termination of the named executive officers without cause upon the consummation of the merger. These payments are set forth in the section entitled “ The Merger — Interests of the Neothetics Directors and Executive Officers in the Merger — Golden Parachute Compensation ” beginning on page 106 of this proxy statement/prospectus/information statement, and the accompanying footnotes. In general, the severance agreements, equity awards and other arrangements pursuant to which these compensation payments may be made have previously formed a part of Neothetics’ overall compensation program for its named executive officers and previously have been disclosed to stockholders as part of Neothetics’ annual proxy statements or its other reports filed with the SEC. These severance agreements, equity awards and other arrangements were adopted and approved by the Neothetics Board, upon recommendation of its compensation committee, which is composed solely of non-employee directors, and are believed to be reasonable and in line with marketplace norms.

Accordingly, Neothetics’ is seeking approval of the following resolution at the special meeting:

“RESOLVED, that the stockholders of Neothetics, Inc. approve, on a nonbinding, advisory basis, the compensation that will or may become payable by Neothetics to its named executive officers that is based on or otherwise relates to the merger as disclosed pursuant to Item 402(t) of Regulation S-K in the section entitled “ The Merger — Interests of the Neothetics Directors and Executive Officers in the Merger — Golden Parachute Compensation ” beginning on page 106 of this proxy statement/prospectus/information statement.

Stockholders of Neothetics should note that this proposal is not a condition to completion of the merger, and as an advisory vote, the result will not be binding on Neothetics, its board of directors or the named executive officers. Further, the underlying severance agreements, equity awards and other arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the advisory vote, if the merger is consummated and Neothetics’ named executive officers are terminated in connection with the merger, the named executive officers will be eligible to receive the compensation that is based on or otherwise relates to the merger in accordance with the terms and conditions applicable to the underlying severance agreements, equity awards and other arrangements Neothetics entered into with these named executive officers.

The affirmative vote of the holders of a majority of the shares of Neothetics common stock having voting power present in person or represented by proxy at the Neothetics special meeting is required to approve the non-binding advisory vote on merger-related executive compensation arrangements.

THE NEOTHETICS BOARD UNANIMOUSLY RECOMMENDS THAT THE NEOTHETICS STOCKHOLDERS VOTE “FOR” NEOTHETICS PROPOSAL NO. 6 TO APPROVE, ON A NON-BINDING ADVISORY VOTE BASIS, COMPENSATION THAT WILL OR MAY BECOME PAYABLE BY NEOTHETICS TO ITS NAMED EXECUTIVE OFFICERS IN CONNECTION WITH THE MERGER.

 

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Neothetics Proposal No. 7: Approval of Possible Adjournment of the Neothetics Special Meeting

If Neothetics fails to receive a sufficient number of votes to approve Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6, Neothetics may propose to adjourn the Neothetics special meeting, for a period of not more than 15 days, for the purpose of soliciting additional proxies to approve Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6. Neothetics currently does not intend to propose adjournment at the Neothetics special meeting if there are sufficient votes to approve Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6.

The affirmative vote of the holders of a majority of the shares of Neothetics common stock having voting power present in person or represented by proxy at the Neothetics special meeting is required to approve the adjournment of the Neothetics special meeting for the purpose of soliciting additional proxies to approve Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6.

THE NEOTHETICS BOARD UNANIMOUSLY RECOMMENDS THAT THE NEOTHETICS STOCKHOLDERS VOTE “FOR” NEOTHETICS PROPOSAL NO. 6 TO ADJOURN THE SPECIAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF NEOTHETICS PROPOSAL NOS. 1, 2, 3, 4, 5 AND 6.

 

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NEOTHETICS BUSINESS

Overview

Neothetics is a clinical-stage specialty pharmaceutical company developing therapeutics for the aesthetic market. Its initial focus is on localized fat reduction and body contouring. Its lead product candidate, LIPO-202, is a first-in-class injectable formulation of the long-acting ß2-adrenergic receptor agonist, salmeterol xinafoate, which is an active ingredient in the U.S. Food and Drug Administration, or FDA, approved inhaled products SEREVENT DISKUS ® , ADVAIR HFA ® and ADVAIR DISKUS ® .

In June 2017, Neothetics announced that its Phase 2 proof-of-concept clinical trial, LIPO-202-CL-31, did not demonstrate improvement on any efficacy measurements or separation from placebo. As a consequence of the negative results from the Phase 2 proof-of-concept clinical trial of its lead product candidate LIPO-202, Neothetics announced its plans to initiate a process to explore and review a range of strategic alternatives focusing on seeking an acquisition, business combination, licensing arrangement or partnership that will allow for it to maximize shareholder value from its remaining assets and cash resources. Oppenheimer was retained to act as Neothetics’ exclusive financial advisor for this process. Further related to the negative clinical trial results, Neothetics implemented a reduction of its current full-time workforce of six employees to two employees in order to reduce operating expenses and conserve cash resources. The workforce was reduced to three employees during the third quarter of 2017 and the reduction is expected to be completed during the fourth quarter of 2017 or the first quarter of 2018. In addition, Neothetics is taking the necessary steps to close out its clinical trial sites relating to its Phase 2 proof-of-concept clinical trial.

If any future clinical trials for LIPO-202 are successful, Neothetics would then expect to file a new drug application, or NDA, utilizing the 505(b)(2) regulatory pathway, which permits Neothetics to file an NDA where at least some of the information required for approval comes from studies that were not conducted by or for it, and to which Neothetics does not have a right of reference, and which allows it to rely to some degree on the FDA’s finding of safety for, and approval of, another product containing salmeterol xinafoate, the active ingredient in LIPO-202. If clinical trials provide a demonstration of efficacy and if approved by the FDA, Neothetics believes LIPO-202 will be a best-in-class non-surgical procedure for localized fat reduction and body contouring.

In February 2016, the Neothetics Board established an Operating Committee to assist with many of the responsibilities arising in the day-to-day operations of the company that normally would be managed by its Chief Executive Officer and President, which position is currently vacant. The Operating Committee currently is comprised of three members of the Board of Directors: Martha J. Demski, Kim Kamdar, Ph.D., and Jeffrey Nugent.

Since commencing operations in February 2007, Neothetics has invested substantially all of its efforts and financial resources in the research and development and commercial planning for LIPO-202. Through September 30, 2017, Neothetics has funded substantially all of its operations through the sale and issuance of its preferred stock, venture debt, convertible debt and the sale of shares in its initial public offering.

Neothetics has never been profitable and, as of September 30, 2017, had an accumulated deficit of $133.5 million. Neothetics incurred net losses of $1.8 million and $2.4 million for the three months ended September 30, 2017 and 2016, respectively, and $7.6 million and $11.0 million for the nine months ended September 30, 2017 and 2016, respectively. Neothetics expects to continue to incur net operating losses for the foreseeable future. There is substantial doubt about Neothetics’ ability to continue as a going concern within one year after the date that the financial statements for the quarter ended September 30, 2017 are issued.

Neothetics’ patent estate consists of nine U.S. issued/allowed method of treatment and/or formulation patents and four U.S. pending patent applications, as well as granted and/or pending foreign counterparts of the U.S. patents

 

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and pending applications. Seven of the nine issued/allowed U.S. patents are directed to both LIPO-202 and LIPO-102 product candidates. Neothetics’ patent directed to methods of treatment and pharmaceutical formulations is expected to expire no earlier than 2026.

Government Regulation

For a description of the regulatory environment in which Neothetics operates, please refer to the section entitled “Government Regulation” included in the description of Neothetics’ business in Item 1 of its annual report on Form 10-K for the year ended December 31, 2016.

Sales and Marketing

Neothetics has retained all commercial rights to LIPO-202 and LIPO-102 in all areas of the world except Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. Neothetics’ plan is to create a focused commercial capability in the United States to market and sell LIPO-202 and LIPO-102 and to consider strategic partners in other areas of the world to complete development and commercialization of the product candidate.

Manufacturing

Neothetics contracts with third parties for the manufacture of LIPO-202 and LIPO-102 and intend to do so in the future. Neothetics does not own or operate and does not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing. Manufacturing is subject to extensive regulations that impose various procedural and documentation requirements, and which govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. Neothetics’ systems and contractors are required to be in compliance with these regulations, and this is assessed regularly through monitoring of performance and a formal audit program.

Competition

For a description of Neothetics’ competition, please refer to the section entitled “Competition” included in the description of Neothetics’ business in Item 1 of its annual report on Form 10-K for the year ended December 31, 2016.

Intellectual Property and Material Agreements

For a description of Neothetics’ intellectual property and certain license and technology agreements, please refer to the sections entitled “Intellectual Property” and Material Agreements” included in the description of Neothetics’ business in Item 1 of its annual report on Form 10-K for the year ended December 31, 2016.

Facilities

Neothetics’ corporate headquarters are located in San Diego, California, where it leases approximately 14,687 square feet of office space. Neothetics occupies approximately 3,580 square feet of this space and subleases approximately 11,107 square feet of this space. On January 20, 2015, Neothetics entered into an operating lease through March 2020. Neothetics has a renewal option for an additional five years. Neothetics believes that its existing facilities are adequate for its current needs.

Legal Proceedings

Neothetics is subject from time to time to various claims and legal actions during the ordinary course of its business. Neothetics believes that there are currently no claims or legal actions that would reasonably be expected to have a material adverse effect on its results of operations or financial condition.

 

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Employees

As of October 20, 2017, Neothetics had three employees. No Neothetics employees are represented by a labor union or subject to a collective bargaining agreement. Neothetics has not experience any work stoppage and considers its relations with its employees to be satisfactory.

General Information

Neothetics was originally incorporated in Delaware in February 2007 as Lipothera, Inc. In September 2008, the company changed its name to Lithera, Inc. and in August 2014, the company changed its name to Neothetics, Inc. Neothetics’ principal corporate offices are located at 9171 Towne Centre Drive, Suite 270, San Diego, CA 92122 and its telephone number is (858) 750-1008. Neothetics’ website is located at www.neothetics.com. The Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act Exchange Act will be made available free of charge on its website as soon as reasonably practicable after the company electronically file such material with, or furnish it to, the SEC.

 

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EVOFEM BUSINESS

Overview

Evofem is a clinical-stage specialty biopharmaceutical company committed to improving the health and well-being of women throughout the world by addressing women’s unmet medical needs through the discovery, development and commercialization of innovative, next generation women’s healthcare products. Evofem’s multipurpose prevention technology, or MPT, is a vaginal gel being developed for multiple indications, including contraception, sexually transmitted infections, or STIs, and bacterial vaginosis, or BV.

Evofem’s lead product candidate, Amphora, is a hormone-free, on demand, woman-controlled vaginal gel currently in a Phase 3 clinical trial as a contraceptive and in a Phase 2b/3 trial for the prevention of certain STIs. In addition, Evofem recently completed a Phase 1 trial of its MPT vaginal gel for the reduction of recurrence of BV and is currently designing a Phase 2b/3 trial for this indication.

Based on Evofem’s market research, Evofem believes a majority of women seeking birth control are concerned about exposure to hormones. Hormone-based contraception is the current standard in female birth control. This research also indicates that women are actively seeking alternative methods of contraception, but have limited options to reduce exposure to hormones. As a result, women are dissatisfied with current products on the market. Amphora is designed to empower women by offering a hormone-free, on demand, woman-controlled contraceptive.

Evofem’s MPT vaginal gel has also demonstrated a broad spectrum of antimicrobial activity in vitro, including on chlamydia, gonorrhea, and bacterial vaginosis causing microbes, the three most common causes of reproductive tract infection. There are currently no products indicated for the prevention of chlamydia or gonorrhea, or the reduction of recurrence of BV. Evofem believes its MPT vaginal gel offers a significant opportunity to address this important unmet medical need for women.

Evofem’s MPT vaginal gel has been granted designation as a Qualified Infectious Disease Product, or QIDP, by the U.S. Food and Drug Administration, or FDA, for two separate indications: prevention of urogenital gonorrhea infection in women and reduction of recurrence of BV. A drug that receives QIDP designation may qualify for the FDA’s fast-track program, which is intended to expedite review of drugs and facilitate development so an approved product can reach the market expeditiously. QIDP designations also provide an additional five years of marketing exclusivity for an approved product.

Evofem has an exclusive worldwide license to its MPT vaginal gel from Rush University, a nationally recognized research institution. Evofem’s MPT vaginal gel was initially developed by the Program for Topical Prevention of Conception and Disease, an organization led by Rush University dedicated to the discovery and creation of topical products that can prevent pregnancy and the spread of STIs.

Evofem’s Strategy

Evofem is committed to providing women with direct control and management of their sexual and reproductive health. Key elements of Evofem’s strategy include:

 

    Rapid and timely completion of its current Phase 3 clinical trial to seek approval and subsequently commercialize Amphora for contraception. Evofem’s initial focus is the development and commercialization of Amphora as a hormone-free, on demand, woman-controlled contraceptive. Evofem believes this will create a platform for Evofem to advance its supplemental indications and allow Evofem to effectively deploy investor capital for the benefit of all stakeholders.

 

   

Leverage its MPT vaginal gel technology platform to develop and commercialize novel, first-in-class products for women. Evofem intends to expand on its contraceptive indication by being the first

 

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company to market a contraceptive product with an additional indication for the prevention of chlamydia and gonorrhea. In addition, Evofem intends to develop a product for the reduction of recurrence of BV.

 

    Expand its intellectual property position by pursuing opportunities to extend the exclusivity of its highly differentiated and proprietary MPT vaginal gel. Evofem intends to aggressively pursue additional and new patent applications to broaden its intellectual property portfolio. Evofem will continue to seek to obtain domestic and international patent protection and endeavor to promptly file patent applications for new commercially valuable inventions, as well as obtain additional technologies from third-parties.

 

    Expand its product pipeline. Evofem intends to opportunistically acquire additional products or product candidates that enhance its offerings and complement its core competencies in women’s healthcare.

 

    Build a world class organization committed to the discovery, development and commercialization of products that address unmet needs in women’s sexual and reproductive health. Evofem has assembled a world class team with industry-recognized expertise in the development and commercialization of products in women’s healthcare. Evofem intends to continue to build on its leadership position and grow a culture dedicated to the development and commercialization of medicines that continue to address the unmet medical needs of women.

The Contraceptive Market Overview

In 2016, the global revenue for contraceptive products was $21.2 billion and projected to grow at 6.8% per annum to $35.8 billion by 2024, making contraception a substantial and growing subset of the overall healthcare market. This growth is expected to continue to be driven by the United States and Europe because favorable government policies aimed at preventing unwanted pregnancies are in place. The number of women using contraception is projected to grow through 2030.

Current contraceptive options include devices designed to prevent pregnancy through physical means such as condoms, diaphragms and intrauterine devices, or IUDs, and pharmaceutical options such as a variety of hormonal-based approaches, including oral contraceptives, vaginal rings containing hormones, intramuscular injections, subcutaneous implants and transdermal patches.

Existing contraceptive options can have significant side effects or other limitations. Long-acting options such as IUDs, hormonal injections and implants require medical procedures and are not quickly or easily reversible. Hormonal approaches can be associated with undesirable side-effects such as weight gain and mood changes, which may lead women to seek alternative contraceptive technologies or decide to not use any form of the contraceptive options currently available. Several spermicidal products currently available over-the-counter for use as vaginal contraceptives are based on surfactants, which can cause genital irritation and inflammation that may increase the risk of contracting human immunodeficiency virus, or HIV, from an infected partner. In addition, spermicides containing the active ingredient nonoxynol-9, or N-9, have been required by the FDA to carry a label warning for the risk of contracting HIV. Unlike other vaginal contraceptives currently on the market, Amphora is free of surfactants such as nonoxynol-9.

The unmet medical needs of the contraception market and the shift away from traditional methods of contraception such as oral contraceptives makes the entry of a non-hormonal contraceptive option such as Amphora timely and desirable. Currently, the only non-hormonal prescription contraceptive method approved in the U.S. market are a copper IUD, which is intrusive and could remain in the user’s body for up to 10 years or a diaphragm, which can be difficult to insert and must be used with contraceptive gel.

Additionally, Evofem believes that growing concern associated with the increasing prevalence of sexually transmitted diseases along with growing demand for new innovative contraception options will further drive global contraceptives market growth.

 

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Market Opportunity

Evofem believes its key market strengths are as follows:

 

    Evofem’s MPT vaginal gel is potentially disruptive to the existing contraceptive landscape and is designed to address underserved and unmet needs in the women’s healthcare market;

 

    Evofem expects to benefit from favorable trends away from the daily use of oral forms of hormonal contraception to more innovative technologies that underpin the large and growing global contraceptive market;

 

    Evofem has robust proprietary technology protected by an intellectual property portfolio currently extended to 2033; and

 

    Evofem intends to add indications to its lead product candidate, Amphora, and to add complementary products or product candidates to its pipeline expected to provide future growth opportunities within the global contraceptive market.

Evofem believes its product candidates are well positioned to fulfill unmet needs within the existing contraceptive market and to compete with existing contraceptive options. Market penetration requires development and implementation of a tailored strategy, involving healthcare policy officials and healthcare providers for each country or territory.

Innovation and new product introduction in women’s reproductive healthcare and contraception has been limited when compared to other leading therapeutic categories. There have been no approvals in women’s contraception for the year to date 2017 as compared to, for example, oncology, where there have been more than 40 approvals in the same period, demonstrating a unique opportunity in this underdeveloped field.

According to the Centers for Disease Control and Prevention, or CDC, reducing the percentage of all pregnancies that are unintended has been one of the National Health Promotion Objectives since they were first established in 1980. Despite the efforts to reduce unintended pregnancies, over 2.0 million of these pregnancies occur in the U.S. annually. Following decades of minimal change or increase, the percentage of pregnancies in the U.S. that are unintended decreased slightly in the period from 2008-2011. Despite this recent decrease, 45% of pregnancies in the U.S. are still unintended. Nearly all sexually experienced women in the United States have used contraception at some time in their lives, but many women may not use contraception consistently or correctly and subsequently become pregnant when not intending to have a child at that time. According to research conducted by the CDC, approximately 40% of women surveyed after giving birth to a child resulting from an unintended pregnancy who were not using contraception noted one of the following three reasons for nonuse: did not expect to have sex, worried about side effects of birth control, or male partner did not want to use birth control.

Hundreds of millions of women worldwide seek contraceptive products during an average 30 plus years of fertility. As such, women utilizing contraception should consider the most appropriate methods for their purposes and intended use, including the use of innovative methods due to concerns associated with traditional offerings. The table below shows expected trends in contraceptive usage in different regions of the world:

 

Women of Reproductive Age (millions) (2016 Projected)    U.S.     EU     *BRIC  

All females, age 18-49

     61.0       63.8       420.9  

At risk for pregnancy

     70.4     67.0     55.0

Relevant population for contraception

     43.0       43.1       231.5  

 

* Brazil, Russia, India, China

The U.S. Contraceptive Market

The total U.S. contraceptive market was valued at $5.5 billion in 2016 with the prescription contraceptive market expected to grow at a compound annual growth rate of 5.4% from 2013 to 2024 and reach a value of

 

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approximately $8.4 billion in 2024. The U.S. contraceptive market represented the largest segment of the global contraceptives market in 2016 at 29.4% and is currently dominated by hormonal methods including birth control pills and other reversible methods such as IUDs and injectables. Approximately four of every five sexually experienced women in the United States have used the pill at least one time and this percentage has remained stable since 1995.

More than 12 million women in the United States rely on condoms, or some other form of non-hormonal (e.g. copper IUD, diaphragm, rhythm, withdrawal) contraception as their method of choice.

Evofem conducted market research with reproductive age women ages 18 to 49 and healthcare providers in the United States to evaluate potential interest in Amphora. Of the more than 1,400 women Evofem surveyed, approximately one-third of all women expressed interest in learning more about Amphora. Amphora’s most motivating attributes for consumers included lack of hormones, ease of use and on demand use. Physicians also expressed interest in Amphora, indicating they see many patients for whom they would recommend use of Amphora.

Additionally, this market research also indicated that an Amphora user would receive approximately seven refills of Amphora per year based on reported frequency of intercourse.

The European Union (EU) Contraceptive Market

The EU contraceptive market was valued at approximately $5.0 billion in 2016, or 24.5% of the global market, and is expected to grow at an average compound annual growth rate of 5.4% from 2013 to 2024, to reach an estimated value of approximately $7.6 billion in 2024. The EU accounted for the second largest market share in the global contraceptives market in 2016. Contraceptive use in the EU varies from region to region. As the table below shows, approximately 30% of women use no contraception and the use of male condoms is significantly higher than the U.S. population (9.4%). Permanent sterilization is also substantially lower than the U.S. (female and male sterilization rates of 14.3% and 4.5%, respectively) and only IUDs are in double digit market share among newer innovations:

 

 

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Product Candidates

Amphora as a Contraceptive

Evofem believes Amphora, its lead product candidate, addresses significant gaps in the contraceptive market. If approved by the FDA, Amphora will be the only hormone-free, on demand, women-controlled contraceptive drug product available by prescription in the United States that does not require in-office placement by a healthcare provider.

Evofem believes Amphora has significant attributes that will make it an attractive contraceptive choice for women:

 

Key Attributes    Potential Benefits
Hormone-free    Amphora is hormone-free and, therefore, avoids known side effects of hormonal-based contraceptives, which include weight gain, headaches, sore breasts, irregular periods, mood changes, decreased sexual desire, acne and nausea. These side effects have been shown to discourage women from continuing to use hormonal contraception on a long-term basis, leading them to seek alternative methods or decide to use nothing at all.
On Demand /Woman-controlled    Amphora can be used as needed; no daily, weekly, or monthly routine. Amphora may be used up to one hour before intercourse at a woman’s discretion.
No Surgical Procedures    No physician insertion or removal required. The use of Amphora is private and discrete and avoids the need for recurring doctor appointments, clinical or surgical procedures.
Cost Effective    Evofem anticipates coverage in the United States under the Affordable Care Act, or ACA. Amphora is only used when needed thus eliminating cost for daily use methods.
Surfactant-free    Amphora can be used by women who experience allergy, sensitivity, or side effects to nonoxynol-9.
Personal Lubricant Properties    Amphora has benefits for vaginal use, as a personal lubricant, beyond the primary contraceptive function. Amphora reduces friction and eases penetration.
Bioadhesive Properties    Amphora has bioadhesive and viscosity-retaining properties to form a long-lasting layer of gel over the vaginal and cervical surfaces, which ensures reduced leakage from the vagina.
Ease of Use    The Amphora applicator is designed for convenience and to be stored at room temperature for ease of handling and use.

The CDC’s recommendations for use of combined hormonal contraception, as shown below, defines numerous conditions that create unacceptable health risks if hormonal contraception is used. The number of women impacted by these conditions is significant. Evofem believes Amphora, if approved by the FDA, will provide women the desired solution to avoid hormones and certain other negative side effects from current prescription contraception.

 

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Category 4 (a condition that represents an unacceptable health risk if the

contraceptive method is used)

 

 

    Postpartum < 21 days

 

    Deep venous thrombosis (current or history with higher risk of recurrence)

 

    Pulmonary embolism (current or history with higher risk of recurrence)

 

    Cardiovascular disease or multiple CV risk factors (preexisting)

 

    Uncontrolled Hypertension

 

    Major surgery with prolonged immobilization

 

    Known thrombogenic mutations

 

    Migraine headaches with aura or without aura in women >/= 35

 

    Viral Hepatitis (acute or flare)

 

    Cirrhosis (decompensated)
    Age > 35 years and smoke 15 cigarettes or more per day

 

    Valvular heart disease (complicated)

 

 

    Impaired cardiac function (moderate or severe)

 

    Systemic lupus erythematosus with positive or unknown antiphospholipid antibodies

 

    Ischemic heart disease (current or history)

 

    Stroke (history)

 

    Diabetes (complicated)

 

    Breast cancer (current)

 

    Certain liver tumors

 

    Solid organ transplantation (complicated)
 

 

Mechanism of Action in Contraception

A normal vaginal pH of 3.5 to 4.5 is important for maintaining good vaginal health. At this optimum pH level, the vagina contains a balance of necessary healthy bacteria. Additionally, a vaginal pH in this range is inhospitable to spermatozoa, or sperm, as well as certain viral and bacterial pathogens. Amphora was developed to have acid-buffering (pH 3.5), bioadhesive, and viscosity-retaining properties to provide effective acidification of the male ejaculate in the vagina and to form a long-lasting layer of gel over the vaginal and cervical surfaces. Typically, the introduction of semen (pH = 7.2-8.0) into the vagina causes a rise in pH above 6.0 due to the alkalinity of the ejaculate, which neutralizes the normally acidic vaginal environment and allows the survival of sperm. Amphora acts as a vaginal contraceptive by maintaining the vaginal pH (pH = 3.5-4.5) even in the presence of semen, inhibiting sperm from reaching the ovum to form a zygote. This buffering capacity is due to Amphora’s active pharmaceutical ingredients. Other properties contributing to the contraceptive effect of Amphora are its capacity to reduce/inhibit cervical mucus penetration, to maintain sufficient viscosity even upon dilution with the introduction of semen into the vagina and its bioadhesive strength.

 

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The diagram below shows the respective pH levels of the vagina and semen.

 

 

LOGO

 

In addition to maintaining an acidic pH after semen deposition, Amphora maintains good viscosity upon dilution, suggesting that deposition of semen in the vagina will cause neither a decrease in thickness nor excessive leakage. Amphora was formulated to allow for placement up to an hour before anticipated intercourse. After proper use of Amphora, postcoital testing shows Amphora remains protective for up to 10 hours based on a lack of progressively motile sperm.

 

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Amphora Clinical Trials

The table below summarizes key clinical milestones achieved to date for Amphora:

 

Date

  

Trial Phase

  

Trial Description

  

Publication

1999    1    Safety/vaginal tolerance   

Amaral E Et al. Contraception.

1999

2004    1    Contraceptive effectiveness   

Amaral E Et al. Contraception.

2004

2006    1    Safety trial of Amphora vs. N-9    Amaral E Et al. Contraception
2007    1   

Safety and feasibility of diaphragm with Amphora vs.

KY Jelly

  

Williams et al. Sexually

Transmitted Diseases. 2007

2010    2   

Acceptability/feasibility of Amphora + diaphragm vs.

KY Jelly

   von Mellendorf CE et al.
Contraception. 2010.
2011    3    Initiation of Phase 3 (AMP001) contraceptive study versus N-9    N/A
2014    3    Completion of Phase 3 contraceptive trial    N/A
2015    N/A    Submission of NDA to the FDA    N/A
2016    N/A    Received a complete response letter    N/A
2017    3   

Initiation of Phase 3

(AMPOWER) single-arm

contraceptive trial

   N/A

Amphora: Phase 3 Clinical Trial (AMP001)

A key stage in the development of Amphora was the completion of a large-scale Phase 3 clinical trial comparing the contraceptive effectiveness, safety and acceptability of Amphora with that of Conceptrol ® , a surfactant-based spermicidal gel containing 4% nonoxynol-9, which is currently on the market for use as a vaginal contraceptive. The primary endpoint of the trial was the rate of pregnancy among trial participants. Secondary endpoints included local and systemic signs and symptoms reported by participants or observed upon medical examination, such as itching, burning, irritation, inflammation or lesions to the cervical or vaginal epithelia and vaginal infections.

AMP001 Trial Design and Implementation

During 2011 through 2014, the AMP001 Amphora Phase 3 clinical trial enrolled 3,389 women throughout approximately 70 research centers located within the United States and Russia. It was an open-label, randomized, non-inferiority trial of repeated use of Amphora compared to Conceptrol over seven cycles of use. After completing the first 7 cycles, some of the women randomized to Amphora continued for up to a total of 13 cycles. In a subset of women (75 in each treatment arm) the lower genital tract (cervix, vagina, and vulva) was observed and photographed by colposcopy. The subset was blinded to avoid possible observer bias. A second subset was also examined microbiologically to document any changes in the vaginal flora, particularly the onset of any infection by Escherichia coli or yeast.

Results of AMP001 Phase 3 Clinical Trial

Full enrollment of the trial was achieved in July 2013 and the trial was completed during the first half of 2014. The six-month cumulative pregnancy rates for perfect use (defined as trial subjects who used the product

 

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correctly at every episode of coitus within a given cycle), and typical use (defined as trial subjects who had at least one episode of coitus without using the product correctly during the study and without any backup or emergency contraception) were approximately 4% and 10%, respectively. The observed 10% six-month and 15% one year pregnancy rates among typical users falls within the range expected for the typical use of user-dependent and barrier methods such as condoms or contraceptive gels.

The trial’s primary focus was to evaluate whether Amphora was non-inferior to Conceptrol. As the following table shows, the upper bound of the confidence interval for the difference in pregnancy percentages for typical use of Amphora or Conceptrol at six-months is less than or equal to 5.5%, which met the non-inferiority margin criteria. At one year, typical use failure rates for the male condom and the birth control pill are 18% and 9%, respectively.

 

     Six months
Amphora
    Six months
Conceptrol
    Difference  

PERFECT USE

     4.1     4.2     -0.1 %  

(95% Confidence Interval)

     (2.7% - 5.4%     (2.8% - 5.6%     (-2.1%, 1.8%

Number of subjects

     1,153       1,158    

Number of pregnancies

     36       36    

TYPICAL USE

     10.5     10.0     0.5 %  

(95% Confidence Interval)

     (8.6% - 12.3%     (8.1% - 11.9%     (-2.2%, 3.2%

Number of subjects

     1,259       1,281    

Number of pregnancies

     111       100    

AMP001 Safety data

Of the 30 subjects who experienced at least one serious adverse events, or SAE, 11 were treated with Amphora (0.8%) and 19 were treated with Conceptrol (1.3%). The adverse event, or AE, reporting for the 13-cycle extension did not identify additional SAEs; therefore, no subject treated with Amphora experienced an SAE with an additional 6 cycles of exposure to Amphora. Significantly more subjects liked Amphora than Conceptrol and significantly more Amphora users would use the product again if it were available (p<0.05 for both comparisons).

The table below sets out the adverse events in the AMP001 Phase 3 clinical trial.

Adverse events in greater than 2% of Amphora gel treated subjects in the Phase 3 Clinical Trial:

 

     Amphora      Conceptrol      All Subjects  

System organ class

     (N=1458)        (N=1477)        (N=2935)  

Preferred term

     n(%)        n(%)        n(%)  

Total number (%) of subjects with at least one AE

     833 (57.1)        857 (58.0)        1690 (57.6)  

Urinary tract infection

     160 (11.0)        193 (13.1)        353 (12.0)  

Vaginitis bacterial

     176 (12.1)        170 (11.5)        346 (11.8)  

Vulvovaginal mycotic infection

     169 (11.6)        168 (11.4)        337 (11.5)  

Headache

     104 (7.1)        80 (5.4)        184 (6.3)  

Vulvovaginal pruritus

     60 (4.1)        76 (5.1)        136 (4.6)  

Nasopharyngitis

     79 (5.4)        48 (3.2)        127 (4.3)  

Vulvovaginal discomfort

     48 (3.3)        53 (3.6)        101 (3.4)  

Vulvovaginal candidiasis

     49 (3.4)        46 (3.1)        95 (3.2)  

Vulvovaginal burning sensation

     52 (3.6)        41 (2.8)        93 (3.2)  

Vaginal discharge

     44 (3.0)        46 (3.1)        90 (3.1)  

Dysmenorrhea

     34 (2.3)        34 (2.3)        68 (2.3)  

Influenza

     39 (2.7)        20 (1.4)        59 (2.0)  

 

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Summary of Initial New Drug Application, or NDA, Submission (Contraceptive Indication)

On July 2, 2015, pursuant to section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, Evofem submitted an NDA for Amphora to the FDA for the proposed indication of prevention of pregnancy. The submission included, among other things, data from the initial Phase 3 clinical trial (AMP001) as well as other safety and efficacy information.

A Complete Response Letter, or CRL, was issued by the FDA on April 28, 2016. A CRL is issued if the agency determines that the application cannot be approved in its present form and will describe all the specific deficiencies identified by the agency. A CRL will also recommend actions that the applicant might take to place the application or abbreviated application in condition for approval.

The primary approvability issue was the difference in results between the U.S. and Russian cohorts. Although the study met its primary endpoint for the U.S. and Russian data when analyzed combined per the statistical plan, and separately as an ad hoc analysis, because the Russian data showed a higher level of efficacy for Amphora than for the U.S. subjects the data from Russian participants (approximately 20% of the study population) was considered non-generalizable to the U.S. population. Therefore, that data had to be excluded from the efficacy analysis (the Russian Data).

A Type A meeting was held on October 31, 2016 with the FDA who indicated a confirmatory efficacy trial focused on participants in North America would be required. After further consultation with the FDA, the FDA confirmed that a single-arm trial (non-comparative) would be sufficient to address the CRL deficiency. All feedback received from the FDA was incorporated into a protocol for a single-arm trial which was submitted to the FDA on June 30, 2017.

Amphora: AMP002 Confirmatory Phase 3 Trial (AMPOWER)

Evofem has begun a confirmatory, single-arm, Phase 3 trial entitled “A Single-Arm, Phase III, Open Label, Multicenter, Study in Women Aged 18-35 Years of the Contraceptive Efficacy and Safety of Amphora Contraceptive Vaginal Gel.” Evofem refers to this trial as AMPOWER. Evofem expects to enroll approximately 1,350 women aged 18 to 35 in up to 115 sites in the United States. The first subject was enrolled in this trial on July 28, 2017 and Evofem is currently anticipating top-level data will be available in 2019.

The primary endpoint for this trial is a seven cycle cumulative pregnancy rate. In addition to Evofem’s primary outcome for efficacy and secondary safety outcomes, Evofem has also included an exploratory endpoint of sexual satisfaction. Since Amphora also has lubricant properties, Evofem anticipates a positive result for the sexual satisfaction outcome, which could be further explored in future studies and potentially utilized in its labeling and marketing materials. Evofem believes this is the first contraception registration trial to include sexual satisfaction as an outcome.

Evofem plans to resubmit the NDA for Amphora as a prescription contraceptive by mid-2019.

Scientific Advice Process in the European Union:

Evofem previously conducted a regulatory gap analysis with Pharmalex GmbH to determine how the EU regulatory bodies were likely to view its marketing authorization application, or MAA, upon submission to the EU. Scientific advice was previously sought in April 2016 from the Medical Products Agency of Sweden, and the Agency of Medicine and Sanitary Products of Spain, but an MAA was not pursued due to a lack of resources to support a filing at that time. Evofem plans to reinitiate the scientific advice process and seek marketing authorization for Amphora in the EU through a decentralized procedure.

 

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Amphora for STI Prevention

In the United States, the CDC reports that there were 1.6 million new cases of chlamydia and approximately 468 thousand new cases of gonorrhea in 2016. Evofem believes this represents a significant commercial opportunity for its MPT vaginal gel.

Pre-clinical tests conducted in the early developmental stages by Rush University, and later by Evofem, suggest that Evofem’s MPT vaginal gel has the potential to suppress many of the pathogens responsible for sexually transmitted and commonly occurring bacterial infections. Evofem is advancing its MPT vaginal gel into a pivotal Phase 2b/3 trial to determine the extent to which the gel prevents sexual transmission of two common sexually transmitted infections, chlamydia (primary endpoint) and gonorrhea (secondary endpoint) and intends to conduct additional clinical trials to determine whether the microbicide potential shown in pre-clinical results translates into protection for women. Should this trial meet its primary endpoint, the FDA has indicated that it can be considered one of two pivotal trials required for approval.

Evofem’s MPT vaginal gel has been designated as a QIDP by the FDA for the prevention of urogenital gonorrhea infection in women. A drug that receives QIDP designation may qualify for an additional five years of marketing exclusivity and is eligible for the FDA’s fast-track program, intended to facilitate development and expedite review of drugs so that an approved product can reach the market expeditiously. An additional benefit is that the program allows for a priority review, with a goal of FDA action on the NDA within six months.

MPT Vaginal Gel for Recurrent Bacterial Vaginosis

The prevalence of BV in the United States is estimated to affect 21 million women, or 29.2% of women ages 14 to 49, and is considered to be the most common reproductive tract infections for women ages 15 to 44. There are currently no FDA approved products indicated for the reduction of recurrent BV.

Pre-clinical tests have shown Evofem’s MPT vaginal gel kills many microbes responsible for the recurrence of BV while not affecting lactobacilli, a normal and beneficial bacterium found in a healthy human vagina. The inhibitory mechanism comprises the gel’s buffered acidity and the presence of active pharmaceutical ingredients in the gel. Clinical studies are on-going to determine whether the anti-pathogen potential shown in the laboratory translates into protection for women.

Evofem filed an IND with the FDA in March 2016 to study the ability of its MPT vaginal gel for the reduction of recurrence of BV. Following submission of the IND, Evofem conducted a Phase 1 trial (EVO-002) examining the ability of a single vaginal administration of the vaginal gel at three different doses to reduce vaginal pH. The trial was completed in late 2016 and revealed the highest dose of the gel (5-gram) reduced vaginal pH up to seven days following a single administration compared to placebo gel or no gel. Evofem is currently designing a Phase 2b/3 trial to examine the ability of a 5-gram dose of its gel compared to placebo gel to reduce the recurrence of BV over a 16-week intervention period.

Evofem’s MPT vaginal gel has also been designated as a QIDP by the FDA for the reduction of recurrent episodes of BV.

Commercialization Strategy

Evofem intends to implement a global strategy to commercialize Amphora. In the United States, Evofem’s plan is to build its own integrated sales and marketing infrastructure. Outside of the United States, Evofem expects to leverage global pharmaceutical companies or other qualified potential partners to license commercialization rights or enter collaborations for the commercialization and distribution of Amphora.

 

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While awaiting the decision from the FDA as to the approval of Amphora, Evofem plans to conduct pre-commercialization activities including:

 

    the selection of commercial suppliers, which includes agency of record for the Amphora brand, hiring of sales and sales support personnel to support the anticipated Amphora launch, initiation of payer programs including the addition of medical science liaisons and national/key account managers, and the selection of third-party logistic provider(s); and

 

    optimizing manufacturing capabilities to include the installation of new equipment into manufacturers’ facilities, planning and preparing for all requisite inspections and planning for process validation and registration batch quantities.

United States

Evofem estimates that the U.S. market is the largest commercial opportunity for its product candidates. If Amphora is approved for commercialization by the FDA, Evofem intends to establish a commercial sales force to market Amphora directly to obstetricians and gynecologists, or OB/GYNs, who write the majority of prescriptions for contraceptive products.

The American Congress of Obstetricians and Gynecologists reports that there are approximately 36,000 fellows currently practicing in the United States. However, the top 30% of this group represents 85% of the contraceptive prescription volume. Evofem intends to target the top 30% by deploying a sales force of approximately 85 sales representatives. Evofem’s direct sales force will be complemented by print and digital advertising, social media campaigns, access programs, educational campaigns, and non-personal promotion campaigns targeting both consumers and healthcare providers.

Successful prescription drug market launches require comprehensive and integrated pre-launch activities. During the pre-launch phase for Amphora, Evofem intends to assemble an experienced team of key account managers and medical science liaisons expected to focus on ensuring key payer accounts, pharmacy benefit managers, key opinion leaders and medical associations who are educated about the need to offer a wider set of options to women seeking non-hormonal, woman-controlled contraceptive methods. Evofem expects these educational activities will be supported by presentation of clinical data at key national congresses (such as the American Congress of Obstetricians and Gynecologists and the Society of Family Planning), clinical publications, and additional market development activities. Launch and post-launch commercial activities are expected to include multi-channel marketing campaigns to raise brand awareness, including direct to consumer and health care professional campaigns. These key initiatives will be supported by awareness campaigns in social media, online and print advertisements, paid and earned social media support, and public relations efforts. Evofem expects these campaigns to encourage patients to consult their healthcare providers and ensure payer and healthcare provider strategies are implemented.

Ex-U.S. Markets

In markets outside of the United States, if a product candidate is approved for marketing in an individual market, Evofem intends to establish regional and/or global partnerships by either sublicensing the commercialization rights or to entering into distribution agreements with one or more third parties for the commercialization of the applicable product candidate in that market.

Payer and Reimbursement Strategy

United States

Evofem has conducted market research with 45 different healthcare plans that covered approximately 70% of covered lives within the United States to better understand viable access and pricing strategies for Amphora. Overall, a majority of respondents were positive about the introduction of a new contraception. These respondents cited the many

 

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unintended pregnancies, high costs associated with unwanted pregnancies, and the underlying limitations in the contraceptive category (i.e. the lack of non-hormonal options) as reasons a new contraceptive option is desirable. Evofem desires to have approximately 60% of all commercial healthcare plans offering full access and complete coverage of Amphora for all their reproductive aged women’s lives they are managing at the end of the first year of commercialization of Amphora. This coverage is expected to build to approximately 85% to 90% at peak sales.

Pricing strategy

Overall, healthcare plans appear receptive to the idea of pricing Amphora like that of branded oral contraceptives. Healthcare plans interviewed during market research expected Amphora to be priced between $100 to $200 for a monthly supply of a 12-applicator box (comparable to branded contraceptives), believing Amphora would ultimately offset other costs that the payer may incur (i.e. unwanted pregnancies).

Third-party Payers

Evofem expects that any sales of its product candidates will depend, in part, on the extent to which the costs of the applicable product candidates will be covered by healthcare plans, including government health programs in the United States such as Medicare and Medicaid. The process for determining whether a healthcare plan will provide coverage for a product is separate from the process for setting the price or reimbursement rate that the plan will pay for the product once coverage is approved. Evofem is also aware that many healthcare plans may limit coverage to specific products on an approved list, or formulary, which might not include all the approved products for a particular indication. Evofem intends to target those healthcare plans managing the largest number of lives to achieve optimal access for its product portfolio.

In March 2010 the ACA became law with the goals of broadening access to health insurance, reducing or constraining the growth of healthcare spending, enhancing remedies against fraud and abuse, adding new transparency requirements for health care and health insurance industries and imposing additional health policy reforms. The ACA mandates that certain preventative services that have strong scientific evidence of health benefits, including contraception, must be fully covered and reimbursement plans may no longer require a patient co-payment, coinsurance or deductible (i.e., no patient out-of-pocket expenses) for these services when they are delivered by an in-network provider. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, including the contraceptive coverage mandate. Congress and President Trump have expressed their intentions to repeal or replace the ACA. 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 Congressional activities have not resulted in passage of a law. If a law is enacted, many if not all of the provisions of the ACA may no longer apply.

European Union

In Evofem’s market research, it was found that EU consumers were interested in the unique benefits of Amphora product profiles, especially since Amphora is non-hormonal. Contraceptive products are not reimbursed in all the European Union member countries. For example, in Italy there is no coverage for contraceptives, in France and Spain, only oral contraceptives are generally covered, and in Germany, individual reimbursement policies apply.

Pricing and reimbursement

In the EU, pricing and reimbursement strategies vary widely from country to country. Some countries mandate that drug products may be marketed only after a reimbursement price has been agreed, while others may require the completion of additional studies that compare the cost-effectiveness of a product candidate to currently available therapies. For example, the EU provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. EU member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of offering a drug product on the market.

 

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Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become intense creating increasingly high barriers for entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Therefore, the development of new drug launch strategies has become very challenging to meet both patient need/demand while ensuring products are commercially viable in those markets.

Amphora Manufacturing

Evofem intends to outsource the manufacturing of Amphora (and its other potential product candidates) to third parties. Currently, Evofem has contracted with Swiss-American CDMO, LLC in Carrollton, Texas , or Swiss American, to manufacture its clinical supplies of Amphora. Swiss-American has agreed to manufacture Amphora and potential other product candidates in accordance with current good manufacturing practice, or cGMP, regulations, as well as in compliance with all applicable laws and other relevant regulatory agency requirements for manufacture of pharmaceutical drug products.

Competition

As shown below, the contraception market was established in 1960, with the introduction of “the pill,” the first oral contraceptive widely available to women in the U.S. This high-dose hormonal option remained the primary form of available contraception on the market until 1988 when the copper IUD was introduced and offered the first non-hormonal option for birth control. As shown in the time line below, there was no notable innovation providing additional options in women’s reproductive health until 30 years after the introduction of “the pill,” when pharmaceutical companies introduced synthetic hormonal products with different hormonal delivery systems, including the hormonal IUD, implants, the patch, and vaginal ring.

 

 

LOGO

 

If approved, Amphora would compete for market share in at least four competitive categories: 1) oral contraception, 2) Long-Acting Reversible Contraception, or LARC, comprised of IUDs, implants, and injectables, 3) short-term non-oral contraceptives, comprised of the weekly or monthly synthetic hormonal options including the patch and vaginal ring, and 4) over-the-counter, or OTC, methods, dominated primarily by the condom:

Oral Contraceptives (the “pill”)

The pill is the most commonly used form of birth control in the U.S. today. Birth control pills are marketed under a variety of brand names. There are two main kinds of oral contraceptives — combination birth control pills, which contain estrogen and progestin, and the mini pill, which contains only progestin. Oral contraceptives typically must be taken on a regular or daily basis in order to be effective.

 

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Long-Acting Reversible Contraception (LARC)

Implants

The contraception implant (principally marketed in the United States as Nexplanon ® by a subsidiary of Merck & Co. must be implanted under the skin and removed by a qualified healthcare provider, requiring a medical procedure provides contraception by releasing hormones over a three year period. The implant has realized an increase in market share over the past five years, outpacing the overall contraceptive category year-over-year, with annual sales in the United States of approximately $141 million.

Injectables

The primary injectable hormonal contraceptive on the market is Depo-Provera ® offered by Teva Pharmaceutical Industries Ltd. Each injection provides protection for up to 12 to 14 weeks, but patients must receive injections once every 12 weeks to get full contraceptive protection. Depo Provera was introduced to the market in 1992 and has annual sales in the U.S. of approximately $211 million.

IUDs

The copper IUD was introduced to the market in 1988 and provides protection by disrupting sperm motility and damaging sperm so that they are prevented from joining with an ovum. Today, the copper IUD is principally marketed by CooperSurgical, Inc. as Paragard ® and has annual sales in the U.S. of approximately $290 million. The hormonal IUD is principally offered under the brand names, Kyleena ® , Skyla ® and Mirena ® , a family of products from Bayer Pharmaceuticals, and has annual sales in the U.S. of approximately $1.2 billion. All IUDs must be inserted or removed by a physician.

The LARCs are not dependent on user adherence, thus making this method appealing to those who benefit from a passive form of birth control with no daily requirement to take a pill, however many women have decided to remove their LARC due to the hormonal side effects they experience.

Short-term hormonal, non-oral

Contraceptive Patch

The weekly contraceptive patch was introduced in 2000 by Johnson & Johnson’s Janssen division; however, deaths resulting from venous thromboembolism, or VTE, due to hormonal exposure had a significant negative impact on the patch and led to label changes restricting utilization. Following the loss of exclusivity, Johnson & Johnson’s Janssen division exited women’s healthcare and contraception as a promotional category.

Vaginal Ring

The hormonal vaginal ring by Merck & Co. was introduced to the market in 2001 and has annual sales in the U.S. of approximately $650 million. The ring is used for three weeks and then removed for a week during menses and a new hormonal vaginal ring is inserted. The efficacy for the vaginal ring is similar to hormonal oral contraception. Users of the vaginal ring report the same incidence of hormonal related side-effects as those using oral hormonal contraception.

Non-prescription Over-the-Counter (OTC)

Condoms are the dominate product offering in OTC sales. They are manufactured primarily by Trojan ® (Church & Dwight) and Durex ® (Reckitt Benckiser) brands, with approximately six million women who depend on condom use as their only method of birth control. The market size in the U.S. for male condoms in 2016 was over $900 million.

 

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Global Sales by Leading Contraceptive Companies:

 

     Bayer    Merck    Allergan    Cooper
Surgical
   Church & Dwight

Oral Contraceptive

   Natazia       Lo Loestrin ®  Fe      

Short-Term Non-Oral

      Nuvaring         

IUD/Implant

   Kyleena, Mirena,

Skyla

   Nexplanon    Liletta    Paragard   

OTC

               Trojan Condoms

The adoption of Evofem’s Amphora, if approved, is expected to come equally from each category discussed, as interest in Amphora falls into two distinct segments: 1) those women seeking an alternative to hormonal contraception; and 2) those women who are expected to utilize Amphora as added protection to their current form of birth control. Evofem’s market research has indicated that the hormone-free, on demand, woman-controlled aspect of Amphora makes it an attractive option across the entire competitive set.

Rush License

As discussed above, Evofem and Rush University entered into an Amended and Restated License Agreement, dated March 27, 2014, or the Rush License Agreement, pursuant to which Rush University granted Evofem an exclusive, worldwide license of certain patents and know-how, or the Rush Licensed IP, related to its MPT vaginal gel authorizing Evofem to make, distribute and commercialize products and processes for any and all therapeutic, prophylactic and/or diagnostic uses, including, without limitation, use for female vaginal health and/or contraception. The Rush License Agreement amended and restated in its entirety the License Agreement, dated February 6, 2012, as amended, entered into between Evofem’s predecessor-in-interest, Instead, Inc. and Rush University’s predecessor-in-interest, Rush-Presbyterian-St. Luke’s Medical Center.

As further described in the Rush License Agreement, Evofem is under an obligation to make royalty payments to Rush University based on net sales of products and/or processes that are claimed in the patents or the know-how licensed to Evofem under the Rush License Agreement. To the extent an Evofem product is not claimed in a licensed patent but does utilize the licensed know-how, the applicable royalty rate applicable to such product and/or processes half the royalty rate would be reduced.

In addition, if during the three years after an Evofem product or process has received regulatory approval and is introduced to the market, if the amounts paid to Rush University as royalties or sublicensing fees do not total a minimum royalty amount, then Evofem must pay a minimum annual royalty to Rush University. If Evofem has to pay a royalty or other payment to a third party in order for Evofem to avoid infringement of third party rights, Evofem may offset up to 50% owed to such third party from up to 50% of the amounts owed to Rush University under the Rush License. The above-described royalty payments expire upon termination of the Rush License Agreement in accordance with its terms.

Evofem also has the right to sub-license its rights to affiliates (without the prior approval of Rush University) and to third parties (with the prior written approval of Rush University, not to be unreasonably delayed or conditioned). To the extent Rush University approves of a third-party sub-license, in lieu of any royalty payment obligation under the Rush License Agreement, Evofem would then be under an obligation to pay Rush University a sub-license fee equal to a percentage of any sublicensing revenue received from any third party sub-licensee.

 

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Pursuant to the Rush License Agreement, Rush University, its affiliates and/or its sublicensees have the right in the form of a royalty free, non-exclusive license from Evofem under the applicable patents and know-how to use the technology embodied by such patents and know-how for non-commercial research purposes.

The Rush License Agreement provides that Evofem must use its best efforts to bring one or more products or processes based on the licensed patents to market, and to continue diligent marketing efforts for one or more of such products or processes during the term of the agreement. Additionally, within one month of the end of each fiscal quarter until the date of first commercial sale of a product, Evofem must provide Rush University with a written development report summarizing its product development activities since the prior such report, as well as any necessary adjustments to the plan of development.

The Rush License Agreement contains additional customary representations and warranties, insurance and confidentiality provisions and is governed by the laws of the State of Illinois, except that questions affecting the licensed patents will be determined in accordance with the national law of the country in which the applicable patent was granted. Evofem has the first right, but not the obligation, to pursue potential infringers of the licensed patents technology and know-how and the prior written approval of Rush University is required to settle any related claim.

Evofem has agreed to defend, indemnify and hold harmless Rush University, its employees and certain other related parties from and against any and all liabilities, damages, settlements, penalties, fines, costs or expenses arising out of any claim, complaint, suit, proceeding or cause of action brought against the relevant indemnity by a third party alleging damage arising from or occurring as a result of the activities performed by or under the authority of Evofem, its affiliates or sub-licensees in connection with the exercise of Evofem’s licenses and rights under the Rush License Agreement, except to the extent caused by Rush University’s negligence or willful misconduct.

Unless terminated in accordance with its terms, the term of the Rush License Agreement continues until the expiration, revocation or invalidation of the last of the patents or the abandonment of the last patent application included within the licensed patents and technology, which includes any patent claiming an improvement made within the term of the Rush License Agreement in the course of research supported or developed by Rush University utilizing the technology.

The Rush License Agreement may be terminated upon mutual written consent of both parties or by a non-breaching party if the other party commits a breach or default of any covenant in the agreement and fails to cure such breach within thirty (30) days after receiving written notice of such breach or default.

If Evofem is in default of its obligations under the Rush License Agreement and such default has not been cured within thirty (30) days, Rush University has the option to: (a) terminate the Rush License Agreement; or (b) convert the exclusive license to a non-exclusive license (subject to the rights of any pre-approved sub-licensee under any pre-approved sub-license). Termination of the Rush License Agreement or conversion to a non-exclusive license shall give Rush University the right to terminate all sub-licenses granted by Evofem that were not approved by Rush University. If Rush University declines to terminate any such sub-license agreement (or such sub-license agreement was approved by Rush University) then: (a) in the case of termination of the Rush License Agreement, the sub-license agreement shall become a direct agreement between Rush University and the relevant sub-licensee; and (b) in the case of conversion of the Rush License Agreement license to a non-exclusive license, such license shall continue in full force and effect in accordance with its terms.

In addition, Rush University may terminate the agreement: (i) upon thirty (30) days’ notice in the event that the aggregate royalties paid under such agreement in any calendar year following March 27, 2017 do not equal a minimum of at least $50,000, except that Evofem may pay to Rush University the difference between the royalties actually paid and $50,000 to prevent Rush University from so terminating the Rush License Agreement, and under such circumstances the Rush License Agreement will continue for an additional two (2) years beyond

 

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March 27, 2017; and (ii) in a given country as regards Evofem’s rights in such country, upon sixty (60) days’ notice if, prior to March 27, 2022, Evofem has not, in such country, engaged in certain specified activities in such country in an effort to exploit the products and processes covered by the licensed patents and technology in such country.

Intellectual Property

Evofem believes it has a strong and growing intellectual property portfolio. Evofem strives to protect the proprietary technology that Evofem believe is important to its business, including seeking and maintaining patents intended to cover its product candidates, and their methods of use, as well as any other inventions that are commercially important to the development of its business. Evofem seeks to obtain domestic and international patent protection, and endeavor to promptly file patent applications for new commercially valuable inventions. Evofem also relies on trade secrets to protect aspects of its business that are not amenable to, or that it does not consider appropriate for, patent protection.

Evofem’s success will depend on its ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to business, defend and enforce its patents, and other intellectual property rights, preserve the confidentiality of its trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. Evofem will also rely on continuing technological innovation and in-licensing opportunities to develop and maintain its proprietary position.

As of October 2017, Evofem owns or has exclusively licensed approximately 25 issued patents in U.S. and other countries and jurisdictions, and have approximately 30 applications pending in U.S. and other countries and jurisdictions. Furthermore, Evofem owns two pending Patent Cooperation Treaty applications that can be converted into national stage applications in U.S. and other countries and jurisdictions.

Evofem has an exclusive worldwide license to a portfolio of licensed patents held by Rush University, which provide general protection for Amphora, which expire in 2021 and could be eligible for extensions to at least 2024 in the United States and to 2026 in certain European jurisdictions, if granted by those regulatory bodies. Further, Evofem solely owns multiple patent families relating to the composition and therapeutic use of Amphora, which, upon grant, would expire at the earliest in 2033. Evofem believes that its licensed and solely owned non-hormonal contraceptive gel patent filings, combined with its substantial know-how in this field, will continue to provide opportunities for Evofem to establish a significant barrier to competitor entry into the market.

In addition, as Amphora is a product that acts locally in the vagina, Evofem believes that a generic version of Amphora gel cannot be evaluated for bioequivalence with the comparative pharmacokinetic blood testing that is commonly used to establish bioequivalence of systemic generic drugs. The comparative clinical endpoint studies that are generally conducted to establish bioequivalence of a locally-acting generic drug would not likely be adequately sensitive for detecting differences in performance between the generic drug and its reference listed drug.

In addition to patents, Evofem expects to rely on trade secrets and know-how to develop and maintain its competitive positions. For example, certain aspects of the composition, manufacturing, and use of Amphora are protected by unpatented trade secrets and know-how. Although trade secrets and know-how can be difficult to protect Evofem seeks to protect its proprietary technology and processes, in part, by confidentiality agreements with its employees, consultants, scientific advisors, collaborators, and contractors. Evofem also seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and physical and electronic security of its information technology systems. While Evofem has confidence in these individuals, organizations and systems, agreements or security measures may be breached and Evofem may not have adequate remedies for any breach. In addition, Evofem’s trade secrets and know-how may otherwise become known or may be independently discovered by competitors. To the extent that Evofem’s consultants,

 

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contractors or collaborators use intellectual property owned by third parties in their work for us, disputes may arise as to the rights in related or resulting intellectual property, including trade secret, know-how and inventions.

Trademark Basics and Strategy

Evofem owns or has rights to various trademarks, copyrights and trade names used in its business, including Evofem and Amphora. Evofem’s logos and trademarks are the property of Evofem Biosciences, Inc. All other brand names or trademarks appearing in this report are the property of their respective holders. Use or display by Evofem of other parties’ trademarks, trade dress, or products in this report is not intended to, and does not, imply a relationship with, or endorsement or sponsorship of us, by the trademark or trade dress owners.

Healthcare Laws and Regulations

Healthcare providers and third-party payers play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with third-party payers and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations, include the following:

Anti-Kickback Statute — the federal 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.

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.

Health Insurance Portability and Accountability Act of 1996 (HIPAA) — the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or for making any false statements relating to healthcare matters; as in the case of the federal healthcare Anti-Kickback Statutes, 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.

False Statements Statute — 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.

Stark Law — the federal ban on physician self-referrals, which prohibits, subject to certain exceptions, physician referrals of Medicare or Medicaid patients to an entity providing certain “designated health services” if the physician or an immediate family member of the physician has any financial relationships with the entity.

Sunshine Act — the federal transparency or “sunshine” requirements of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, requires manufacturers of drugs, devices, biologics and medical supplies to report to the DHHS information related to physician payments and other transfers of value and physician ownership and investment interests.

 

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State Transparency Laws

Some U.S. state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to healthcare providers and other healthcare providers or marketing expenditures, 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 and Foreign Regulatory Concerns

Analogous State and foreign laws and regulations, such as State Anti-Kickback and False Claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers.

State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.

Government Regulation and Product Approval

United States — FDA Process

The research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing, among other things, of Evofem’s products are subject to extensive regulation by governmental authorities in the United States and other countries. In the United States, the FDA regulates drugs under the FDCA and its implementing regulations. Failure to comply with the applicable United States requirements may subject Evofem to administrative or judicial sanctions, such as FDA refusal to approve pending NDA warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution. Medical products containing a combination of new drugs, biological products or medical devices are regulated as “combination products” in the United States. A combination product generally is defined as a product comprised of components from two or more regulatory categories (e.g., drug/device, device/biologic, drug/biologic). Each component of a combination product is subject to the requirements established by the FDA for that type of component, whether a new drug, biologic or device. To facilitate pre-market review of combination products, the FDA designates one of its centers to have primary jurisdiction for the pre-market review and regulation of the overall product based upon a determination by the FDA of the primary mode of action of the combination product. Amphora is subject to review by the FDA, and it is anticipated that Amphora will be a drug/device combination product under NDA standards.

FDA Drug Approval Process

Amphora may not be marketed in the United States until the product has received FDA approval. The steps to be completed before a drug may be marketed in the United States include:

 

    preclinical laboratory tests, animal studies, and formulation studies, all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations;

 

    submission to the FDA of an IND for human clinical testing;

 

    adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication to the FDA’s satisfaction;

 

    submission to the FDA of an NDA;

 

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    satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP regulations; and

 

    FDA review and approval of the NDA.

Preclinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials in the U.S. may begin and is required to be updated annually. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. Evofem’s first IND submitted in 2011 relates to Amphora for the prevention of pregnancy (AMP001). Evofem’s second IND relates to the MPT vaginal gel for the prevention of recurrence of BV (EVO-002). Evofem has also been allowed to conduct a clinical trial relating to prevention of chlamydia and gonorrhea (AMPREVENCE) under this IND.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Clinical trials necessary for product approval are typically conducted in three sequential phases, but the phases may overlap. The trial protocol and informed consent information for trial subjects in clinical trials must also be approved by an Institutional Review Board (IRB) for each institution where the trials will be conducted, and each IRB must monitor the trial until completion. Trial subjects must sign an informed consent form before participating in a clinical trial. Clinical testing also must satisfy extensive good clinical practice regulations and regulations for informed consent and privacy of individually identifiable information.

Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical trials, together with other detailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. Section 505(b)(1) and Section 505(b)(2) of the FDCA are the provisions governing the type of NDAs that may be submitted under the FDCA. Section 505(b)(1) is the traditional pathway for new chemical entities when no other new drug containing the same active pharmaceutical ingredient or active moiety, which is the molecule or ion responsible for the action of the drug substance, has been approved by the FDA. As an alternate pathway to FDA approval for new or improved formulations of previously approved products, a company may file a Section 505(b)(2) NDA. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The FDA reviews any NDA submitted to ensure that it is sufficiently complete for substantive review before the FDA accepts the NDA for filing. The FDA may request additional information rather than accept the NDA for filing. Even if the NDA is filed, companies cannot be sure that any approval will be granted on a timely basis, if at all. The FDA may also refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee, but it typically follows such recommendations. Evofem submitted its NDA for Amphora on July 2, 2015 via the 505(b)(2) regulatory pathway. No advisory committee was convened by the FDA on the first-round review and no advisory committee is expected upon resubmission of Evofem’s NDA.

The FDA may require that certain contraindications, warnings or precautions be included in the product labeling, or may condition the approval of an NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-marketing testing or clinical trials and surveillance programs to monitor the safety of approved products that have been commercialized.

 

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Post-Approval Requirements

Oftentimes, even after a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirements be satisfied, including the conduct of additional clinical trials. If such post-approval conditions are not satisfied, the FDA may withdraw its approval of the drug. In addition, holders of an approved NDA are required to (i) report certain adverse reactions to the FDA, (ii) comply with certain requirements concerning advertising and promotional labeling for their products, and (iii) continue to have quality control and manufacturing procedures conform to cGMP regulations after approval. The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing facilities. This latter effort includes assessment of ongoing compliance with cGMP regulations. Evofem has used and intends to continue to use third-party manufacturers to produce active pharmaceutical ingredients, for its products in clinical and commercial quantities, and for final, finished product, and future FDA inspections may identify compliance issues at the facilities of its contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval may result in restrictions on a product, including withdrawal of the product from the market.

Hatch-Waxman Act

As part of the Drug Price Competition and Patent Term Restoration Act of 1984, Section 505(b)(2) of the FDCA was enacted, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The Hatch-Waxman Amendments permit the applicant to rely upon certain preclinical or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, which is referred to as the Reference Listed Drug, the applicant is required to certify to the FDA concerning any listed patents in the FDA’s Orange Book publication that relate to the Reference Listed Drug. Specifically, the applicant must certify for all listed patents one of the following certifications: (i) the required patent information has not been filed by the original applicant; (ii) the listed patent already has expired; (iii) the listed patent has not expired, but will expire on a specified date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the manufacture, use or sale of the new product.

If a Paragraph I or II certification is filed, the FDA may make approval of the application effective immediately upon completion of its review. If a Paragraph III certification is filed, the approval may be made effective on the patent expiration date specified in the application, although a tentative approval may be issued before that time. If an application contains a Paragraph IV certification, a series of events will be triggered, the outcome of which will determine the effective date of approval of the 505(b)(2) application. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the Referenced Listed Drug has expired.

A certification that the new product will not infringe the Reference Listed Drug’s listed patents or that such patents are invalid is called a Paragraph IV certification. If the applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders for the Reference Listed Drug once the applicant’s NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a legal challenge to the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of their receipt of a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA by imposing a 30-month automatic statutory injunction, which may be shortened by the court in a pending patent case if either party fails to reasonably cooperate in

 

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expediting the case. The 30-month stay terminates if a court issues a final order determining that the patent is invalid, unenforceable or not infringed. Alternatively, if the listed patent holder does not file a patent infringement lawsuit within the required 45-day period, the applicant’s NDA will not be subject to the 30-month stay.

The Hatch-Waxman Act provides five years of data exclusivity for new chemical entities which prevents the FDA from accepting Abbreviated New Drug Applications and 505(b)(2) applications containing the protected active ingredient. The Hatch-Waxman Act also provides three years of exclusivity for applications containing the results of new clinical investigations (other than bioavailability studies) essential to the FDA’s approval of new uses of approved products such as new indications, delivery mechanisms, dosage forms, strengths, or conditions of use.

Pricing and Reimbursement

Sales of products that Evofem markets in the future, and its ability to generate revenues on such sales, are dependent, in significant part, on the availability and level of reimbursement from third-party payers such as state and federal governments, managed care providers and private insurance plans. If Evofem’s products are approved by the FDA, Evofem intends to work with payers to demonstrate the clinical benefits of its products over other delivery modalities to secure adequate and commercially favorable pricing and reimbursement levels.

Other Governmental Regulations, Healthcare Laws and Environmental Matters

The FDA regulates all advertising and promotion activities for products under its jurisdiction both prior to and after approval. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, consent decrees and the full range of civil and criminal penalties available to the FDA.

In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA has indicated that Amphora is covered by the PREA, but the FDA may, on its own initiative or at the request of an 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. Evofem has requested a partial waiver of the PREA in its NDA.

Although Evofem currently does not have any products on the market, it may be subject to additional healthcare regulation and enforcement by the federal government and by authorities in the United States and foreign jurisdictions in which Evofem conducts business. Such laws include, without limitation, state and federal fraud and abuse laws such as anti-kickback statutes, physician self-referral prohibitions, and false claims laws, privacy and security, and the Sunshine Act, many of which may become more applicable to Evofem if its product candidates are approved for commercialization. If Evofem’s operations are found to be in violation of any of such laws or any other governmental regulations that apply to it, Evofem may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of its operations, exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect its ability to operate its business and its financial results.

If Evofem establishes international operations, it will be subject to compliance with the Foreign Corrupt Practices Act, or the FCPA, which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate to obtain or retain business or to otherwise influence a person working in an official capacity. Evofem also may be implicated under the FCPA for activities by its partners, collaborators, contract research organizations, vendors or other agents.

 

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Evofem’s present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendations relating to safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import and export and use and disposal of hazardous or potentially hazardous substances used in connection with Evofem’s research work are or may be applicable to its activities. Certain agreements involving exclusive license rights, if any, or acquisitions, if any, may be subject to national or supranational antitrust regulatory control, the effect of which cannot be predicted. The extent of government regulation, which might result from future legislation or administrative action, cannot accurately be predicted.

Review and Approval of Drug Products in the European Union

Evofem is currently assessing how Amphora is going to be regulated in the European Union, and it is expected that Amphora is going to be regulated as a drug. Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a favorable opinion. Clinical trial applications must be accompanied by an investigational medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and corresponding national laws of the member states and further detailed in applicable guidance documents.

To obtain marketing approval of a drug in the European Union, an applicant must submit a MAA, either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all European Union member states, Iceland, Lichtenstein and Norway. The centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of certain diseases. For products with a new active substance indicated for the treatment of certain diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.

The decentralized procedure is available to applicants who wish to market a product in specific European Union member states where such product has not received marketing approval in any European Union member states before. The decentralized procedure provides for an applicant to apply to one member state to assess the application (the reference member state) and specifically list other member states in which it wishes to obtain approval (concerned member states). Under this procedure, an applicant submits an application based on identical dossiers and related materials, including a draft summary of product characteristics, and draft labelling and package leaflet, to the reference member state and each concerned member state. The reference member state prepares a draft assessment report and drafts of the related materials within 210 days after receipt of a valid application which is then reviewed and approved commented on by the concerned member states. Within 90 days of receiving the reference member state’s assessment report and related materials, each concerned member state must decide whether to approve the assessment report and related materials.

In the European Union, only products for which marketing authorizations have been granted may be promoted. Even if authorized, prescription-only medicines may only be promoted to healthcare professionals, not the general public. All promotion should be in accordance with the particulars listed in the summary of product characteristics. Promotional materials must also comply with various laws, and codes of conduct developed by pharmaceutical industry bodies in the European Union which govern (amongst other things) the training of sales staff, promotional claims and their justification, comparative advertising, misleading advertising, endorsements, and (where permitted) advertising to the general public. Failure to comply with these requirements could lead to the imposition of penalties by the competent authorities of the European Union member states. The penalties could include warnings, orders to discontinue the promotion of the medical device, seizure of promotional materials, fines and possible imprisonment.

 

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NEOTHETICS MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations of Neothetics should be read in conjunction with the condensed financial statements and accompanying notes appearing elsewhere in this proxy statement/prospectus/information statement. For additional context with which to understand the financial condition and results of operations of Neothetics, see the discussion and analysis included in Part II, Item 7 of Neothetics’ annual report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 23, 2017, as well as the financial statements and accompanying notes contained therein. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. The discussion of the Neothetics financial condition and results of operations contains certain statements that are not strictly historical and are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a high degree of risk and uncertainty. Actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties that exist in the Neothetics operations, development efforts and business environment, including those set forth in the section entitled “Risk Factors — Risks Related to Neothetics” in this proxy statement/prospectus/information statement, the other risks and uncertainties described in the section entitled “Risk Factors” in this proxy statement/prospectus/information statement and the other risks and uncertainties described elsewhere in this proxy statement/prospectus/information statement. All forward-looking statements included in this proxy statement/prospectus/information statement are based on information available to Neothetics as of the date hereof, and Neothetics assumes no obligation to update any such forward-looking statement.

Overview

Neothetics is a clinical-stage specialty pharmaceutical company that historically has been focused on developing therapeutics for the aesthetic market. Neothetics’ initial focus was on localized fat reduction and body contouring. Neothetics’ lead product candidate, LIPO-202, is a first-in-class injectable formulation of the long-acting ß2-adrenergic receptor agonist, salmeterol xinafoate, which is an active ingredient in the FDA approved inhaled products SEREVENT DISKUS ® , ADVAIR HFA ® and ADVAIR DISKUS ® . Neothetics previously completed development of LIPO-202 in our Phase 2 RESET trial in 2013, showing a statistically significant reduction in central abdominal bulging due to subcutaneous fat in non-obese patients. In June 2017, Neothetics announced that its Phase 2 proof-of-concept clinical trial, LIPO-202-CL-31, did not demonstrate improvement on any efficacy measurements or separation from placebo. As a consequence of the negative results from the Phase 2 proof-of-concept clinical trial of its lead product candidate LIPO-202, Neothetics announced its plans to initiate a process to explore and review a range of strategic alternatives focusing on seeking an acquisition, business combination or partnership that will allow for it to maximize shareholder value from its remaining assets and cash resources. Oppenheimer was retained to act as Neothetics’ exclusive financial advisor for this process. Further related to the negative clinical trial results, Neothetics implemented a reduction of its current full-time workforce of six employees to two employees in order to reduce operating expenses and conserve cash resources. The workforce was reduced to three employees during the third quarter of 2017 and is expected to be completed during the fourth quarter of 2017 or first quarter of 2018. In addition, Neothetics is taking the necessary steps to close out its clinical trial sites.

In February 2016, the Neothetics Board established an Operating Committee to assist with many of the responsibilities arising in the day-to-day operations of the company that normally would be managed by the chief executive officer and president, which position is currently vacant. The Operating Committee currently is comprised of three members of the Neothetics Board; Martha J. Demski, Kim Kamdar, Ph.D., and Jeffrey Nugent.

Since commencing operations in February 2007, Neothetics has invested substantially all of its efforts and financial resources in the research and development and commercial planning for LIPO-202. Through

 

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September 30, 2017, Neothetics has funded substantially all of our operations through the sale and issuance of its preferred stock, venture debt, convertible debt and the sale of shares in its initial public offering.

Neothetics has never been profitable and, as of September 30, 2017, had an accumulated deficit of $133.5 million. Neothetics incurred net losses of $1.8 million and $2.4 million for the three months ended September 30, 2017 and 2016, respectively, and $7.6 million and $11.0 million for the nine months ended September 30, 2017 and 2016, respectively. Neothetics expects to continue to incur net operating losses for the foreseeable future. There is substantial doubt about Neothetics’ ability to continue as a going concern within one year after the date that the financial statements for the quarter ended September 30, 2017 are issued.

JOBS Act

In April 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” Neothetics is electing not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, it will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that its decision not to take advantage of the extended transition period is irrevocable. In addition, Neothetics is in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth company” Neothetics chooses to rely on such exemptions, it may not be required to, among other things, (i) provide an auditor’s attestation report on its system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of Neothetics’ IPO or until it no longer meets the requirements of being an “emerging growth company,” whichever is earlier.

Basis of Presentation

Research and Development Expenses

Prior to the negative results described above, Neothetics devoted substantially all of its resources to research and development efforts relating to its product candidates, including conducting clinical trials, manufacturing capabilities, providing general and administrative support for these operations and protecting its intellectual property. Neothetics’ research and development expenses have consisted primarily of:

 

    fees paid to clinical consultants, clinical trial sites and vendors, including CROs in conjunction with implementing and monitoring its preclinical and clinical trials and acquiring and evaluating preclinical and clinical trial data, including all related fees, such as for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis;

 

    expenses related to preclinical studies, clinical trials and related clinical manufacturing, materials and supplies;

 

    expenses related to compliance with drug development regulatory requirements in the United States and other foreign jurisdictions; and

 

    personnel costs, including cash compensation, benefits and share-based compensation expense.

 

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Neothetics expenses both internal and external research and development costs in the periods in which they are incurred. To date, substantially all Neothetics’ research and development expenses have related to the development of LIPO-202. For the three months ended September 30, 2017 and 2016, it incurred costs of $0.5 million and $1.0 million, respectively, and $3.6 million and $5.7 million, for the nine months ended September 30, 2017 and 2016, respectively, on research and development expenses.

Neothetics does not allocate compensation expense to individual product candidates, as it is organized and record expense by functional department and its employees may allocate time to more than one development project. Neothetics does not utilize a formal time allocation system to capture expenses on a project-by-project basis.

Neothetics expects its research and development expenses to decrease significantly as it winds down its existing and discontinues new research and development activities. Neothetics will continue to incur research and development expenses in connection with the windup and clinical trial closing costs.

General and Administrative Expenses

Neothetics’ general and administrative expenses primarily consist of personnel costs, including cash compensation, benefits and share-based compensation expense, associated with its executive, accounting and finance departments. Other general and administrative expenses include costs in connection with patent filing, prosecution and defense, facility, information technology costs and professional fees for legal, consulting, marketing, audit and tax services. Neothetics expects its general and administrative expenses to increase for the foreseeable future as it entered into a definitive merger agreement on October 17, 2017.

Interest Income

Neothetics’ interest income consists primarily of interest received or earned on its cash and cash equivalents. Neothetics’ expects interest income to vary each reporting period depending on its average cash and cash equivalents and marketable securities balances during the period and applicable interest rates. To date, its interest income has not been significant in any individual period.

Interest Expense

Neothetics’ interest expense consists of cash and noncash interest costs related to its borrowings. The noncash interest costs consist of the amortization of the fair value of warrants that were issued in connection with its borrowings, with the initial fair value of the warrants being amortized to interest expense over the term of the governing agreements, and the amortization of other debt issuance costs, primarily legal and banker fees, over the period the related convertible notes were outstanding. As Neothetics prepaid in full the Hercules debt facility in September 2016, there was no interest expense for the three months ended September 30, 2017.

Critical Accounting Policies and Significant Judgments and Estimates

Neothetics’ discussion and analysis of its financial condition and results of operations are based on its financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, Neothetics evaluates these estimates, including those related to stock-based compensation and warrant liabilities. These estimates are based on historical experience and various other assumptions that Neothetics believes to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the recognition of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to its critical accounting policies and estimates from the information provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies Involving Management Estimates and Assumptions,” included in Neothetics Annual Report on Form 10-K for the year ended December 31, 2016.

 

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Results of Operations

Comparison of the Three Months Ended September 30, 2017 and 2016

 

     Three Months Ended
September 30,
     Change  
     2017      2016      $  
     (in thousands)  

Operating expenses:

        

Research and development

   $ 487      $ 965      $ (478

General and administrative

     1,332        905        427  
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     1,819        1,870        (51
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (1,819      (1,870      51  

Interest income

     13        14        (1

Interest expense

     —          (506      506  
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (1,806    $ (2,362    $ 556  
  

 

 

    

 

 

    

 

 

 

Research and Development Expenses. Research and development expenses were $0.5 million and $1.0 million for the three months ended September 30, 2017 and 2016, respectively. The total decrease of approximately $0.5 million was primarily due to a decrease of $0.4 million in expenses incurred during the third quarter of 2016 associated with the preparation of Neothetics’ Phase 2 proof-of-concept clinical trial for the reduction of localized fat deposits under the chin. A decrease of $0.09 million was due to the completion of close out activities for our AbCONTOUR1 and AbCONTOUR2 U.S. Phase 3 clinical trials and the supplemental clinical trials. A decrease of $0.07 million in compensation expenses was due to a reduction in workforce. The decreases were offset by an increase in severance expense of $0.1 million.

General and Administrative Expenses. General and administrative expenses increased by approximately $0.4 million to $1.3 million for the three months ended September 30, 2017 from $0.9 million for the three months ended September 30, 2016. The increase of $0.6 million was primarily due to legal and consulting expenses incurred in connection with the work associated with the contemplated strategic transaction. The increases were offset by a decrease of $0.1 million in rent expense due to the sublease and a decrease of $0.07 in patent expense.

Interest Income. Interest income decreased by $1,000 to $13,000 for the three months ended September 30, 2017 from $14,000 for the three months ended September 30, 2016. The decrease resulted from a lower cash balance during the three months ended September 30, 2017.

Interest Expense. Interest expense decreased by $0.5 million to zero for the three months ended September 30, 2017 from $0.5 million for the three months ended September 30, 2016. The decrease was due to the early repayment of long-term debt in September 2016.

 

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Comparison of the Nine Months Ended September 30, 2017 and 2016

 

     Nine Months Ended
September 30,
     Change  
     2017      2016      $  
     (in thousands)  

Operating expenses:

        

Research and development

   $ 3,593      $ 5,653      $ (2,060

General and administrative

     4,081        4,408        (327
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     7,674        10,061        (2,387
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (7,674      (10,061      2,387  

Interest income

     40        50        (10

Interest expense

     —          (1,036      1,036  
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (7,634    $ (11,047    $ 3,413  
  

 

 

    

 

 

    

 

 

 

Research and Development Expenses. Research and development expenses were $3.6 million and $5.7 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease of $2.1 million was primarily due to a decrease of $2.3 million of expenses related to the completion of its AbCONTOUR1 and AbCONTOUR2 U.S. Phase 3 clinical trials and related supplemental trials, $1.2 million decrease from research and development activities and $0.4 million decrease due to a reduction in workforce. The decreases were offset by $1.9 million of expenses incurred during the first nine months of 2017 related to the Phase 2 proof-of-concept clinical trial for the reduction of localized fat deposits under the chin.

General and Administrative Expenses. General and administrative expenses decreased by approximately $0.3 million to $4.1 million for the nine months ended September 30, 2017 from $4.4 million for the nine months ended September 30, 2016. The decrease of $0.8 million was due to expenses associated with a reduction in workforce and $0.1 million decrease in patent expense. The decreases were offset by an increase of $0.6 million in legal and consulting expenses in connection with the contemplated strategic transaction.

Interest Income. Interest income decreased by $10,000 to approximately $40,000 for the nine months ended September 30, 2017 from approximately $50,000 for the nine months ended September 30, 2016. The decrease resulted from a lower cash balance during the nine months ended September 30, 2017.

Interest Expense. Interest expense decreased by approximately $1.0 million to zero for the nine months ended September 30, 2017 from $1.0 million for the nine months ended September 30, 2016. The decrease was due to the early prepayment of long-term debt in September 2016.

Comparison of the Years Ended December 31, 2016 and 2015

 

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

Operating expenses:

        

Research and development

   $ 6,579      $ 34,410      $ (27,831

General and administrative

     5,463        7,639        (2,176
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     12,042        42,049        (30,007
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (12,042      (42,049      30,007  

Interest income

     59        26        33  

Interest expense

     (1,036      (1,134      98  
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (13,019    $ (43,157    $ 30,138  
  

 

 

    

 

 

    

 

 

 

 

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Research and Development Expenses. Research and development expenses decreased by $27.8 million, to approximately $6.6 million for the year ended December 31, 2016 from $34.4 million for the year ended December 31, 2015. Approximately $19.1 million of the decrease was due to the completion of Neothetics’ AbCONTOUR1 and AbCONTOUR2 U.S. Phase 3 clinical trials and $4.7 million of the decrease was due to the termination of the supplemental clinical trials. Approximately $1.1 million of the decrease was due to the reduction of consulting and other outside services, as well as the elimination of the Corporate Advisory Board, as well as a decrease of $1.4 million due to a reduction in headcount in research and development. The remaining decrease of approximately $1.5 million was due to a decline in regulatory, preclinical and CMC activities.

General and Administrative Expenses. General and administrative expenses decreased by approximately $2.2 million, to $5.5 million for the year ended December 31, 2016, from $7.6 million for the year ended December 31, 2015. The decrease of approximately $2.0 million was due to reduction in general legal fees, public and investor relation expenses, accounting fees and outside services expenses. The remaining decrease of approximately $0.2 million was related to a reduction of headcount for the year ended December 31, 2016.

Interest Income. Interest income increased by $33,000, to approximately $59,000 for the year ended December 31, 2016 from approximately $26,000 for the year ended December 31, 2015. The increase resulted from higher rates of return during the year ended December 31, 2016.

Interest Expense. Interest expense decreased by approximately $0.1 million, to approximately $1.0 million for the year ended December 31, 2016 from approximately $1.1 million for the year ended December 31, 2015. The decrease in interest expense was due to payoff of outstanding debt in September 2016.

Liquidity and Capital Resources

Neothetics has incurred losses and negative cash flows from operating activities for the nine months ended September 30, 2017 and 2016. As of September 30, 2017, it had an accumulated deficit of $133.5 million. Neothetics anticipates that it will continue to incur net losses for the foreseeable future and incur additional costs associated with being a public company. Neothetics expects that its research and development expenses will decrease significantly due to the discontinuation of further research and development activities. Neothetics expects its general and administrative expenses to increase for the foreseeable future as the Company entered into a definitive merger agreement on October 17, 2017. Neothetics may have to liquidate its assets and might realize significantly less than the values at which they are carried on the financial statements. Based on its current operating plans, Neothetics does not expect that its existing capital resources will be sufficient to fund its operations beyond the first half of 2018. These factors raise substantial doubt about Neothetics’ ability to continue as a going concern. The financial statements have been prepared on a going concern basis and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

Prior to its IPO in November 2014, Neothetics funded its operations primarily through private placements of its convertible preferred stock, warrants, venture debt and convertible debt. In November 2014, Neothetics completed its IPO of 4,650,000 shares of common stock at an offering price of $14.00 per share. Neothetics received net proceeds of approximately $57.7 million, after deducting underwriting discounts, commissions and offering-related transaction costs. At September 30, 2017, Neothetics had cash and cash equivalents of approximately $5.8 million.

On December 1, 2015, Neothetics entered into a Controlled Equity Offering Sales Agreement, or the Sales Agreement, with Cantor Fitzgerald & Co., as a sales agent, or Cantor Fitzgerald, pursuant to which Neothetics may offer and sell from time to time, through Cantor Fitzgerald shares of Neothetics common stock, par value $0.0001 per share, having an aggregate offering price of up to $20.0 million. As of September 30, 2017, no shares were issued pursuant to the Sales Agreement.

 

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Summary Statement of Cash Flows

The following table sets forth a summary of the net cash flow activity for each of the periods set forth below (in thousands):

 

     Nine Months Ended
September 30,
 
     2017      2016  

Net cash used in operating activities

   $ (5,843    $ (13,366

Net cash provided by investing activities

     6        —    

Net cash provided by (used in) financing activities

     3        (10,019
  

 

 

    

 

 

 

Net decrease in cash, cash equivalents and restricted cash

   $ (5,834    $ (23,385
  

 

 

    

 

 

 

Cash Flows from Operating Activities . Net cash used in operating activities was $5.8 million and $13.4 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease in cash used in operations for nine months ended September 30, 2017 compared to September 30, 2016 was primarily due to the decrease in net loss of $3.4 million and changes in accounts payable and accrued expenses of $5.4 million. The decreases were offset by the $0.8 million change in prepaid expenses and $0.4 million change in share-based compensation.

Cash Flows from Investing Activities . Net cash provided by investing activities was $6,000 and zero for the nine months ended September 30, 2017 and 2016, respectively. During the nine months ended September 30, 2017, cash provided by investing activities consisted of proceeds from sale of property and equipment.

Cash Flows from Financing Activities . Net cash provided by financing activities was approximately $3,000 for the nine months ended September 30, 2017 and net cash used by financing activities was $10.0 million for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, cash provided in financing activities included proceeds from issuance of common stock from exercise of options. During the nine months ended September 30, 2016, cash used by financing activities included prepayment of long-term debt.

Operating and Capital Expenditure Requirements

Neothetics future capital requirements are difficult to forecast. Neothetics expects that its research and development expenses will decrease significantly due to the discontinuation of further research and development activities. Neothetics expects its general and administrative expenses to increase for the foreseeable future as the company entered into a definitive merger agreement on October 17, 2017.

Contractual obligations and commitments

In January 2015, Neothetics entered into a noncancelable operating lease. Other than described in the notes to Neothetics’ financial statements, there have been no material changes outside the ordinary course of its business to the contractual obligations Neothetics reported in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual obligations and commitments” in its annual report on Form 10-K for the year ended December 31, 2016.

Off-Balance Sheet Arrangements

Neothetics does not have any off-balance sheet arrangements (as defined by applicable regulations of the Securities and Exchange Commission) that are reasonably likely to have a current or future material effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources.

 

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QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT NEOTHETICS’ MARKET RISK

Neothetics has market risk exposure related to its cash and cash equivalents. Neothetics invests its excess cash in a money market account. Neothetics does not believe that its cash and cash equivalents have significant risk of default or illiquidity. While Neothetics believes its cash and cash equivalents do not contain excessive risk, Neothetics maintains a significant amount of cash and cash equivalents at one financial institution that is in excess of federally insured limits.

 

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

You should read the following discussion and analysis of Evofem’s financial condition and results of operations together with “Selected Historical Consolidated Financial Data” beginning on page 18 of this proxy statement/prospectus/information statement, Evofem’s audited annual consolidated financial statements as of December 31, 2016 and December 31, 2015 and unaudited condensed consolidated financial statements as of September 30, 2017 and accompanying notes beginning on page F-33 of this proxy statement/prospectus/information statement. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” beginning on page 23 and elsewhere in this proxy statement/prospectus/information statement. Unless otherwise defined in this section, the defined terms in this section have the meanings set forth in Evofem’s Audited and Unaudited Consolidated Financial Statements beginning on page F-33 of this proxy statement/prospectus/information statement.

Overview

Evofem Bioscience is a San Diego-based clinical stage pharmaceutical company which develops products candidates that are woman-controlled, non-invasive and rapidly reversible. Evofem Biosciences’ primary goal is to provide women in every global market with access to effective products that are well suited to their lifestyle and consistent with their core values. Evofem Biosciences’ lead product candidate, Amphora, is a non-hormonal vaginal gel believed to have multipurpose prevention technology properties, including contraception, prevention of the transmission of chlamydia and gonorrhea and prevention of reoccurring bacterial vaginosis.

Since inception in 2009, Evofem has devoted substantially all of its efforts on developing its MPT vaginal gel, including conducting preclinical and clinical trials and providing general and administrative support for these operations. Evofem does not have any approved products and has not generated any revenue from product sales or otherwise. Although Amphora, Evofem’s lead product candidate, is in a later stage of clinical development, it has not yet been approved for use as a contraceptive or any other targeted indications and its use for these other currently targeted indications of MPT vaginal gel are still in early stage clinical development. Evofem does not currently expect to generate any significant revenues prior to 2020. To finance its current strategic plans, including the conduct of ongoing and future clinical trials, further research and development and anticipated commercialization ramp up in 2019, Evofem will require significant additional capital. Assuming Evofem has sufficient liquidity, it will incur significantly higher costs in the foreseeable future.

Evofem has funded its operations primarily through sales of its convertible preferred stock, related-party advances and a related-party note payable from Cosmederm Biosciences, Inc., or Cosmederm, from which Evofem has raised net cash of $161.1 million since its inception through November 7, 2017. As of November 7, 2017, Evofem holds cash in the amount of $4.4 million. See the section entitled “ Certain Relationships and Related Party Transaction of Evofem — Affiliate Transactions — Cosmederm Note ” beginning on page 207 of this proxy statement/prospectus/information statement.

Financial Operations Overview

Revenue

To date, Evofem has not generated any revenue from its product candidates. Evofem does not expect to generate any revenue from any product candidates that it develops unless and until it obtains regulatory approval and commercializes its products or enters into collaborative agreements with third parties. In the future, if Amphora is approved for commercial sale in the United States, Evofem may generate revenue from product sales. Evofem does not expect to commercialize Amphora before the end of 2019, if ever.

 

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Operating Expenses

Research and development expenses

Evofem’s research and development expenses primarily consist of costs associated with the preclinical and clinical development of its product candidates. Evofem’s research and development expenses include:

 

    external development expenses incurred under arrangements with third parties, such as fees paid to commercial research organizations, or CROs, relating to its clinical trials, costs of acquiring and evaluating clinical trial data such as investigator grants, patient screening fees, laboratory work and statistical compilation and analysis, and fees paid to consultants and its scientific advisory board;

 

    costs to acquire, develop and manufacture clinical trial materials, including fees paid to contract manufactures;

 

    payments related to licensed products and technologies;

 

    costs related to compliance with drug development regulatory requirements;

 

    employee-related expenses, including salaries, benefits, travel and stock-based compensation expense; and

 

    facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and research and other supplies.

Evofem expenses its internal and third-party research and development expenses as incurred.

The following table summarizes Evofem’s research and development expenses (in thousands) by product candidate:

 

     Years Ended
December 31,
     Nine months Ended
September 30,
 
     2016      2015      2017      2016  

Third-party development costs:

           

Amphora, as a contraceptive

   $ 4,298      $ 4,334      $ 8,100      $ 3,608  

Chlamydia/Gonorrhea

     —          —          1,129        —    

Bacterial vaginosis

     1,629        —          350        978  

Terminated development costs

     6,000        11,000        —          3,500  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total third-party development costs

     11,927        15,334        9,579        8,086  

Other unallocated internal research and development costs

     2,928        1,862        2,744        2,216  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 14,855      $ 17,196      $ 12,323      $ 10,302  
  

 

 

    

 

 

    

 

 

    

 

 

 

Completion dates and costs for Evofem’s clinical development programs can vary significantly for each current and any future product candidate and are difficult to predict. Therefore, Evofem cannot estimate with any degree of certainty the aggregate costs it will incur regarding the development of its product candidates. Evofem anticipates it will make determinations as to which programs and product candidates to pursue as well as the most appropriate funding allocations for each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, regulatory developments, and its ongoing assessments as to each current or future product candidate’s commercial potential. Evofem will need to raise substantial additional capital in the future to complete clinical development for its current and future product candidates. Evofem may enter into collaborative agreements in the future to conduct clinical trials and gain regulatory approval of its product candidates, particularly in markets outside of the United States. Evofem cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect its development plans and overall capital requirements.

 

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The costs of clinical trials may vary significantly over the life of a program owing to the following:

 

    per patient trial costs;

 

    the number of sites including in the trials;

 

    the length of time required to enroll eligible patients;

 

    the number of patients that participate in the trials;

 

    the number of doses that patients receive;

 

    the drop-out or discontinuation rates of patients’;

 

    potential additional safety monitoring or other studies requested by regulatory agencies;

 

    the phase of development of the product candidate; and

 

    the efficacy and safety profile of the product candidate.

General and administrative expenses

Evofem’s general and administrative expenses consist primarily of salaries, benefits, travel and stock-based compensation expense, and other related costs for its employees and consultants in executive, administrative, finance and human resource functions. Other general and administrative expenses include facility-related costs not otherwise included in research and development and professional fees for accounting, auditing, tax and legal fees, and other costs associated with obtaining and maintaining Evofem’s patent portfolio, and conducting commercial assessments for its product candidates.

Other Income (Expense)

Other income (expense) consists primarily of Evofem’s loss on issuance of Series D redeemable convertible preferred stock (Evofem Series D), loss on extinguishment of related-party note payable and change in fair value of the Series D 2X liquidation preference, which for each share of Evofem Series D redeemable convertible preferred stock is equal to two times the issuance price per share of Evofem Series D, plus accrued and unpaid dividends, which are payable upon Evofem’s merger with Neothetics. Evofem’s loss on issuance of Series D redeemable convertible preferred stock and loss on extinguishment of related-party note payable were recognized upon issuance of the related Evofem Series D, as the Evofem Series D was determined to have been issued at less than fair value. In addition to the 60 shares of Evofem Series D outstanding as of December 31, 2016, in August 2017, Evofem issued an aggregate of 15 additional shares of Evofem Series D for which it also recognized a loss on issuance. In November 2017, upon closing of the last tranche under its Evofem Series D Amendment, Evofem expects to recognize additional losses on issuance.

The Evofem Series D 2X liquidation preference will expire upon closing of the merger contemplated in this proxy statement/prospectus/information statement at which time Evofem will estimate the final fair value of the Evofem Series D 2X liquidation preference. The financial change in fair value of the Evofem Series D 2X liquidation preference will be recognized within change in fair value of the Evofem Series D 2X liquidation preference and the Evofem Series D 2X liquidation preference liability will be reclassified to additional paid-in capital in Evofem’s consolidated balance sheets. The Evofem Series D 2X liquidation preference is revalued at each reporting date and changes in fair value are recognized as increases in or decreases to other income (expense).

Results of Operations

Nine months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016 (in thousands):

 

     Nine Months Ended
September 30,
        
     2017      2016      $ Change  

Research and development

   $ 12,323      $ 10,302      $ 2,021  

 

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Research and development expenses.  The overall increase in research and development expenses is primarily due to a $5.5 million increase in clinical trial costs as Evofem initiated its confirmatory Phase 3 clinical trial for Amphora as a contraceptive in July 2017. This increase was partially offset by a $3.5 million decrease in license fees during 2017, associated with Evofem’s sublicenses with WomanCare Global Trading CIC, or WCGT CIC, that were terminated in December 2016.

 

     Nine Months Ended
September 30,
        
       2017        2016      $ Change  

Abandoned initial public offering costs

   $     —        $ 4,705      $ (4,705

Abandoned initial public offering costs.  During 2016, Evofem abandoned its late 2015 and early 2016 efforts of pursuing a public listing on the AIM.

 

     Nine Months Ended
September 30,
        
     2017      2016      $ Change  

General and administrative

   $ 8,018      $ 12,314      $ (4,296

General and administrative expenses.  The overall decrease in general and administrative expenses was primarily driven by decreases of $1.3 million in business development expenses and $1.4 million in outside services both of which were associated with Evofem’s planned commercial launch activities for Amphora that were suspended in April 2016 upon receipt of a complete response letter from the FDA, $0.7 million in salaries and related costs, due to a June 2016 reduction in workforce so Evofem could refocus its efforts on research and development rather than an anticipated commercial launch of Amphora, $0.6 million in of severance expense associated with the September 2016 departure of Evofem’s president and chief operating officer, $0.4 million in stock-based compensation due to the September 2016 issuance of stock options of which a significant portion were fully vested at issuance, $0.4 million in personal costs utilized under Evofem’s shared services agreement with WomanCare Global International (see Note 8 — Related-Party Transactions to Evofem’s Audited Consolidated Financial Statements beginning on page F-52 of this proxy statement/prospectus/information statement for details of the shared services agreement and the section entitled “ Certain Relationships and Related Party Transactions of Evofem — Transactions with WomanCare Global International and Related Entities, or the WCG Entities ” beginning on page 207 of this proxy statement/prospectus/information statement), and $0.2 million of general travel costs. These decreases were partially offset by a $0.7 million increase in Evofem’s 2017 bonus accrual due to a change in the bonus structure.

 

     Nine Months Ended
September 30,
       
     2017     2016     $ Change  

Loss on issuance of Series D redeemable convertible preferred stock

   $ (5,740   $ (20,619   $ (14,879

Loss on extinguishment of related-party note payable

   $ —       $ (6,651   $ 6,651  

Loss on issuance of Series D redeemable convertible preferred stock and loss on extinguishment of related-party note payable.  In August 2017 and July 2016, Evofem issued 15 shares and 41 shares, respectively, of its Evofem Series D. Of the 41 shares issued in July 2016, 10 shares resulted in the extinguishment of a related-party note payable with an entity previously under common control, Cosmederm (see EvoMed Debt and Cosmederm Note discussions in Note 8 — Related Party Transactions of Evofem’s Audited Financial Statements beginning on page F-52 of this proxy statement/prospectus/information statement and Series D Redeemable Convertible Preferred Stock discussion in Note 9 — Convertible Preferred Stock of Evofem’s Audited Financial Statements beginning on page F-56 of this proxy statement/prospectus/information statement and the section entitled “ Certain Relationships and Related Party Transactions of Evofem — Evofem Series D Preferred Stock Financings ” beginning on page 209 of this proxy statement/prospectus/information statement). Due to the existence of the Evofem Series D liquidation preference, Evofem’s financial position at the time of the initial

 

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closing and the existence of the warrant rights, Evofem determined the Evofem Series D was not the result of an arms-length transaction. Evofem had an external valuation completed at each closing date which determined the Evofem Series D was issued below fair value. For the August 2017 issuance, since no unstated rights and/or privileges were identified with the Evofem Series D, the loss on issuance of Series D redeemable convertible preferred stock, of $5.7 million, was recognized in Evofem’s condensed consolidated statements of operations. For the July 2016 issuance, since no unstated rights and/or privileges were identified with the Evofem Series D, the aggregate loss of $27.3 million was allocated between loss on issuance of Series D redeemable convertible preferred stock, of $20.6 million, and loss on extinguishment of related-party note payable, of $6.7 million.

 

     Nine months Ended
September 30,
        
     2017      2016      $ Change  

Change in fair value of Series D 2X liquidation preference

   $ (59,811    $ (260    $ (59,551

Change in fair value of Series D 2X liquidation preference.  The Evofem Series D shares will receive their 2X liquidation preference, in shares, in the merger as contemplated in this proxy statement/prospectus/information statement. As such, as of September 30, 2017, Evofem introduced a reverse take over scenario, in the probability-weighted expected return model, or PWERM, used to determine the fair value of the Evofem Series D 2X liquidation preference. The introduction of the reverse take over scenario generated significant value related to the Evofem Series D shares and thereby significantly increased the Series D 2X liquidation preference liability as of September 30, 2017. Through Evofem’s August 2, 2017 valuation and during 2016, the change in fair value of the Evofem Series D 2X liquidation preference represents an unfavorable change in the fair value of the Evofem Series D 2X liquidation preference due primarily to assumption changes regarding the timing of additional financings, potential exit scenarios, as well as revisions to Evofem’s financial forecast.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 (in thousands):

 

     Year Ended
December 31,
        
     2016      2015      $ Change  

Research and development

   $ 14,855      $ 17,196      $ (2,341

Research and development expenses.  The overall decrease in research and development expenses for 2016 as compared to 2015 is primarily related to a $5.0 million decrease in license fees under Evofem’s sublicenses with WCGT CIC. License fees during 2015 totaled $11.0 million (a $10.0 million upfront payment under its Sublicenses with WCGT CIC (see Evofem’s Intellectual Property Rights discussion in Note 7 — Commitments and Contingencies to its Audited Financial Statements beginning on page F-50 of this proxy statement/prospectus/information statement for the terms of its Sublicenses and the section entitled “ Certain Relationships and Related Party Transactions of Evofem — Transactions with WomanCare Global International and Related Entities, or the WCG Entities ” beginning on page 207 of this proxy statement/prospectus/information statement), which related to a contraception ring product candidate and which were terminated in December 2016, which was expensed at the time of the payment and $1.0 million in sublicense fees). License fees during 2016, totaled $6.0 million in sublicense fees. This decrease was partially offset by increases of $1.2 million in clinical trial costs as Evofem prepared for a confirmatory Phase 3 clinical trial for Amphora; $1.1 million in personnel related costs, including stock-based compensation, due to an increase in average headcount from 4 to 7 full-time employee s and the associated issuance of stock options during 2016 to these new employees, while none were issued in 2015; $0.2 million in outside services and related travel costs incurred for meetings with the FDA; and $0.2 million in depreciation expense, computer equipment and allocation of overhead including facilities related expenses due to the increase in headcount.

 

     Year Ended
December 31,
        
     2016      2015      $ Change  

Abandoned initial public offering costs

   $ 4,705      $     —        $ 4,705  

 

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Abandoned initial public offering costs.  During late 2015 and early 2016, Evofem pursued a public listing of its common stock on the alternative investment market, or AIM, of the London Stock Exchange. As of April 2016, Evofem abandoned its efforts of pursuing a public listing on the AIM and expensed all previously deferred offering costs.

 

     Year Ended
December 31,
        
     2016      2015      $ Change  

General and administrative

   $ 15,083      $ 15,019      $ 64  

General and administrative expenses.  The overall increase in general and administrative expenses in 2016 as compared to 2015, is primarily related to increases of $1.2 million in business development expenses and $1.0 million in outside services associated with Evofem’s planned commercial launch activities for Amphora that were suspended in April 2016 upon receipt of a complete response letter from the FDA, $0.9 million in personnel related costs, including stock-based compensation, due to the issuance of stock options during 2016 while none were issued in 2015, $0.3 million in board fees which Evofem initiated in early 2016 in anticipation of a public listing on the AIM and $0.2 million in facilities costs, associated with increased business insurance and utilities costs. These increases were partially offset by decreases of $3.0 million related to the termination of Evofem’s grant agreement with WomanCare Global and $0.5 million in professional services due to a reduction in the need for these services after the abandonment of its public listing on the AIM.

 

     Year Ended
December 31,
        
     2016     2015      $ Change  

Loss on issuance of Series D redeemable convertible preferred stock

   $ (26,635   $ —        $ (26,635

Loss on extinguishment of related-party note payable

   $ (6,651   $ —          (6,651

Loss on issuance of Series D redeemable convertible preferred stock and loss on extinguishment of related-party note payable.  In July and December 2016, we issued an aggregate of 60 shares of our Evofem Series D Series D redeemable convertible preferred stock, of which 10 shares resulted in the extinguishment of a related-party note payable with an entity previously under common control, Cosmederm. Due to the existence of the Evofem Series D 2X liquidation preference, Evofem’s financial position at the time of the initial closing and the existence of the warrant rights, Evofem determined the Evofem Series D was not the result of an arms-length transaction. Evofem had an external valuation completed at each closing date which determined the Evofem Series D was issued below fair value. For the July 2016 issuance, since no unstated rights and/or privileges were identified with the Evofem Series D, the aggregate loss of $27.3 million was allocated between loss on issuance of Series D redeemable convertible preferred stock and loss on extinguishment of related-party note payable. For the December 2016 issuance, the entire loss of $6.0 million was recorded as loss on issuance of Series D redeemable convertible preferred stock since no unstated rights and/or privileges were identified with the Evofem Series D.

 

     Year Ended
December 31,
        
     2016      2015      $ Change  

Change in fair value of Series D 2X liquidation preference

   $ (543    $ —        $ (543

Change in fair value of Series D 2X liquidation preference.  During the year ended December 31, 2016, the change in fair of the Series D 2X liquidation preference reflects a decrease in the fair value of our common stock and a resulting increase in the fair value of the Series D 2X liquidation preference due primarily to assumption changes regarding the timing of additional financings, potential exit scenarios, as well as revisions to our financial forecast. During the year ended December 31, 2015, no Series D stock had been issued; therefore, there were no related charges.

 

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Liquidity and Capital Resources

Evofem has incurred losses and negative cash flows from operating activities for the nine-month period ended September 30, 2017 and the years ended December 31, 2016 and 2015. As of September 30, 2017 and December 31, 2016, Evofem had $3.7 million and $10.9 million in unrestricted cash, a working capital deficit of $79.1 million and $4.7 million and an accumulated deficit of $287.8 million and $202.0 million, respectively.

Evofem anticipates that it will continue to incur net losses for the foreseeable future and incur additional costs associated with being a public company. Evofem expects that its research and development expenses will increase for the foreseeable future due to its confirmatory Phase 3 clinical trial for Amphora as a contraceptive and planned clinical trials for other indications. According to management estimates, liquidity resources as of September 30, 2017 and December 31, 2016 are not sufficient to maintain Evofem’s planned level of operations for the next 12 months. In addition, the uncertainties associated with Evofem’s ability to (i) obtain additional equity financing on terms that are favorable to Evofem, (ii) enter into collaborative agreements with strategic partners and (iii) succeed in its future operations, raise substantial doubt about Evofem’s ability to continue as a going concern. The opinion of Evofem’s independent auditors on Evofem’s audited financial statements as of and for the years ended December 31, 2016 and 2015 contains an emphasis-of-matter paragraph regarding substantial doubt about its ability to continue as a going concern. Future reports on Evofem’s financial statements may include an emphasis-of-matter paragraph with respect to its ability to continue as a going concern. Evofem’s audited consolidated financial statements as of and for the years ended December 31, 2016 and 2015 and its unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2017 do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should Evofem be unable to continue its operations.

If Evofem is not able to obtain the required funding in the near term, through equity financings or other means, or is not able to obtain funding on terms that are favorable to it, Evofem will have a material adverse effect on its operations and strategic development plan for future growth. If Evofem cannot successfully raise additional funding and implement its strategic development plan, Evofem may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these could materially and adversely affect Evofem’s liquidity, financial condition and business prospects it may be unable to continue as a going concern. If Evofem is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on Evofem’s financial statements. Evofem may obtain additional financing in the future through the issuance of its common stock from other equity or debt financings or through collaborations or partnerships with other companies.

Summary Statement of Cash Flows

The following table sets forth a summary of the net cash flow activity for each of the periods set forth below (in thousands):

 

     Nine Months Ended September 30  
             2017                     2016          

Net cash and restricted cash used in operating activities

   $ (14,293   $ (19,599

Net cash and restricted cash used in investing activities

     244       (497

Net cash and restricted provided by financing activities

     6,727       8,661  
  

 

 

   

 

 

 

Net cash and restricted cash used in continuing operations

     (7,322     (11,435

Net cash and restricted cash provided by discontinued operations

     —         1,219  
  

 

 

   

 

 

 

Net decrease in cash and restricted cash

   $ (7,322   $ (10,216
  

 

 

   

 

 

 

 

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Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016 (in thousands):

Cash Flows from Operating Activities . The primary use of Evofem cash and restricted cash has been to fund further development of its lead product candidate Amphora as a contraceptive, as well as potential other indications and to support general and administrative operations.

Cash Flows from Investing Activities . The primary source of Evofem cash and restricted cash during 2017 was related to a principal payment of $0.3 million on the Flex note in favor of Evofem from the sale of Evofem’s Softcup line of business in July 2016 which was partially offset through the purchase of computers and software to support an increase in headcount. During 2016, the primary use of cash was the purchase of research equipment to support Evofem’s clinical trials.

Cash Flows from Financing Activities . The primary source of cash during 2017 and 2016, was for the sale of Evofem Series D Stock. The primary uses of cash during 2017 was for the payment of accrued financing costs associated with Evofem’s preparation for a potential public listing on the AIM and other financing costs. As of September 30, 2017, $0.2 million of these costs remain unpaid. The primary use of cash during 2016, related to the repayment of principal payments due under its related-party note payable with Cosmederm and payments for accrued financing costs associated with its public listing on the AIM and other financing costs.

Cash Flows from Discontinued Operations . In June 2016, the Evofem Board committed to a plan to sell its Softcup line of business and redirect cash resources to further develop Amphora. During 2016, all cash and restricted cash provided by discontinued operations related to changes in the major classes of assets and liabilities identified with the discontinued operations. During 2017, Evofem had no similar transactions.

The following table sets forth a summary of the net cash flow activity for each of the periods set forth below (in thousands):

 

     Year Ended
December 31,
 
     2016     2015  

Net cash and restricted cash used in operating activities

   $ (24,417   $ (28,947

Net cash and restricted cash used in investing activities

     (498     (525

Net cash and restricted provided by financing activities

     18,061       44,109  
  

 

 

   

 

 

 

Net cash and restricted cash (used in) provided by continuing operations

     (6,854     14,637  

Net cash and restricted cash provided by discontinued operations

     1,219       363  
  

 

 

   

 

 

 

Net (decrease) increase in cash and restricted cash

   $ (5,635   $ 15,000  
  

 

 

   

 

 

 

Cash Flows from Operating Activities. Since Evofem’s inception, the primary use of Evofem cash and restricted cash was to fund further development of its lead product candidate Amphora as a contraceptive, as well as potential other indications and to support general and administrative operations.

Cash Flows from Investing Activities. The primary use of Evofem cash and restricted cash was for the purchase of research equipment to support its clinical trials.

Cash Flows from Financing Activities. During 2016, the primary source of cash and restricted cash was due to the sale of Evofem Series D. This 2016 source of cash and restricted cash was partially offset by cash payments related to (1) Evofem’s note payable with Cosmederm and (2) financing costs associated with Evofem’s abandoned IPO on the AIM and other financing costs. In July 2016, Evofem converted $5.0 million in debt originally due to Cosmederm into 10 shares of Evofem Series D Stock and the remaining $5.0 million due under the note was forgiven (see Evofem’s Series D Redeemable Convertible Preferred Stock discussion in Note 9 — Convertible Preferred Stock of its Audited Financial Statements beginning on page F-56 of this proxy

 

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statement/prospectus/information statement and the section entitled “ Certain Relationships and Related Party Transactions of Evofem — Evofem Series D Preferred Stock Financings ” beginning on page 209 of this proxy statement/prospectus/information statement). During 2015, the primary source of cash and restricted cash was due to (1) advances from Evofem’s former parent, EvoMed, LLC, and Cosmederm under Evofem’s related-party note payable and (2) the sale of Evofem series C convertible preferred stock for cash (see EvoMed Debt and Cosmederm Note discussion in Note 8 — Related-Party Transactions of Evofem’s Audited Financial Statements beginning on page F-52 of this proxy statement/prospectus/information statement and Series C Convertible Preferred Stock discussion in Note 9 — Convertible Preferred Stock of Evofem’s Audited Financial Statements beginning on page F-56 of this proxy statement/prospectus/information statement. In October 2015, Evofem converted $34.4 million in advances from EvoMed into 8,660,572 shares of Evofem series C-1 convertible preferred stock.

Cash Flows from Discontinued Operations. In June 2016, the Evofem Board committed to a plan to sell its Softcup line of business, or Softcup, and redirect cash resources to further develop Amphora. In July 2016, Evofem entered into an asset purchase agreement with the Flex Company, or Flex, whereby Flex would acquire assets and assume certain liabilities associated with Softcup (see Note 3 — Discontinued Operations of Evofem’s Audited Financial Statements beginning on page F-46 of this proxy statement/prospectus/information statement and Note 4 — Assets and Liabilities Held for Discontinued Operations of Evofem’s Audited Financial Statements beginning on page F-47 of this proxy statement/prospectus/information statement). Total consideration for the Softcup sales was $1.9 million, with $0.6 million in cash at closing. All other cash and restricted cash provided by discontinued operations related to changes in the major classes of assets and liabilities identified with the discontinued operations.

Operating and Capital Expenditure Requirements

Evofem’s future capital requirements are difficult to forecast. Evofem expects to incur additional capital expenditures for serialization equipment to be utilized in the manufacturing of Amphora prior to commercialization, but cannot adequately predict the cost of the equipment in the future.

Evofem expects its research and development expenses to increase substantially for the foreseeable future as Evofem advances Amphora as a contraceptive and pursues expanded indications for its MPT vaginal gel through additional clinical development programs. In addition, Evofem expects to incur significant costs as it makes improvements to its manufacturing process. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming and Evofem may never succeed in achieving regulatory approval for any of its product candidates. The probability of success for each product candidate will be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. Evofem is responsible for all research and development costs for its programs.

Evofem expects its general and administrative expenses to increase substantially as Evofem hires additional personnel to support commercialization of its product candidates, if any. Evofem also anticipates increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with stock exchange listing and SEC requirements, director’s and officer’s liability insurance premiums, and investor relations-related expenses.

When Evofem believes that regulatory approval of a product candidate appears likely, Evofem expects to incur significant costs as it establishes a sales and marketing infrastructure for distribution, promotion and sales of its products.

Off-Balance Sheet Arrangements

As of September 30, 2017 and December 31, 2016, Evofem does not have any off-balance sheet arrangements, as such term is defined under Item 303 of Regulation S-K, that have or are reasonably likely to

 

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have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Recently Issued Accounting Pronouncements

For information with respect to recent accounting pronouncements, see Note 2 — Summary of Significant Accounting Policies to Evofem’s Audited Financial Statements beginning on page F-39 of this proxy statement/prospectus/information statement.

Critical Accounting Policies

The preparation of consolidated financial statements requires Evofem to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Evofem’s significant accounting policies, which include its management’s best estimates and judgments, are included in Note 2 to Evofem’s Audited Consolidated Financial Statements for the years ended December 31, 2016 and 2015 beginning on page F-39 of this proxy statement/prospectus/information statement.

Clinical Trial Accruals

As part of the process of preparing Evofem’s financial statements, Evofem is required to estimate expenses resulting from its obligations under contracts with vendors, CROs and consultants and under clinical site agreements relating to conducting its clinical trials. The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

Evofem’s objective is to reflect the appropriate clinical trial expenses in its financial statements by recording those expenses in the period in which services are performed and efforts are expended. Evofem accounts for these expenses according to the progress of the clinical trial as measured by patient progression and the timing of various aspects of the trial. Evofem determines accrual estimates through financial models and discussions with applicable personnel and outside service providers as to the progress of clinical trials. During a clinical trial, Evofem adjusts the clinical expense recognition if actual results differ from its estimates. Evofem makes estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known at that time. Evofem’s clinical trial accruals are dependent upon accurate reporting by CROs and other third-party vendors. Although Evofem does not expect its estimates to differ materially from amounts actually incurred, Evofem’s 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 for any particular period. For the nine months ended September 30, 2017 and the years ended December 31, 2016 and 2015 there were no material adjustments to Evofem’s prior period estimates of accrued expenses for clinical trials.

Stock-based Compensation Expense

Assumptions utilized in the Black-Scholes-Merton option pricing model by Evofem to estimate its stock-based compensation expense are subject to judgment and uncertainties. For options granted in 2016, a 10.0% increase or decrease in Evofem’s volatility estimate would have resulted in an aggregate increase of $0.2 million or decrease of $0.3 million in stock-based compensation expense being recognized over the requisite service period of the options. Separately, a one-year increase or decrease in the expected term of Evofem’s options would have resulted in an aggregate increase or decrease of approximately $0.2 million in stock-based compensation expense to be recognized over the requisite service period of the options. For options granted in 2017, a 10.0% change in Evofem’s volatility estimate would not have had a material effect on its results of operations or financial condition. Likewise, a one-year change in the expected term of Evofem’s options would not have had a material effect on its results of operations or financial condition.

 

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Determining Fair Value of Stock Options

The fair value of the shares of Evofem’s common stock underlying its stock-based awards are estimated on each grant date by the BOD. To determine the fair value of the common stock underlying option grants, the BOD considers, among other things, valuations of Evofem’s common stock prepared by an unrelated valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Given the absence of a public trading market for Evofem’s common stock, the BOD exercises reasonable judgment and considers a number of objective and subjective factors to determine the best estimate of the fair value of Evofem’s common stock, including Evofem’s stage of development; progress of Evofem’s R&D efforts; Evofem’s operating and financial performance, including levels of available capital resources; the rights, preferences and privileges of Evofem’s convertible preferred stock relative to those of its common stock; sales of Evofem’s convertible preferred stock; the valuation of publicly traded companies in its industry, equity market conditions affecting comparable public companies and the lack of marketability of Evofem’s common stock. The Company obtains valuations on at least an annual basis or when it determines that significant value generating or diminishing internal and/or external events have occurred, which would significantly increase or decrease the fair value of the common stock underlying its stock-based awards

Evofem Series D 2X Liquidation Preference Liability

Evofem values its Evofem Series D 2X liquidation preference liability in accordance with Accounting Standards Codification No. 815 — Derivatives and Hedging , using a PWERM, which is sensitive to changes in assumptions regarding the timing of additional financings, potential exit scenarios and revisions in its financial forecast. Changes in any one of the assumptions could have a material impact on the fair value of the Evofem Series D 2X liquidation preference liability. Evofem’s management uses the most reliably available information at each valuation date in determining the fair value of the Evofem Series D 2X liquidation preference liability. Due to the nature of the assumptions and the sensitive nature of the PWERM, management cannot reliably provide sensitivity analysis around the impact of changes in assumptions to the Evofem Series D 2X liquidation preference liability.

Fair Value of Evofem Series D Redeemable Convertible Preferred Stock

Evofem valued its Evofem Series D redeemable convertible preferred stock using a PWERM, which is sensitive to changes in assumptions regarding the timing of additional financings, potential exit scenarios and revisions in its financial forecast. Changes in any one of the assumptions could have a material impact on the fair value of the estimated fair value of the Evofem Series D. Evofem’s management used the most reliably available information at each issuance of its Evofem Series D to determine the fair value of the Evofem Series D 2X. Due to the nature of the assumptions and the sensitive nature of the PWERM, management cannot reliably provide sensitivity analysis around the impact of changes in assumptions to Evofem Series D.

 

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MANAGEMENT FOLLOWING THE MERGER

Executive Officers and Directors

Resignation of Current Executive Officers of Neothetics

Pursuant to the Merger Agreement, all of the current executive officers of Neothetics will resign immediately prior to the completion of the merger.

Executive Officers and Directors of the Combined Company Following the Merger

The Neothetics Board is currently composed of four directors. Pursuant to the Merger Agreement, all of the directors of Neothetics who will no longer be members of the Neothetics Board immediately after the effective time of the merger will resign at or prior to the effective time of the merger. As of the effective time of the merger, the board of directors will initially consist of the six directors designated by Evofem and one independent director designated by Neothetics.

Following the merger, the management team of Neothetics is expected to be composed of the management team of Evofem. The following table lists the names, ages as of October 20, 2017 and positions of the individuals who are expected to serve as executive officers and directors of Neothetics upon completion of the merger:

 

Name

  

Age

    

Position(s)

Executive Officers

     

Saundra Pelletier

     48      Chief Executive Officer

Justin J. File

     47      Chief Financial Officer

Kelly Culwell, M.D.

     43      Chief Medical Officer

Russ Barrans

     58      Chief Commercial Officer

David R. Friend, Ph.D.

     61      Chief Scientific Officer

Alexander A. Fitzpatrick, Esq.

     50      General Counsel and Secretary

Non-Employee Directors 7/

     

Executive Officers

Saundra Pelletier

Saundra Pelletier has served as Evofem’s President and CEO since February 2013. From 2009 to 2016, Ms. Pelletier was the founding Chief Executive Officer of WomenCare Global International, or WCGI, an international non-profit organization focused on empowering, educating and enabling women and girls to make informed choices about their health. Under her leadership, WCGI secured approximately $68 million in committed funding from major foundations and governmental organizations, and launched an innovative U.S. educational campaign with American actress/activist Jessica Biel. From 2005 to 2009, Ms. Pelletier was founder and Chief Executive Officer of Saundra Pelletier International, where she served as a management consultant, executive coach, entrepreneur, author and keynote speaker. From 2000 until 2004, Ms. Pelletier served as Vice President, Pharmaceuticals at Women First Healthcare, a specialty healthcare company dedicated to improving the health of women in mid-life, and from 1992 until 2000 she was Global Franchise Leader (Vice President), with G.D. Searle, developer of the first female birth control pill and now a wholly owned trademark of Pfizer. In her capacity as a corporate vice president and global franchise leader, Ms. Pelletier managed a $250 million business unit, reorganized companies from the ground up, raised $40 million in capital, managed worldwide partnerships, negotiated cost saving licensing agreements, assessed country infrastructures, developed commercialization plans and hired full scale teams, including contract sales forces, to support women’s healthcare initiatives. Ms. Pelletier has launched pharmaceutical brands worldwide and expanded indications on female healthcare brands in multiple countries. She has had oversight and accountability for Sales, Marketing,

 

7/   Note: To be filed by amendment

 

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Operations, Medical Affairs, Regulatory Affairs, Manufacturing, Customer Service, Business Development and Strategic Partnerships. In 2015, Ms. Pelletier was profiled by the United Nations Foundation as a New Champion for Reproductive Health, and in 2014 was awarded the Athena Pinnacle Award for Life Sciences, recognizing extraordinary leadership in the life sciences. She is a published author and an international keynote speaker on the economic return of investing in women and has spoken at the Clinton Global Initiative, Women Deliver, the Harvard School of Public Health, the Cavendish Global Health Impact Forum at Biocom, the University of Virginia’s Darden School of Business; and was the keynote speaker at the June 2016 Women’s Global Health Symposium. Her accomplishments have been frequently profiled in various media, including The New York Times, Inc. Magazine, Cosmopolitan, Devex, Refinery 29, Bustle, CNN, NBC News, Glamour, Marie Claire, BBC Radio, Global Grind and Vogue. Ms. Pelletier is the Chair of the Women Deliver Board of Directors and she is on the Board of Directors of ClearFast. It is expected that Ms. Pelletier will be asked to join the Board of Directors of WCG Cares and serve as Chair of the Board, in mid-November 2017.

Justin J. File

Justin J. File has served as Chief Financial Officer since July 2015. He has approximately 25 years of diverse accounting and finance experience within a variety of both public and private biotechnology companies. Most recently, he provided executive financial and accounting oversight services to various biotechnology companies in San Diego, assisting in their initial public offering process and helping to establish and improve their accounting and finance operations as publicly-traded entities. Prior to this, Mr. File was Senior Director and Controller of Sequenom, Inc, a diagnostic company that developed and commercialized molecular diagnostics testing services for the women’s health market. During that time, he served as Treasurer of their diagnostic subsidiary and providing assistance in the raise of over $400 million in combined equity and convertible note offerings. He also assisted in the commercial launch of four diagnostic tests in a two-year period, which included Sequenom’s revolutionary noninvasive prenatal test for Down syndrome. Earlier in his career he worked for approximately ten years in public accounting, primarily with Arthur Andersen LLP, where he worked with a variety of clients assisting with attestation and periodic reporting requirements, public offerings and acquisitions. He graduated from Central Washington University with a Bachelor’s of Science in Accounting and International Business and is a Certified Public Accountant (inactive).

Kelly Culwell, M.D.

Dr. Kelly Culwell is an Obstetrician/Gynecologist with over 16 years specializing in women’s health and contraceptive research. She currently serves as Chief Medical Officer. Prior to joining Evofem Biosciences, she was a trainer Merck and maintained an academic clinical practice as the Director of Family Planning and Associate Clinical Professor at University of California, Davis. She previously served as a Medical Officer with the World Health Organization where she developed global guidelines for clinical practice and is widely published in peer reviewed journals. Dr. Culwell received a Bachelor’s of Science from California Lutheran University, a Medical Doctorate from the University of California, Davis and a Masters of Public Health from Northwestern University. She completed her post-graduate training in Obstetrics and Gynecology at University of California San Diego and her Family Planning Fellowship at Northwestern University. Dr. Culwell maintains appointments as Volunteer Assistant Clinical Professor in the Departments of Obstetrics and Gynecology at the University of California, Davis and San Diego campuses. She is qualified as a Diplomat from the American Board of Obstetrics and Gynecology.

Russ Barrans

Russ Barrans is the Chief Commercial Officer for Evofem Biosciences, having over 25 years in the women’s healthcare pharmaceuticals and biotechnology space. As the Chief Commercial Officer, he is responsible for the commercial launch and lifecycle management of the Evofem Biosciences product portfolio, oversees manufacturing and supply chain, and provides executive leadership to the sales and marketing team. Prior to joining Evofem Biosciences, Mr. Barrans was the Senior Director of Women’s Healthcare Marketing for TEVA

 

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Pharmaceuticals. With significant tenure in life sciences and pharmaceutical companies, he has held senior level positions at global and domestic companies including Bayer Healthcare and Wyeth Pfizer (formerly Wyeth), as well as, being Chief Executive Officer of FusionRx, a strategic consulting firm servicing biotech and pharmaceutical brands of which Russ was the founding partner. He has overseen directed the launch of over half a dozen brands worldwide including the launch of Mirena ® , and Plan B One-Step ® OTC. He graduated from California Coast University with a Bachelor’s of Science in Business Administration and holds an MBA from California Coast University. Mr. Barrans is an Accredited Pharmaceutical Manufactures Representative of Canada in General Healthcare and Oncology, and has earned his certification as a Business Coach from Brian Tracy International.

David R. Friend, Ph.D.

Dr. David Friend serves as Evofem’s Chief Scientific Officer. Dr. Friend has more than 33 years in pharmaceutical research and development. Prior to Evofem, Dr. Friend was with the CONRAD program, part of Eastern Virginia Medical School, where he directed all product development activities over 8 years. The focus of CONRAD was development of HIV vaginal prevention products as well as standalone and combination contraceptive products (both vaginal and long-acting injectable). Earlier positions included Vice President of Research at Vyteris and Senior Director at Elan. He started his career at SRI International (the former Stanford Research Institute) focusing on research and development of a wide range of drug delivery systems. Dr. Friend attained the position of Director, Biomedical Polymers Division over his 10-year tenure at SRI. Dr. Friend has a Ph.D. from the University of California, Berkeley in Chemistry. He has published more than 100 research articles and reviews, many on female reproductive health including contraception and STI prevention and sits on numerous scientific boards.

Alexander A. Fitzpatrick, Esq.

Alexander A. Fitzpatrick has served as Evofem’s Executive Vice President, General Counsel and Secretary since October 2017 and is responsible for the company’s corporate governance, legal, corporate development, intellectual property and risk management functions. Prior to joining Evofem, Mr. Fitzpatrick served as Senior Vice President, General Counsel, Compliance Officer and Secretary of Verenium Corporation, a publicly traded biotechnology company. Prior to that, Mr. Fitzpatrick served as Senior Vice President, General Counsel and Secretary of Kintera, Inc., a publicly traded technology company. Following the sale of Kintera, Mr. Fitzpatrick continued to serve in a similar position for a major division of Blackbaud, Inc. Prior to that, as a member of the business, corporate and technology departments with the law firms Cooley LLP and Latham & Watkins LLP in San Diego, and Rogers & Wells LLP (now Clifford Chance) in London, Mr. Fitzpatrick represented pharmaceutical and other technology companies, investment banks and venture capitalists in a variety of transactions including numerous collaborations, mergers and acquisitions, intellectual property matters, licensing and financing activity. Mr. Fitzpatrick received a B.S. in mathematics from Georgetown University and a J.D. from the University of California, Berkeley.

Composition of the Board of Directors

The Neothetics Board currently consists of four members and is divided into three classes each serving staggered three-year terms until their respective successors are duly elected and qualified:

 

    Neothetics’ Class I directors are Jeffrey M. Nugent and Maxim Gorbachev and their terms expire at the annual meeting of stockholders in 2018;

 

    Neothetics’ Class II director is Martha J. Demski and her term expires at the annual meeting of stockholders in 2019; and

 

    Neothetics’ Class III director is Kim P. Kamdar, Ph.D. and her term expires at the annual meeting of stockholders in 2020.

 

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Pursuant to the Merger Agreement, all of the directors of Neothetics who will no longer be members of the Neothetics Board immediately after the effective time of the merger will resign at or prior to the effective time of the merger. As of the effective time of the merger, the board of directors will consist of seven directors, six of whom are [●] 8/ and one of whom shall be an independent director designated by Neothetics, who shall be [●] 8/ .

There are no family relationships among any of the current Neothetics directors and executive officers, and there are no family relationships among any of the proposed post-merger company directors and executive officers.

Director Independence

The Neothetics Board has determined that each of its current directors is independent as defined under NASDAQ Stock Market listing standards. The Neothetics Board has also determined that each current member of the Nominating and Corporate Governance Committee is independent as defined under the NASDAQ Stock Market listing standards, and that each current member of the Audit Committee and Compensation Committee is independent as defined under the NASDAQ Stock Market listing standards and applicable SEC rules. In making this determination, Neothetics’ board of directors found that none of these directors had a material or other disqualifying relationship with Neothetics.

Evofem anticipates that a majority of the member of the board of directors of the combined company as of the effective time of the merger will independent as defined under the NASDAQ Stock Market listing standards. Evofem further anticipates that the directors who will be appointed to the Compensation Committee and the Nominating and Corporate Governance Committee will satisfy the independence standards for such committees established by the SEC and NASDAQ Stock Market listing standards, as applicable. With respect to the Audit Committee, Evofem anticipates that the directors who will be appointed will satisfy the independence standards for such committee established by Rule 10A-3 under the Exchange Act, the SEC and NASDAQ Stock Market listing standards, as applicable. In making such determination, the relationships that each such director has with Neothetics or Evofem and all other facts and circumstances deemed relevant in determining their independence have been and will be considered.

Committees of the Board of Directors

The Neothetics Board currently has, and after completion of the merger the combined organization will continue to have, an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

Audit Committee

The Audit Committee of the Neothetics Board was established by Neothetics’ board of directors in accordance with Section 3(a)(58)(A) of the Exchange Act to oversee Neothetics’ corporate accounting and financial reporting processes and audits of its financial statements. For this purpose, the Audit Committee performs several functions, including, among other things:

 

    appointing and providing for the compensation of the independent registered public accounting firm to be engaged to prepare and issue an audit report and perform other audit, review or attest services for Neothetics;

 

    approving any other permissible non-audit services to be provided to Neothetics by the independent auditor;

 

    overseeing the work and evaluating the performance of the independent auditor, and, if so determined by the audit committee, terminating and replacing the independent auditor;

 

8/   Note: To be filed by amendment

 

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    reviewing and discussing, including with management and the independent auditor, Neothetics’ annual and quarterly financial statements;

 

    reviewing any proposed significant changes to Neothetics’ accounting principles and practices;

 

    reviewing any material changes to Neothetics’ system of internal control over financial reporting;

 

    reviewing management’s report on effectiveness of Neothetics’ internal control over financial reporting and, if applicable, Neothetics’ independent auditor’s audit of the effectiveness of Neothetics’ internal control over financial reporting;

 

    establishing a procedure for receipt, retention and treatment of any complaints or concerns received by Neothetics about Neothetics’ accounting, internal accounting controls or auditing matters;

 

    reviewing, approving and overseeing any related party transaction that would require disclosure pursuant to Item 404 of Regulation S-K;

 

    overseeing the implementation and enforcement of Neothetics’ insider trading policy; and

 

    reviewing and evaluating any significant financial risk exposures facing Neothetics and the steps Neothetics’ management has taken to control and monitor such exposures.

The Audit Committee of the combined organization is expected to retain these duties and responsibilities following completion of the merger.

Neothetics’ management has the primary responsibility for its consolidated financial statements and the reporting process including its system of internal accounting and financial controls.

Neothetics’ Audit Committee currently consists of Ms. Demski, who serves as its chairman, Dr. Kamdar and Mr. Nugent. The Neothetics Board reviews The NASDAQ Capital Market listing standards definition of independence for Audit Committee members on an annual basis and has determined that all current members of Neothetics’ Audit Committee are independent (as independence is currently defined in Section 803(A)(2) of The NASDAQ Capital Market listing standards and Rule 10A-3 of the Exchange Act and meets the applicable additional eligibility standards for Audit Committee service under Section 803(B)(2) of The NASDAQ Capital Market listing standards).

The Neothetics Board has also determined that Ms. Demski qualifies as an “audit committee financial expert,” as defined in applicable SEC rules. The Neothetics Board made a qualitative assessment of Ms. Demski’s level of knowledge and experience based on a number of factors, including her formal education and experience in financial roles.

Evofem believes that, after the completion of the merger, the composition of the Audit Committee will meet the requirements for independence under, and the Audit Committee will comply with, any applicable requirements of the rules and regulations of The NASDAQ Capital Market and the SEC.

Compensation Committee

The Compensation Committee of the Neothetics Board acts on behalf of the Neothetics Board to review, adopt or recommend for adoption, and oversee Neothetics’ compensation strategy, policies, plans and programs. For this purpose, the Compensation Committee performs several functions, including, among other things:

 

    reviewing and recommending to Neothetics’ board of directors for its determination and approval the amount, form and terms of compensation of Neothetics’ Chief Executive Officer and other “officers” (as such term is defined under The NASDAQ Capital Market listing standards);

 

    reviewing and making recommendations to Neothetics’ board of directors regarding Neothetics’ overall compensation strategy and policies;

 

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    reviewing and making recommendations regarding Neothetics’ equity and/or cash incentive plans and other benefit plans and, to the extent as may be permitted or required under such plans, the committee has the power and authority to administer the plans, establishes guidelines, interpret plan documents, select participants, and approve grants and awards thereunder;

 

    granting equity awards to non-officer employees and consultants in accordance with the terms of Neothetics’ equity incentive plan and to establish compensation policies and practices applicable to non-officer employees;

 

    evaluating the relationship between executive officer compensation policies and practices and corporate risk management to confirm those policies and practices do not incentivize excessive risk-taking;

 

    evaluating and making recommendations to Neothetics’ board of directors regarding the compensation of Neothetics’ non-employee directors;

 

    retaining, obtaining the advice of, engaging, compensating and terminating compensation consultants, legal counsel and such other advisors as it deems necessary and advisable to assist it in carrying out its responsibilities and functions; and

 

    appointing, compensating and overseeing the work of any of its compensation consultants, legal counsel and other advisors.

The Compensation Committee of the combined organization is expected to retain these duties and responsibilities following completion of the merger.

Neothetics’ Compensation Committee currently consists of Mr. Nugent, who serves as its chairman, Ms. Demski and Mr. Gorbachev. All members of the Compensation Committee are independent as independence is currently defined under The NASDAQ Capital Market listing standards.

Evofem believes that, after the completion of the merger, the composition of the Compensation Committee will meet the requirements for independence under, and the Compensation Committee will comply with, any applicable requirements of the rules and regulations of The NASDAQ Capital Market and the SEC.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee of the Neothetics Board is responsible for identifying, reviewing and evaluating candidates to serve as directors of Neothetics (consistent with criteria approved by the Neothetics Board), reviewing and evaluating incumbent directors, selecting or recommending to the Neothetics Board for selection candidates for election to the Neothetics Board, making recommendations to the Neothetics Board regarding the membership of the committees of the Neothetics Board, assessing the performance of the Neothetics Board, and developing a set of corporate governance principles for Neothetics. The responsibilities of the Nominating and Corporate Governance Committee relating to the nomination of directors include, among other things, the following:

 

    identifying and recommending to Neothetics’ board of directors nominees for possible election to Neothetics’ board of directors;

 

    evaluating and making recommendations to Neothetics’ board of directors regarding its size, composition and leadership structure;

 

    reviewing and assessing Neothetics’ corporate governance guidelines and recommending any proposed changes thereto to Neothetics’ board of directors;

 

    reviewing and making recommendations to Neothetics’ board of directors regarding issues of executive officer succession planning and providing oversight with respect to corporate governance matters.

 

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In recommending candidates for appointment or election to the Neothetics Board, the Nominating and Corporate Governance Committee considers the appropriate balance of experience, skills and characteristics required of the Neothetics Board and seeks to insure that at least a majority of the directors are independent under The NASDAQ Capital Market listing standards and that the Neothetics Board’s Audit Committee and Compensation Committee will be comprised of directors who meet applicable NASDAQ Capital Market listing standards and SEC rules regarding qualifications to serve on such committees. Candidates for director are selected on the basis of their depth and breadth of experience, wisdom, integrity, ability to make independent analytical inquiries, understanding of Neothetics’ business environment, willingness to devote adequate time to board duties, the interplay of the candidate’s experience and skills with those of other Neothetics directors and the extent to which the candidate would be a desirable addition to the Neothetics Board and any of its committees. In addition, Neothetics’ corporate governance guidelines require that Neothetics’ directors limit their service on boards of directors of public companies to a total of four (including service on the Neothetics Board). Other than the foregoing, there are no stated minimum criteria for Neothetics director nominees, although the Nominating and Corporate Governance Committee may also consider such other factors as it may deem are in the best interests of Neothetics and its stockholders. The Nominating and Corporate Governance Committee does not have a policy regarding board diversity, but it takes diversity of professional experience and perspective within the pharmaceutical and biotechnology industries into account in identifying and selecting director nominees. In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews these directors’ overall service to Neothetics during their terms, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair the directors’ independence. In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee is independent for NASDAQ Stock Market purposes, which determination is based upon applicable NASDAQ Stock Market listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. The Nominating and Corporate Governance Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Neothetics Board. The Nominating and Corporate Governance Committee meets to discuss and consider the candidates’ qualifications and then selects a nominee by majority vote which is typically recommended to the full board of directors.

The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders. The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not the candidate was recommended by a stockholder. Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees for election to the Neothetics Board may do so by delivering a written recommendation to the Nominating and Corporate Governance Committee at the following address: c/o Neothetics, Inc., 9171 Towne Centre Drive, Suite 250, San Diego, CA 92122, Attn: Investor Relations. Submissions must include the following information: the name, age, business address and residence address of the proposed nominee; a statement of the proposed nominee’s business experience and educational background; the proposed nominee’s principal occupation or employment; the class and number of shares of Neothetics capital stock beneficially owned by the proposed nominee; a detailed description of all relationships, arrangements or understandings between the proposing stockholder and the proposed nominee and any other person or persons (naming such person or persons) pursuant to which such proposed nomination is being made by the stockholder; a detailed description of all relationships, arrangements or understandings between the proposed nominee and any service-provider or supplier to, or competitor of, Neothetics; information regarding each of the criteria for board membership described above in sufficient detail to allow the Nominating and Corporate Governance Committee to evaluate the proposed nominee; and a statement from the proposed nominee that he or she is willing to be considered and willing to serve as a director if nominated and elected. The proposing stockholder must also include the following information with respect to such stockholder: documentation supporting that the proposing stockholder is a stockholder of Neothetics; the proposing stockholder’s name and address, as they appear on Neothetics’ books; and the class and number of

 

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shares of Neothetics capital stock beneficially owned by the proposing stockholder. If a stockholder submits a director recommendation in compliance with the procedure described above, the Nominating and Corporate Governance Committee will conduct an initial evaluation of the proposed nominee and, if it determines the proposed nominee may be a qualified candidate, the Nominating and Corporate Governance Committee and one or more members of the Neothetics management team will interview the proposed nominee to determine whether he or she might be suitable to be a director. If the Nominating and Corporate Governance Committee determines the proposed nominee would be a valuable addition to the Neothetics Board, based on the criteria for board membership described above and the specific needs of the Neothetics Board at the time, it will recommend to the Neothetics Board such person’s nomination. In connection with its evaluation, the Nominating and Corporate Governance Committee may request additional information from the proposed nominee and/or the proposing stockholder. Separately, Neothetics’ bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to Neothetics Board at Neothetics’ annual meeting of stockholders. Such nominations may be made only if the stockholder has given timely written notice to Neothetics’ corporate secretary containing the information required by Neothetics’ bylaws. To be timely, such notice must be received at Neothetics’ principal executive offices not earlier than the 120th day, nor later than the close of business on the 90th day, prior to the first anniversary of the date of the preceding year’s annual meeting as first specified in Neothetics’ notice of meeting (without regard to any postponements or adjournments of such meeting after such notice was first sent), except that if no annual meeting was held in the previous year or the date of the annual meeting is more than 30 days earlier or later than such anniversary date, such notice must be received not earlier than the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or the 10th day following the date on which Neothetics first publicly announces the date of such meeting.

The Nominating and Corporate Governance Committee of the combined organization is expected to retain these duties and responsibilities following completion of the merger.

The Nominating and Corporate Governance Committee currently consists of Dr. Kamdar, who serves as its chairman, Ms. Demski and Mr. Gorbachev. All members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 5605(a)(2) of The NASDAQ Capital Market listing standards).

Evofem believes that, after the completion of the merger, the composition of the Nominating and Corporate Governance Committee will meet the requirements for independence under, and the Nominating and Corporate Governance Committee will comply with, any applicable requirements of the rules and regulations of The NASDAQ Capital Market and the SEC.

The board of directors of Neothetics may from time to time establish other committees.

2016 Evofem Director Compensation 9/

Compensation Committee Interlocks and Insider

Composition of the Compensation Committee for the combined company has not yet been determined. Following completion of the merger, each member designated by Evofem and appointed to the Compensation Committee is expected to be an “outside” director as that term is defined in Section 162(m) of the Internal Revenue Code, a “non-employee” director within the meaning of Rule 16b-3 of the rules promulgated under the Exchange Act and independent within the meaning of the independent director guidelines of The NASDAQ Capital Market. None of the proposed combined company’s executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers who is proposed to serve on the combined company’s board of directors or Compensation Committee following the merger.

 

9/   To be provided by amendment.

 

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Executive Compensation

This section discusses the material components of the executive compensation program offered to Evofem’s named executive officers identified below.

Evofem’s executive officers for the year ended December 31, 2016 who will serve as executive officers of the combined company following the merger, are referred to in this proxy statement/prospectus/information statement as the “named executive officers.” The named executive officers and their current positions are as follows:

 

Name

  

Title

Saundra Pelletier

  

Chief Executive Officer

Justin J. File

  

Chief Financial Officer

Kelly Culwell, M.D.

  

Chief Medical Officer

2016 Summary Compensation Table

The following table provides information regarding the named executive officers of Evofem during the fiscal year ended December 31, 2016 and executive officers of Evofem who would have been named executive officers had they remained employed by Evofem as of December 31, 2016. For information regarding the management of the combined company after the closing of the merger, please see the section entitled “ Management Following the Merger — Executive Officers and Directors — Executive Officers and Directors of the Combined Company Following the Merger ” beginning on page 189 of this proxy statement/prospectus/information statement.

The following table presents information regarding the total compensation awarded to, earned by, and paid to Evofem’s named executive officers for services rendered to Evofem in all capacities for the years indicated.

 

Name and Principal Position

  Year     Salary
($)
    Bonus
($) (1)
    Grant Date
Fair Value
of Options
Awards
($) (2)
    Grant Date
Fair Value
of Stock
Awards
($) (3)
    All Other
Compensation
($) (4)
    Total
($)
 

Saundra Pelletier

    2016     $ 588,527     $ 201,562     $ 1,477,691     $ 4,073,864       —       $ 6,341,644  

Chief Executive Officer and Director

    2015     $ 342,937     $ 157,292       —         —         —       $ 500,229  

Justin J. File

    2016     $ 478,113     $ 163,281     $ 822,510     $ 1,750,000       —       $ 3,213,904  

Chief Financial Officer

    2015     $ 183,307     $ 53,333       —         —         —       $ 236,640  

Kelly Culwell, M.D.

    2016     $ 425,275     $ 90,000     $ 274,170     $ 62,500       —       $ 851,945  

Chief Medical Officer

    2015     $ 166,071     $ 74,450       —         —         —       $ 240,521  

John Fair

    2016     $ 398,899       —         —         —       $ 527,367     $ 926,266  

Former President and Chief Operating Officer

    2015     $ 313,507     $ 114,167       —         —         —       $ 427,674  

 

(1) Amounts shown represent bonus amounts paid in the sole discretion of the Evofem Board.
(2) Amounts listed in this column represent the aggregate fair value of the option awards computed as of the grant date of each option award in accordance with Financial Accounting Standards Board Accounting Standards Codification No. 718, Compensation-Stock Compensation, or FASB ASC Topic 718, rather than amounts paid to or realized by the named individual. See the notes to Evofem’s audited consolidated financial statements for a discussion of assumptions made in determining the grant date fair value and compensation expense of Evofem’s stock options. There can be no assurance that options will be exercised (in which case no value will be realized by the individual) or that the value on exercise will approximate the fair value as computed in accordance with FASB ASC Topic 718.

 

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(3) Amounts listed in this column represent the aggregate fair value of the stock awards represents the fair value of Evofem’s common stock on the issuance date of the stock award in accordance with FASB ASC Topic 718, rather than amounts paid to or realized by the named individual. See the notes to Evofem’s audited consolidated financial statements for a discussion of assumptions made in determining the grant date fair value and compensation expense of Evofem’s restricted stock awards. In accordance with a restricted stock cancellation agreement, all restricted stock relating to the restricted stock awards granted to the named individual will be cancelled immediately prior to, but contingent upon, the consummation of the merger contemplated in this proxy statement/prospectus/information statement. See section “ The Merger — Interests of the Evofem Directors and Executive Officers in the Merger — Ownership Interests ” beginning on page 87 of this proxy statement/prospectus/information statement.
(4) All Other Compensation for Mr. Fair in 2016 includes 12 months of salary continuation benefits of $500,000 and COBRA benefits of $27,367.

Narrative Disclosure to Summary Compensation Table

Historically, Evofem’s executive compensation program has been tied to growth and success in advancing clinical initiatives. To date, the compensation of Evofem’s named executive officers has consisted of a combination of base salary, bonuses and equity incentive compensation in the form of stock options and restricted stock grants that were intended to vest at an initial public offering of Evofem. As part of this transaction, these equity grants will be terminated as of and contingent upon the completion of the merger. As Evofem transitions from a private company to a publicly traded company, it will evaluate its compensation practices, philosophy and arrangements to ensure alignment with the new company structure and the roles of the executives as they relate to managing and oversight of a public company. Following the merger, Evofem intends for the Compensation Committee of the post-merger combined entity to review its executive compensation structure and propose modifications as it relates to salary, cash bonus and equity incentives for executives and non-executive employees with advice from compensation consultants as well as legal and tax counsel and will continue to do so from time to time at the discretion of the Compensation Committee.

Sandra Pelletier

Ms. Pelletier’s employment with Evofem is at-will per the terms of an Offer Letter, dated October 16, 2014, by and between Evofem and Ms. Pelletier, and a Severance Agreement, dated April 27, 2015, by and between Evofem and Ms. Pelletier, or the Pelletier Severance Agreement. Per the terms of Ms. Pelletier’s Offer Letter, she was originally eligible to receive an annual salary of $250,000 and a bonus targeted at 50% of Ms. Pelletier’s annual base salary. As of December 31, 2015 and December 31, 2016, Ms. Pelletier was eligible to receive $357,500 and $500,000, respectively, in annual salary. As of December 31, 2015 and December 31, 2016, Ms. Pelletier was eligible to receive cash bonuses of $175,750 (50% of her salary) and $250,000 (50% of her salary), respectively. Ms. Pelletier’s targeted bonus percentage is subject Evofem board approval each year and is expressly subject to change. Ms. Pelletier is also eligible to participate in Evofem’s 401K plan, to receive paid vacation each year and to participate in other benefit plans and programs generally available to Evofem’s employees. Pursuant to the Pelletier Severance Agreement, if Ms. Pelletier is terminated without Cause or Good Reason (each as defined in the Pelletier Severance Agreement) she is entitled to receive continued health benefits and an amount equal to her highest monthly salary, payable each month following her termination, each for a period of 12 months. In September, 2016, Ms. Pelletier received (i) options to purchase up to 1,250,000 shares of Evofem common stock with four-year vesting schedules, (ii) a fully vested option to purchase up to 389,404 shares of Evofem common stock and (iii) 3,259,091 restricted shares of Evofem common stock vesting in full on the later of (i) the date of Evofem’s completion of an initial public offering of its common stock, or (ii) the second anniversary of the grant date, or September 28 th , 2018.

Justin J. File

Mr. File’s employment with Evofem is at-will per the terms of an Offer Letter, dated March 6, 2015, as amended on November 16, 2015, by and between Evofem and Mr. File and a Severance Agreement, dated November 16,

 

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2015, and by and between Evofem and Mr. File, or the File Severance Agreement. Mr. File began work as a full-time employee of Evofem in March 2015 and was originally eligible to receive an annual salary of $200,000 and a bonus targeted at 10% of Mr. File’s annual base salary. As of December 31, 2015 and December 31, 2016, Mr. File was eligible to receive $250,000 and $425,000, respectively, in annual salary. As of December 31, 2015 and December 31, 2016, Mr. File was eligible to receive cash bonuses of $75,000 (30% of his salary) and $212,500 (50% of his salary), respectively. Mr. File’s targeted bonus percentage is subject to Evofem board approval each year and is expressly subject to change. Mr. File is also eligible to participate in Evofem’s 401K plan, to receive paid vacation each year and to participate in other benefit plans and programs generally available to Evofem’s employees. Pursuant to the File Severance Agreement, if Mr. File is terminated without “Cause” or “Good Reason” (each as defined in the File Severance Agreement) he is entitled to receive continued health benefits and an amount equal to his highest monthly salary, payable each month following his termination, each for a period of 12 months. In September, 2016, Mr. File received options to purchase up to 900,000 shares of Evofem common stock with four-year vesting schedules and 1,400,000 restricted shares of Evofem common stock vesting in full on the later of (i) the date of Evofem’s completion of an initial public offering of its common stock, or (ii) the second anniversary of the grant date, or September 28 th , 2018.

Kelly Culwell, M.D.

Dr. Culwell’s employment with Evofem is at-will per the terms of an Offer Letter, dated April 15, 2015, by and between Evofem and Dr. Culwell, or the Culwell Offer Letter. Dr. Culwell began work as a full-time employee of Evofem in July 2015 and was originally eligible to receive an annual salary of $250,000 and a bonus targeted at 50% of Dr. Culwell’s annual base salary. As of December 31, 2015 and December 31, 2016, Dr. Culwell was eligible to receive $363,300 and $400,000, respectively, in annual salary. As of December 31, 2015 and December 31, 2016, Dr. Culwell was eligible to receive cash bonuses of $108,990 (30% of her salary) and $120,000 (30% of her salary), respectively. Dr. Culwell’s targeted bonus percentage is subject Evofem board approval each year and is expressly subject to change. Dr. Culwell is also eligible to participate in Evofem’s 401K plan, to receive paid vacation each year and to participate in other benefit plans and programs generally available to Evofem’s employees. In June 2015, Evofem paid Dr. Culwell’s former employer $20,000 in accordance with the Culwell Offer Letter which represented Evofem’s assumption of the remaining portion of Dr. Culwell’s employment agreement from her former employer. In September, 2016, Dr. Culwell received options to purchase up to 300,000 shares of Evofem common stock with four-year vesting schedules and 50,000 restricted shares of Evofem common stock vesting in full on the later of (i) the date of Evofem’s completion of an initial public offering of its common stock, or (ii) the second anniversary of the grant date, or September 28 th , 2018.

John Fair, Former President and Chief Operating Officer

Mr. Fair was employed by the Company from September 2014 to September 2016. Mr. Fair began work as a full-time employee of Evofem in September 2014 and was originally eligible to receive an annual salary of $250,000 and a bonus targeted at 15% of Mr. Fair’s annual base salary. As of December 31, 2015 and December 31, 2016, Mr. Fair was eligible to receive $307,500 in annual salary and was eligible to receive a cash bonus of $123,000 (40% of his salary). As of December 31, 2016, Mr. Fair was eligible to receive salary continuation benefits of $375,000 through September 30, 2017. Mr. Fair received no equity based awards during the year ended December 31, 2016.

 

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Grants of Plan-Based Awards

The following table presents the awards to Evofem’s named executive officers in 2016.

 

Name

   Grant
Date
     All Other
Stock
Awards,
Number of
Shares of
Stock or
Units
     All Other
Option
Awards:
Number of
Securities
Underlying
Options
     Exercise or
Base Price
of Option
Awards
     Grant Date
Fair Value
 

Saundra Pelletier

     9/28/2016        1,459,091        —           $ 1,823,864  
     9/28/2016        1,800,000        —           $ 2,250,000  
     9/28/2016        —          750,000      $ 1.19      $ 685,425  
     9/28/2016        —          500,000      $ 1.19      $ 456,950  
     9/28/2016        —          389,404      $ 1.19      $ 335,316  

Justin J. File

     9/28/2016        1,400,000        —           $ 1,750,000  
     9/28/2016        —          500,000      $ 1.19      $ 456,950  
     9/28/2016        —          400,000      $ 1.19      $ 365,560  

Kelly Culwell, M.D.

     9/28/2016        50,000        —             62,500  
     9/28/2016        —          300,000      $ 1.19      $ 274,170  

John Fair

     —          —          —          —          —    

2016 Outstanding Equity Awards at Year-End

The following table presents the outstanding equity awards held by Evofem’s named executive officers as of December 31, 2016.

 

     Option Awards      Stock Awards  

Name

   Number of
Securities
Underlying
Unexercised
Options
Exercisable 1
     Number of
Securities
Underlying
Unexercised
Options
Unexercisable 2
     Option
Exercise
price
     Option
Expiration
date
     Number of
shares of
stock or units
that

have not
vested
    Market
value of
shares of
stock or
units that

have not
vested
 

Saundra Pelletier

     —          —        $ —          —          1,459,09 1 3     $ 1.25  
     —          —        $ —          —          1,800,000 4     $ 1.25  
     261,784        —        $ 2.05        6/3/2023        —         —    
     389,404        —        $ 1.19        9/28/2026        —         —    
     234,375        515,625      $ 1.19        9/28/2026        —         —    
     —          500,000      $ 1.19        9/28/2026        —         —    

Justin J. File

     —          —        $ —          —          1,400,000 4     $ 1.25  
     156,250        343,750      $ 1.19        9/28/2026        —         —    
     —          400,000      $ 1.19        9/28/2026        —         —    

Kelly Culwell, M.D.

     —          —        $ —          —          50,000 4     $ 1.25  
     93,750        206,250      $ 1.19        9/28/2026        —         —    

John Fair

     —          —          —          —          —         —    

 

(1) The number of shares under the option that have vested.
(2) The number of shares under the option that have not vested.
(3) Subject to the closing of the merger contemplated within this proxy statement/prospectus/information statement, all restricted stock awards will be cancelled as they will not vest in accordance with the terms of the individual award.
(4) The restricted stock awards are subject to vesting upon the later of (i) the second anniversary of the issuance date, or September 28, 2018, or (ii) the completion of an initial public offering of Evofem common stock. These awards will cancel immediately prior to the closing of the merger contemplated by this proxy statement/prospectus/information statement.

 

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Employment Arrangements and Potential Payments Upon Termination of Employment or Change in Control

Pursuant to the terms of the Pelletier Severance Agreement, and the File Severance Agreement, if Evofem terminates Ms. Pelletier’s or Mr. File’s employment with Evofem other than for “Cause” or “Good Reason” (as defined in the Pelletier Severance Agreement and File Severance Agreement), death, or disability, then, subject to Ms. Pelletier and Mr. File signing and not revoking a separation and release of claims agreement, Ms. Pelletier and Mr. File would each be entitled to receive the following, regardless of whether the termination occurs within or outside the change of control period:

 

    an amount equal to Ms. Pelletier’s and Mr. File’s Highest Monthly Salary (as defined in the Pelletier Severance Agreement and File Severance Agreement) with such amount payable in each month following the date of termination of employment for a period of twelve months.

 

    payments for the employer share of any applicable COBRA premiums for a period of 12 months following the date of termination.

Each of Ms. Pelletier, Mr. File and Dr. Culwell are party to their respective option grant agreements listed below, pursuant to which the unvested shares under each option grant agreement will become fully vested and exercisable upon a “change in control” (as defined in the agreements):

 

    Stock Option Award Agreement, dated September 28, 2016, by and between Evofem and Ms. Pelletier (500,000 shares)

 

    Stock Option Award Agreement, dated September 28, 2016, by and between Evofem and Ms. Pelletier (750,000 shares)

 

    Stock Option Award Agreement, dated September 28, 2016, by and between Evofem and Mr. File (500,000 shares)

 

    Stock Option Award Agreement, dated September 28, 2016, by and between Evofem and Mr. File (400,000 shares)

 

    Stock Option Award Agreement, dated September 28, 2016, by and between Evofem and Dr. Culwell (300,000 shares)

The merger does not constitute a “change in control” for the purposes of the above described employment arrangements.

Employment Benefits Plans

2012 Amended and Restated Equity Incentive Plan

The Evofem Equity Incentive Plan was adopted by the Evofem Board in July 2012 and became effective on July 25, 2012 after approval by Evofem stockholders. The principal purpose of the Evofem Equity Incentive Plan is to attract, retain and motivate certain employees, consultants and directors through the granting of stock-based compensation awards.

Share Reserve. Under the Evofem Equity Incentive Plan, 14,000,000 shares of Evofem common stock were reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, restricted stock awards, restricted unit awards, dividend equivalent awards, performance awards and other stock-based awards.

The following counting provisions are in effect for the share reserve under the Evofem Equity Incentive Plan:

 

    to the extent that an award terminates, expires, lapses or is cancelled without the delivery of shares or payment of any cash with respect to an award, any shares subject to the award at such time will be available for future grants under the Evofem Equity Incentive Plan;

 

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    to the extent shares of Evofem common stock are tendered or withheld to satisfy an exercise price or tax withholding obligation with respect to any award under the Evofem Equity Incentive Plan, such tendered or withheld shares will be available for future grants under the Evofem Equity Incentive Plan; and

 

    to the extent that shares of Evofem common stock are repurchased by Evofem prior to vesting, such shares will be available for future grants under the Evofem Equity Incentive Plan.

Administration. The Evofem Board administers the Evofem Equity Incentive Plan. The Evofem Board may delegate to a committee of the Board or to one or more officers of Evofem (other than executive officers and certain senior executives), any or all of the authority and responsibility of the Evofem Board under the Evofem Equity Incentive Plan.

Subject to the terms and conditions of the Evofem Equity Incentive Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards, and to make all other determinations and to take all other actions necessary or advisable for the administration of the Evofem Equity Incentive Plan. The administrator is also authorized to adopt, amend or rescind rules relating to administration of the Evofem Equity Incentive Plan.

Eligibility. Options, restricted stock and all other stock-based awards under the Evofem Equity Incentive Plan may be granted to individuals who are then Evofem’s officers, directors, employees or consultants or are the officers, employees or consultants of certain of Evofem’s subsidiaries. Only Evofem employees or certain of Evofem’s subsidiaries may be granted incentive stock options.

Awards. The Evofem Equity Incentive Plan provides that the administrator may grant or issue stock options, restricted stock, restricted stock units, dividend equivalents, performance awards and other stock-based awards, or any combination thereof. Each award granted under the Evofem Equity Incentive Plan is set forth in a separate agreement with the person receiving the award. These agreements indicate the type, terms and conditions of the award.

 

    Nonstatutory Stock Options, or NSOs, provide for the right to purchase shares of Evofem common stock at a specified price which may not be less than fair market value on the date of grant, and usually become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participant’s continued employment or service with Evofem and/or subject to the satisfaction of corporate performance targets and individual performance targets established by the administrator. NSOs may be granted for any term specified by the administrator that does not exceed ten years.

 

    Incentive Stock Options or ISOs are designed in a manner intended to comply with the provisions of Section 422 of the Code and are subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, and must not be exercisable after a period of ten years measured from the date of grant and no later than five years after the date of grant for 10% stockholders. In the case of an ISO granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of Evofem’s capital stock, the Evofem Equity Incentive Plan provides that the exercise price must be at least 110% of the fair market value of a share of Evofem common stock on the date of grant and the ISO must not be exercisable after a period of five years measured from the date of grant.

 

   

Restricted Stock may be granted to any eligible individual and made subject to such restrictions as may be determined by the administrator. Restricted stock, typically, may be forfeited for no consideration or repurchased by Evofem at the original purchase price if the conditions or restrictions on vesting are not met. In general, restricted stock may not be sold or otherwise transferred until the restrictions thereto are removed or expire. Purchasers of restricted stock, unlike recipients of options, have voting rights and have the right to receive dividends, if any, prior to the time when the restrictions lapse, however,

 

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extraordinary dividends will generally be placed in escrow, and will not be released until the restrictions thereto are removed or expire.

 

    Restricted Stock Units may be awarded to any eligible individual, typically without payment of consideration, but subject to vesting conditions based on continued employment or service or on performance criteria established by the administrator. Restricted Stock Unit holders may be eligible to receive dividend equivalents if granted by the administrator. Like restricted stock, restricted stock units may not be sold, or otherwise transferred or hypothecated, until the vesting conditions thereto are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until the restricted stock units have vested, and recipients of restricted stock units generally have no voting or dividend rights prior to the time when the vesting conditions thereto are satisfied.

 

    Performance Shares may be granted by the administrator. Generally, these awards will be based upon specific performance targets and may be paid in cash or in common stock or in a combination of both.

Change of Control. In the event of a change of control where the acquirer does not assume or replace awards granted with similar terms and conditions, or where the acquirer does not preserve, to the extent applicable, the benefit to be provided as of the date of the change of control, including but not limited to the right of the award holder after the consummation of an initial public offering to receive shares upon exercise of the option that are registered for sale to the public pursuant to an effective registration statement, then each holder of an option that is outstanding as of the date of the change of control shall have the right, exercisable within thirty days after the change of control, to receive, in exchange for the surrender of the option, an amount of cash equal to the excess of the fair market value of the shares on the date of surrender covered by the option (to the extent vested and not yet exercised) that is so surrendered over the exercise price of such shares under the award. If the administrator so determines prior to the change of control, any such option that is not exercised or surrendered prior to the end of such thirty day period will be cancelled, even if vested.

The administrator may make appropriate adjustments to awards under the Evofem Equity Incentive Plan and is authorized to provide for the acceleration, cash-out, termination, assumption, substitution or conversion of such awards in the event of a change in control or certain other unusual or nonrecurring events or transactions. Under the Evofem Equity Incentive Plan, a change in control is generally defined as:

 

    the transfer or exchange in a single transaction or series of related transactions by Evofem Stockholders of more than 50% of Evofem’s voting stock to a person or group;

 

    a merger, consolidation, reorganization or business combination in which Evofem is involved, directly or indirectly, other than a merger, consolidation, reorganization or business combination which results in (i) Evofem’s outstanding voting securities immediately before the transaction continuing to represent at least 50% or more of the combined voting power of voting securities of the surviving entity immediately after the transaction or (ii) at least 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger, consolidation or reorganization being held by an “Excluded Person” (as defined in the Evofem Equity Incentive Plan);

 

    the sale, exchange, or transfer of all or substantially all of Evofem’s assets; or

 

    stockholder approval of Evofem’s liquidation or dissolution.

Adjustments of Awards. If Evofem (i) is involved in a merger or other transaction in which shares of Evofem common stock are changed or exchanged; (ii) subdivides or combines the shares of Evofem common stock or declares a dividend payable in shares of Evofem common stock, other securities or other property; (iii) effects a cash dividend the amount of which, on a per share basis, exceeds 10% of the fair market value of a share of Evofem common stock at the time the dividend is declared, or effects any other dividend or other distribution on the shares of Evofem common stock in the form of cash, or a repurchase of shares of Evofem common stock, that the Evofem board determines by resolution is special or extraordinary in nature or that is in connection with a transaction that Evofem characterizes publicly as a recapitalization or reorganization involving the shares of

 

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Evofem common stock; or (iv) any other event shall occur, which (iv), in the judgment of the administrator necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Evofem Equity Incentive Plan, then the administrator may make appropriate, proportionate adjustments to reflect the event giving rise to the need for such adjustments, with respect to:

 

    the aggregate number and type of shares subject to the Evofem Equity Incentive Plan;

 

    the number and kind of shares subject to outstanding awards and terms and conditions of outstanding awards;

 

    the grant or exercise price per share of any outstanding awards under the Evofem Equity Incentive Plan; and

 

    to the extent the administrator’s discretion does not cause an Award that is intended to qualify as performance-based compensation to lose its status as such, the performance goals established under any Award.

Amendment and Termination. The Evofem board may terminate, amend or modify the Evofem Equity Incentive Plan at any time and from time to time. However, Evofem must generally obtain stockholder approval:

 

    to increase the number of shares of Evofem common stock available under the Evofem Equity Incentive Plan (other than in connection with certain corporate adjustment events described above);

 

    to expand the class of individuals eligible to receive awards under the Evofem Equity Incentive Plan; or

 

    to the extent required by applicable law, rule or regulation (including any applicable stock exchange rule).

Termination. The Evofem Board may terminate the Evofem Equity Incentive Plan at any time and the Evofem Equity Incentive Plan will terminate automatically on the tenth anniversary of its effective date, or July 25, 2022. No incentive stock options may be granted pursuant to the Evofem Incentive Plan after this termination date. Any award that is outstanding on the termination date will remain in force according to the terms of the Evofem Equity Incentive Plan and the applicable award agreement.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF EVOFEM

Described below are transactions occurring since January 1, 2016 and any currently proposed transactions to which Evofem was a party and in which:

 

    The amounts involved exceeded or will exceed $120,000; and

 

    A director, executive officer, holder of more than 5% of the outstanding capital stock of Evofem, or any member of such person’s immediate family had or will have a direct or indirect material interest, other than compensation, termination and change of control arrangements that are described under the section entitled “ Management Following the Merger — Executive Compensation ” beginning on page 197 of this proxy statement/prospectus/information statement.

Consulting Agreements

Joseph Pike

In August 2013, Evofem entered into a consulting agreement, or the 2013 Consulting Agreement, with Joseph Pike, Evofem’s founder and then chairman of its board of directors. As of October 20, 2017, Mr. Pike was a beneficial owner of approximately 18.5% of Evofem’s outstanding capital stock. See the section entitled “ Principal Stockholders of Evofem ” beginning on page 235 of this of this proxy statement/prospectus/information statement.

Consideration under the 2013 Consulting Agreement was amended in January 2014 and January 2015. Pursuant to the 2013 Consulting Agreement, as amended, Mr. Pike provided consulting services and management advisory services as requested from time to time. The 2013 Consulting Agreement, as amended, provided for monthly compensation of approximately $29,000. In November 2015, Mr. Pike resigned as chairman of the Evofem Board. On September 14, 2016, the 2013 Consulting Agreement was terminated and in connection with the termination (i) Evofem obtained a waiver from Mr. Pike for approximately $0.2 million in consulting fees then owned to Mr. Pike from Evofem and (ii) Evofem paid Mr. Pike a termination fee of approximately $0.4 million, which included approximately $0.3 million for tax liabilities incurred as a result of Evofem’s October 2015 Reorganization. During the year ended December 31, 2016 Evofem paid Mr. Pike $0.4 million in connection with the 2013 Consulting Agreement and the 2013 Consulting Agreement’s termination. No amounts were paid to Mr. Pike during the nine months ended September 30, 2017.

Thomas Lynch

Effective April 1, 2016, Evofem entered into a one-year consulting agreement, or the 2016 Consulting Agreement, with Thomas Lynch, the chairman of the Evofem Board.

Pursuant to the 2016 Consulting Agreement, Mr. Lynch provided consulting services with respect to investor relations and business development activities as was requested from time to time. In exchange for these services, Mr. Lynch (i) accrued compensation of approximately $0.3 million during the year ended December 31, 2016, of which $45,000 related to his service as a member of the Evofem Board, (ii) received a stock option on October 13, 2016 exercisable for 150,000 shares of Evofem’s common stock with an exercise price of $1.19 per share subject to vesting in equal monthly installments on the first date of each calendar month beginning on April 1, 2016 and ending on March 1, 2017, and (iii) was issued a restricted stock unit for the rights to 100,000 shares of Evofem common stock, or the RSU, subject to a restricted stock unit agreement dated October 13, 2016. The RSU vests the later of March 1, 2017 or the date of completion of an initial public offering of shares of Evofem’s common stock. During the nine months ended September 30, 2017, Mr. Lynch received cash compensation of $0.3 million associated with his consulting services. As of September 30, 2017, accrued and unpaid board fees to Mr. Lynch totaled $60,000. In connection with the merger, and as an inducement for Neothetics to enter into the Merger Agreement, Mr. Lynch entered into an agreement with Evofem pursuant to

 

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which the RSU will be cancelled prior to and contingent upon the completion of the merger. See the section entitled “ The Merger — Interests of the Evofem Directors and Executive Officers in the Merger — Ownership Interests ” beginning on page 87 of this of this proxy statement/prospectus/information statement. The 2016 Consulting Agreement expired in accordance with its terms on April 1, 2017.

In August 2017, Evofem and Mr. Lynch entered into a new two-year consulting agreement, or the 2017 Consulting Agreement, which was retroactively effective as of April 1, 2017. This 2017 Consulting Agreement provides for annual compensation of $0.4 million, including $0.1 million related to his services as a member of the Evofem Board, and pursuant to the 2017 Consulting Agreement, Mr. Lynch is entitled to be issued a stock option exercisable for up to 250,000 shares of Evofem’s common stock (subject to vesting on a quarterly basis through March 31, 2018) upon the completion of Evofem’s next 409A valuation, or the 2017 Consulting Agreement Option. As of September 30, 2017, the 2017 Consulting Agreement Option had not yet been issued and Evofem does not anticipate completing a 409A valuation or issuing the Consulting Agreement Option prior to the effective time of the merger. During the nine months ended September 30, 2017, Evofem has paid Mr. Lynch $0.1 million in cash consideration pursuant to the 2017 Consulting Agreement for his consulting services. As of September 30, 2017, Evofem had accrued and unpaid expenses of approximately $53,000 and $30,000, related to Mr. Lynch’s consulting services and board fees, respectively.

Founder Transactions

Evofem’s October 2015 Reorganization created tax liabilities of approximately $0.4 million on an aggregate basis for Mr. Pike and Thomas Darden. Mr. Darden is a member of the Evofem Board and beneficially owns, as the manager of Brickhaven II, LP, approximately 7.3% of Evofem’s issued and outstanding capital stock. See the section entitled “ Principal Stockholders of Evofem ” beginning on page 235 of this of this proxy statement/prospectus/information statement.

In March 2016, the Evofem Board authorized Evofem to issue a one-time bonus to each of Mr. Darden and Mr. Pike as reimbursement for tax liabilities personally incurred by each of them in connection with Evofem’s October 2015 Reorganization. Mr. Pike, received approximately $0.3 million, which was included as part of his $0.4 million termination fee associated with the 2013 Consulting Agreement. See the section entitled “ Certain Relationships and Related Party Transactions — Consulting Agreements ” beginning on page 205 of this of this proxy statement/prospectus/information statement. Mr. Darden’s fee of approximately $0.1 million was paid in February 2017.

Affiliate Transactions

Prior to Evofem’s October 2015 Reorganization, Evofem, Inc. and Cosmederm Biosciences, Inc., or Cosmederm, were both wholly-owned subsidiaries of EvoMed. Subsequent to the October 2015 Reorganization and until the completion of the first issuance of shares of Evofem’s Series D Preferred Stock in July 2016 (see the section entitled “ Certain Relationships and Related Party Transactions — Evofem Series D Preferred Stock Financing s” beginning on page 209 of this of this proxy statement/prospectus/information statement), Evofem, Inc., and Cosmederm remained entities under common control (see the section entitled “ Principal Stockholders of Evofem ” beginning on page 235 of this of this proxy statement/prospectus/information statement) was a principal stockholder of each entity. As of July 18, 2016, Woodford Investment Management no longer owned any interest in Cosmederm and Evofem, Inc., and Evofem, Inc. and Cosmederm were no longer affiliated.

Cosmederm Lease

In November 2009, Evofem, Inc. entered into a lease for office space located at 8910 University Center Lane in San Diego, California under a noncancelable lease agreement that expired in March 2017, or the UTC Lease. Through January 2015, Evofem, Inc. shared this office space with Cosmederm. Effective in February 2017 Evofem, Inc. assigned its rights and obligations under the UTC Lease to Cosmederm, and Cosmederm took over

 

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the payments under the UTC Lease, however: (i) Evofem, Inc. continued to provide supplemental financial support under the UTC Lease and (ii) was still legally responsible for obligations pursuant to the lease in the event of default by Cosmederm. In March 2016, the UTC Lease was amended to reduce the rentable square footage under the lease at which time Evofem agreed to pay a portion of the early termination fee due as a result of this change (approximately $0.1 million).

In February 2015, Evofem, Inc. transferred certain property and equipment associated with the UTC Lease to Cosmederm. The estimated fair value of the property and equipment transferred to Cosmederm was approximately $0.1 million at the time of the transfer. In each of the years ended December 31, 2015 and 2016, Evofem, Inc. contributed approximately $0.1 million towards the UTC Lease.

Effective February 27, 2017, Evofem, Inc. entered into a lease termination agreement, or the UTC Lease Termination, with Cosmederm and the landlord for the UTC Lease. In exchange for Evofem, Inc. and Cosmederm being relieved of all further obligations under the UTC Lease, Cosmederm agreed to (i) pay an early termination fee of approximately $0.1 million, or the Early Termination Fee, to the landlord and (ii) surrender the security deposit of $17,000. In March 2017, Evofem, Inc. paid a portion of the Early Termination Fee ($55,000) directly to Cosmederm. Upon execution of the UTC Lease Termination, Evofem, Inc. was relieved of all further obligations under the UTC Lease.

Cosmederm Note

During 2015, Evofem and Cosmederm entered into a promissory note in favor of Cosmederm, or the Cosmederm Note, for an aggregate principal amount of $15.0 million. The interest rate on the Cosmederm Note was at the applicable federal rate as published by the Internal Revenue Service, or the AFR. Principal and accrued interest were due in a single lump sum payment upon maturity, August 28, 2016; however, the Cosmederm Note allowed for early repayment.

In July 2016 and in conjunction with Evofem’s Series D financing (see the section entitled “ Certain Relationships and Related Party Transactions — Evofem Series D Preferred Stock Financings ” beginning on page 209 of this of this proxy statement/prospectus/information statement), (i) Evofem and Cosmederm amended the Cosmederm Note which (a) reduced the principal amount of the Cosmederm Note to the then outstanding principal balance of $10.0 million and (b) extended the maturity date of the Cosmederm Note to August 28, 2018, or the Amended Cosmederm Note, and (ii) Cosmederm assigned the Amended Cosmederm Note to Woodford Investment Management. As a condition to closing Evofem’s Series D Financing, Woodford Investment Management immediately converted $5.0 million of the Amended Cosmederm Note into 10 shares of Evofem’s Series D Preferred Stock and cancelled the remaining $5.0 million owed pursuant to the Amended Cosmederm Note, or the Debt Cancellation. During the year ended December 31 2016, Evofem, Inc. made principal and accrued interest cash payments of approximately $4.7 million and $0.1 million, respectively, pursuant to the Cosmederm Note and the Amended Cosmederm Note.

As of December 31, 2015 and 2016, Evofem had no receivables from Cosmederm. A summary of payables, payments and expenses related to Evofem Inc.’s transactions with Cosmederm as of and for the years ended December 31, 2015 and 2016 is set forth in Note 8 of the Evofem Biosciences, Inc. Audited Consolidated Financial Statements beginning on page F-52 of this proxy statement/prospectus/information statement. As of and for the nine months ended September 30, 2017, the sole transaction between Evofem and Cosmederm was the payment of the Early Lease Termination Fee .

Transactions with WomanCare Global International and Related Entities, or the WCG Entities

In 2009, Saundra Pelletier, Evofem’s Chief Executive Officer, founded WCGI, a non-profit organization registered in England and Wales, and became WCGI’s Chief Executive Officer. In February 2013, Evofem and WCGI formed an alliance, or the WCGI Alliance. Concurrent with the forming of the WCGI Alliance, Evofem

 

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and WCGI entered into (i) a service agreement, or the Service Agreement, pursuant to which the companies shared resources and employees and (ii) a three-year grant agreement, or the Grant Agreement, pursuant to which Evofem provided funding of $4.0 million per year to WCGI.

Effective in February 2015, Evofem, Inc. and WomanCare Global Trading Inc., or WCGT, a WCGI subsidiary, entered into a sublease for office space where Evofem, Inc. sublet to WCGT a portion of the premises located at 12400 High Bluff Drive in San Diego, California. During the year ended December 31, 2016 and the nine months ended September 30, 2017, payments pursuant to the sublease totaled $0.4 million and $0.1 million, respectively.

In October 2015, (a) Evolution Pharma C.V. and Evofem North America, Inc. entered into two sublicense agreements, or the Sublicense Agreements, whereby Evolution Pharma C.V. and Evofem North America, Inc. licensed from WomanCare Global Trading CIC, WCGCIC, also a WCGI affiliate, the ability to (i) sublicense the Nestorone/ethinyl estradiol ring, or the Ring, (ii) develop, make, have made, use, import, offer to sell, sell, have sold and distribute the Ring in the human contraceptive indications field, or the Field, within certain agreed upon regions, or the Territories, and (iii) sublicense all product-specific trademarks controlled by, WCGCIC and used in connection with the marketing and sale of the Ring. Evolution Pharma C.V. and Evofem North America, Inc. agreed to pay an upfront license fee of $4.1 million and $5.9 million, respectively, and annual sublicense fees of $2.1 million and $2.9 million, respectively, net of amounts paid under the Grant Agreement during 2015, to WCGCIC, and the Service Agreement and the Grant Agreement were each cancelled. During the year ended December 31, 2016 and of the nine months ended September 30, 2017, payments pursuant to the Sublicense Agreements totaled $3.0 million and $1.0 million, respectively. The Sublicense Agreements were terminated effective as of March 2017. As of September 30, 2017, Evofem had accrued sublicense fees of $2.0 million.

In early 2015, Evofem became the corporate sponsor of a WCGI U.S. educational campaign, or Then Who Will. During the year ended December 31, 2016 and the nine months ended September 30, 2017, corporate support payments totaled $0.3 million and $0.2 million, respectively.

In January 2016, Evofem, formerly Evofem Holdings, Inc. and WCGI entered into a shared-services agreement, or the Shared Services Agreement. Under the terms of the Shared Services Agreement, Evofem Holdings and WCGI cross charge services provided by each entity (or its subsidiaries) on behalf of the other. The Shared Services Agreement also allows for netting of due to and due from shared-services fees. As of December 31, 2016 and September 30, 2017, net shared-services payments due to Evofem totaled approximately $26,000 and $59,000, respectively. Through December 31, 2016, Ms. Pelletier was being paid directly by each WCGI and Evofem. A summary of payables, payments and expenses related to Evofem’s transactions with WCGI related entities as of and for the years ended December 31, 2015 and 2016 is set forth in Note 8 of the Evofem Biosciences, Inc. Audited Consolidated Financial Statements beginning on page F-52 of this proxy statement/prospectus/information statement and such disclosure is hereby incorporated by reference.

Transactions with WCG Cares

Ms. Pelletier is also the Chief Executive Officer and President of a non-profit California corporation, WGC Cares. WCG Cares was formed in 2013, and its primary purpose is to directly engage in and/or fund the development and implementation of programs that promote reproductive health, education, research and increased access to high-quality, innovative and affordable reproductive healthcare and healthcare products around the world. Mr. File is also the Chief Financial Officer of WCG Cares.

In August 2017, Evofem agreed to provide WCG Cares with $0.1 million in funding, which was paid to WCG Cares in October 2017, to support WCG Care’s Women Deliver Young Leaders program. See Note 7 of the Evofem Biosciences, Inc. Unaudited Condensed Consolidated Financial Statements beginning on page F-79 of this proxy statement/prospectus/information statement.

It is expected that Ms. Pelletier will be the Chief Executive officer of the combined company and that she will serve as a member of the board of directors of the combined company, and it is expected that Mr. File will be the

 

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Chief Financial Officer of the combined company. See the section entitled “ Management Following the Merger ” beginning on page 189 of this proxy statement/prospectus/information statement.

Evofem Series D Preferred Stock Financings

In July 2016, Evofem completed the initial sale and issuance of shares of its Series D Preferred Stock to funds managed by Woodford Investment Management (see the section entitled “ Principal Stockholders of Evofem ” beginning on page 235 of this of this proxy statement/prospectus/information statement) issuing 31 shares of Evofem Series D Preferred Stock, at a purchase price of $500,000 per share, for gross cash proceeds to Evofem of $15.5 million and issuing 10 shares of Evofem Series D Preferred Stock upon cancellation of the Amended Cosmederm Note. See the section entitled “ Certain Relationships and Related Party Transactions — Cosmederm Note ” beginning on page 207 of this of this proxy statement/prospectus/information statement). In December 2016, Evofem issued to funds managed by Woodford Investment Management an additional 19 shares of Evofem’s Series D Preferred Stock at a purchase price of $500,000 per share and in exchange for gross cash proceeds to Evofem of $9.5 million. In July 2017, Evofem issued an additional 15 shares of Evofem Series D Preferred Stock to funds managed by Woodford Investment Management at a purchase price of $500,000 per share in exchange for gross cash proceeds to Evofem of $7.5 million. In November 2017, Evofem issued an additional 5 shares of Evofem Series D Preferred Stock to funds managed by Woodford Investment Management at a purchase price of $500,000 per share in exchange for gross cash proceeds to Evofem of $2.5 million.

In connection with these issuances of shares of Evofem Series D Preferred Stock, Evofem issued the Evofem Warrants to purchase shares of a class of Evofem capital stock to be created and issued in Evofem’s next completed equity financing. The number of shares of Evofem capital stock issuable upon full exercise of the Evofem Warrants is amount equal to (i) 75% of the aggregate purchase price to be paid by the purchasers of Evofem’s Series D Preferred Stock divided by (ii) the per share price of the shares of Evofem capital stock to be issued in such a next completed equity financing. Evofem did not complete any such next equity financing triggering the exercisability of the Evofem Warrants. The exercise price per share for the Evofem Warrants would be the price per share paid by the other investors in a next equity financing. As of September 30, 2017, the Evofem Warrants remained outstanding, but were not yet exercisable for shares of Evofem capital stock. As such, the Audited Consolidated Financial Statements of Evofem for the years ended December 31, 2015 and 2016 beginning on page F-33 of this proxy statement/prospectus/information statement and the Unaudited Consolidated Financial Statements of Evofem for the nine months ended September 30, 2017 refer to the Evofem Warrants as “Warrant Rights” in the financial notes set forth therein.

Securities Purchase Agreement and Post-Merger Registration Rights Agreement

See the section entitled “ Agreements Related to the Merger — Securities Purchase Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement for a description of the sale of shares of common stock of the combined company expected to occur immediately following the closing of the merger and the issuance of the Investor Warrants and the section entitled “ Agreements Related to the Merger — Post-Merger Registration Rights Agreement” beginning on page 128 of this proxy statement/prospectus/information statement for a description of the registration rights granted to the Investors upon completion of the Financing.

Support Agreements

Evofem has also entered into Support Agreements, in connection with the merger and in accordance with the terms of the Merger Agreement, with certain directors, executive officers and 5% stockholders, and their affiliates. For a description of these Support Agreements, see the section entitled “ Agreements Related to the Merger — Support Agreements ” beginning on page 127 of this proxy statement/prospectus/information statement.

Registration Rights Agreement

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preferred stock. The Evofem Registration Rights Agreement provides for, among other things, certain demand, piggy-back and S-3 registration rights. The following directors, executive officers and holders of more than 5% of Evofem capital stock and their affiliates are parties to the Evofem Registration Rights Agreement:

 

    CF Woodford Equity Income Fund

 

    Brickhaven II, LLC

 

    The Joseph D. Pike Family Trust

 

    Woodford Patient Capital Trust Plc

The Evofem Registration Rights Agreement will terminate upon the closing of the merger.

Evofem Stockholder Agreement

In connection with the issuances of shares of its Series C Preferred Stock in November 2015, Evofem entered into a stockholder agreement that was subsequently amended in July 2016 and in July 2017 in connection with Evofem’s sales and issuances of shares of its Series D Preferred Stock, or the Evofem Stockholder Agreement, with certain holders of its preferred stock and certain holders of its common stock. The Stockholder Agreement provides for, among other things, certain “tag along” or co-sale rights, drag along arrangements, pre-emptive rights, information rights and voting provisions and voting restrictions. The following directors, executive officers and holders of more than 5% of Evofem capital stock and their affiliates are parties to the Stockholder Agreement:

 

    CF Woodford Equity Income Fund

 

    Brickhaven II, LLC

 

    The Joseph D. Pike Family Trust

 

    Invesco Perpetual High Income Fund

 

    Invesco Perpetual Income Fund

 

    Woodford Patient Capital Trust Plc

The Evofem Stockholder Agreement will terminate upon the closing of the merger.

Post-Merger Voting Agreement

See the section entitled “ Agreements Related to the Merger — Post-Merger Voting Agreement ” beginning on page 129 of this proxy statement/prospectus/information statement for a description of the voting arrangements by and between Neothetics and certain holders of more than 19.5% of the issued and outstanding Neothetics common stock immediately following the merger.

Indemnification Arrangements

Evofem has entered into indemnification agreements with each of its officers and directors and purchased directors’ and officers’ liability insurance. The indemnification agreements and bylaws of Evofem require Evofem to indemnify its directors and officers to the fullest extent permitted under Delaware law.

Policies and Procedures Regarding Related Party Transactions

While Evofem does not have a formal written policy or procedure for the review, approval or ratification of related party transactions, the Evofem Board reviews and considers the interests of its directors, executive officers and principal stockholders in its review and consideration of transactions and obtains the approval of non-interested directors when it determines that such approval is appropriate under the circumstances.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On October 17, 2017, Neothetics, Inc., a Delaware corporation, or Neothetics, Evofem Biosciences, Inc., a Delaware corporation, or Private Evofem, and Nobelli Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Neothetics (Merger Sub), entered into an agreement and plan of merger and (as may be amended from time to time, the Merger Agreement) that provides for, among other things, the merger of Merger Sub with and into Evofem Biosciences, with Evofem Biosciences continuing as the surviving entity and becoming a wholly owned subsidiary of Neothetics, on the terms and conditions set forth in the Merger Agreement (the merger). At the effective time of the Merger, or the Effective Time, Neothetics will change its name to Evofem Biosciences, Inc. (Public Evofem).

If the merger is completed, holders of outstanding Private Evofem common stock and Private Evofem convertible preferred stock and Private Evofem redeemable convertible preferred stock (collectively referred to herein as the Evofem stockholders) will be entitled to receive an aggregate of 82,893,740 shares of Neothetics common stock at closing. Immediately following the Effective Time, Public Evofem will issue and sell in a private placement transaction $20.0 million of Neothetics’ common stock to Invesco Asset Management, or Invesco, an existing investor in Private Evofem, at a price per share equal to $2.0677, subject to adjustment, or the Invesco Financing. Private Evofem stockholders are expected to own approximately 87% of the outstanding common stock of Neothetics on a fully diluted basis (including 9,672,550 shares of Public Evofem to be issued to Invesco through the Invesco Financing in the combined company immediately following the Effective Time), while pre-merger Neothetics stockholders are expected to own the remaining approximate 13%. At the Effective Time, pre-merger Neothetics stockholders will continue to own and hold their existing shares of Neothetics common stock.

The following unaudited pro forma condensed consolidated financial statements give effect to the merger and the Invesco Financing. The Merger is structured as a reverse recapitalization and Evofem was determined to be the accounting acquirer based upon the terms of the merger and other factors including: (i) Evofem stockholders will own approximately 87% of Neothetics immediately following the Effective Time, (ii) Evofem will hold the majority (six of seven) of board seats of the combined company and (iii) Evofem’s management will hold all key positions in the management of Public Evofem. The transaction will be accounted for as an asset acquisition, in accordance with the accounting guidance under ASU 2017-01. Accordingly, the assets and liabilities of Private Evofem will be recorded as of the merger closing date at their respective carrying values and the acquired net assets of Neothetics will be recorded as of the merger closing date at their fair value.

Pro Forma Information

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2017 and the unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2017 and the year ended December 31, 2016 are based on (i) the historical consolidated results of operations of Evofem and (ii) the historical consolidated results of operations of Neothetics.

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2017 assumes that the merger took place on September 30, 2017 and combines the historical balance sheets of Neothetics and Evofem as of September 30, 2017. The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2017 and for the year ended December 31, 2016 assumes that the merger occurred on January 1, 2016, and combines the historical results of Neothetics and Evofem.

The unaudited pro forma condensed consolidated financial statements are based on the assumptions and adjustments that are described in the accompanying notes. The unaudited pro forma condensed consolidated financial statements and pro forma adjustments have been prepared based on preliminary estimates. Differences between these preliminary estimates and the final merger will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed consolidated financial statements and the

 

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consolidated company’s future results of operations and financial position. The actual amounts recorded as of the completion of the merger may differ materially from the information presented in these unaudited pro forma condensed consolidated financial statements as a result of the amount of cash used by Neothetics’ operations between the signing of the merger agreement and the closing of the merger; the timing of the closing of the merger; and other changes in the Evofem or Neothetics assets and liabilities that occur prior to the completion of the merger.

The unaudited pro forma condensed consolidated financial statements do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the merger. The unaudited pro forma condensed consolidated financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that would have been realized had Neothetics and Evofem been a consolidated company during the specified periods. The unaudited pro forma condensed consolidated financial statements, including the notes thereto, should be read in conjunction with the audited consolidated financial statements of Neothetics and Evofem for the year ended December 31, 2016 and the unaudited pro forma condensed consolidated financial statements of Neothetics and Evofem for the nine months ended September 30, 2017.

 

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Unaudited Pro Forma Condensed Consolidated Balance Sheet

(in thousands)

As of September 30, 2017

 

     Historical
Evofem
Biosciences
Inc.
    Historical
Neothetics
Inc.
    Pro forma
Merger
Adjustments
    Note      Pro forma
Condensed
Consolidated
 

Assets

           

Current assets:

           

Cash and cash equivalents

   $ 3,660     $ 5,750     $ 20,000       A10      $ 29,410  

Restricted cash

     505       —         93       A1        598  

Prepaid and other current assets

     660       380       —            1,040  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current assets

     4,825       6,130       20,093          31,048  

Property and equipment, net

     913       23       —            936  

Other noncurrent assets

     750       93       (93     A1        750  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

   $ 6,488     $ 6,246     $ 20,000        $ 32,734  
  

 

 

   

 

 

   

 

 

      

 

 

 

Liabilities, convertible preferred stock and stockholders’ (deficit) equity

 

    

Current liabilities:

 

        

Accounts payable

   $ 5,089     $ 410     $ —          $ 5,499  

Accrued expenses

     6,215       795       (143     A1        10,968  
         4,101       A9     

Accrued compensation

     2,052       192       143       A1        2,537  
         150       A11     

Series D 2X liquidation preference

     70,610       —         (70,610     A5        —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current liabilities

     83,966       1,397       (66,359        19,004  

Deferred rent

     131       —         —            131  

Other noncurrent liabilities

     173       —         —            173  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     84,270       1,397       (66,359        19,308  

Convertible preferred stock

     121,315       —         (121,315     A6        —    

Redeemable convertible preferred stock

     69,992       —         (69,992     A5        —    

Stockholders’ (deficit) equity:

 

    

Common stock

     81       1       (1     A3        11  
         158       A4     
         40       A6     
         (5     A7     
         (264     A8     
         1       A10     

Additional paid-in capital

     18,614       138,332       (133,483     A3        310,299  
         4,849       A2     
         (158     A4     
         140,602       A5     
         121,275       A6     
         5       A7     
         264       A8     
         19,999       A10     

Accumulated deficit

     (287,784     (133,484     133,484       A3        (296,884
         (4,849     A2     
         (4,101     A9     
         (150     A11     
  

 

 

   

 

 

   

 

 

      

 

 

 

Total stockholders’ (deficit) equity

     (269,089     4,849       277,666          13,426  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities, convertible preferred stock and stockholders’ (deficit) equity

   $ 6,488     $ 6,246     $ 20,000        $ 32,734  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

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Unaudited Pro Forma Condensed Consolidated Statements of Operations

For the Year Ended December 31, 2016

(in thousands, except share and per share data)

 

     Historical
Evofem
Biosciences
Inc.
    Historical
Neothetics
Inc.
    Pro forma
Merger
Adjustments
     Note      Pro forma
Condensed
Consolidated
 

Operating expenses:

 

         

Research and development

   $ 14,855     $ 6,579     $ —           $ 21,434  

Abandoned initial public offering costs

     4,705       —         —             4,705  

General and administrative

     15,083       5,463       —             20,546  
  

 

 

   

 

 

   

 

 

       

 

 

 

Loss from operations

     (34,643     (12,042           (46,685

Other income (expense), net

     115       (977     —             (862

Loss on issuance of Series D redeemable convertible preferred stock

     (26,635     —         26,635        B1        —    

Loss on extinguishment of related-party note payable

     (6,651     —         6,651        B1        —    

Change in fair value of Series D 2X liquidation preference

     (543     —         543        B2        —    
  

 

 

   

 

 

   

 

 

       

 

 

 

Loss from continuing operations before income tax

     (68,357     (13,019     33,829           (47,547

Income tax benefit

     613       —         —             613  
  

 

 

   

 

 

   

 

 

       

 

 

 

Loss from continuing operations

     (67,744     (13,019     33,829           (46,934

Accretion of Series D redeemable convertible preferred stock dividends

     (1,144     —         1,144        B3      —    
  

 

 

   

 

 

   

 

 

       

 

 

 

Net loss attributable to common stockholders

   $ (68,888   $ (13,019   $ 34,973         $ (46,934
  

 

 

   

 

 

   

 

 

       

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

     $ (0.94         $ (0.55
    

 

 

         

 

 

 

Weighted-average number of Shares used in computing net loss per share attributable to common stockholders, basic and diluted

       13,801,003             85,491,311  
    

 

 

         

 

 

 

 

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Unaudited Pro Forma Condensed Consolidated Statements of Comprehensive Loss

For the Nine Months Ended September 30, 2017

(in thousands, except share and per share data)

 

     Historical
Evofem
Biosciences
Inc.
    Historical
Neothetics
Inc.
    Pro forma
Merger
Adjustments
    Note      Pro forma
Condensed
Consolidated
 

Operating expenses:

           

Research and development

   $ 12,323     $ 3,593     $ —          $ 15,916  

General and administrative

     8,018       4,081       (371     C4        11,728  
  

 

 

   

 

 

   

 

 

      

 

 

 

Operating loss

     (20,341     (7,674     371          (27,644

Other income, net

     83       40       —            123  

Loss on issuance of Series D convertible
preferred stock

     (5,740     —         5,740       C1        —    

Change in fair value of Series D 2X liquidation preference

     (59,811     —         59,811       C2        —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Net loss before income taxes

     (85,809     (7,634     65,922          (27,521

Provision for income taxes

     (3     —         —            (3
  

 

 

   

 

 

   

 

 

      

 

 

 

Net loss

     (85,812     (7,634     65,922          (27,524

Accretion of Series D redeemable convertible preferred stock dividends

     (2,839     —         2,839       C3        —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Net loss attributable to common stockholders

   $ (88,651   $ (7,634   $ 68,761        $ (27,524
  

 

 

   

 

 

   

 

 

      

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

     $ (0.55        $ (0.28
    

 

 

        

 

 

 

Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted

       13,830,981            99,517,259  
    

 

 

        

 

 

 

Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information

 

1. Description of the Acquisition and Basis of Presentation

On October 17, 2017, Neothetics, Inc., a Delaware corporation (Neothetics), Evofem Biosciences and Nobelli Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Neothetics (Merger Sub), entered into an agreement and plan of merger (as may be amended from time to time, the Merger Agreement) that provides for, among other things, the merger of Merger Sub with and into Evofem Biosciences, with Evofem Biosciences continuing as the surviving entity and becoming a wholly owned subsidiary of Neothetics, on the terms and conditions set forth in the Merger Agreement (the Merger). Neothetics’ common stock is currently quoted on the NASDAQ Capital Market.

Subject to the terms and conditions of the Merger Agreement, if the Merger is completed, each share of Evofem Biosciences common stock (and each share of Evofem Bio Series A preferred stock, Evofem Bio Series B preferred stock, Evofem Bio Series C preferred stock and Evofem Bio Series C-1 preferred stock on an as converted basis) will be converted in to 0.1515 shares of Neothetics common stock (subject to the adjustments set forth in the Merger Agreement, the Exchange Ratio), or an aggregate of 41,644,439 shares of Neothetics common stock at closing and each share of Evofem Biosciences Series D preferred stock will be converted, giving effect to its liquidation preference, into 515,616.2625 shares of Neothetics common stock (subject to the adjustments set forth in the Merger Agreement, the Series D Exchange Ratio), or an aggregate of 41,249,301 shares of Neothetics common stock.

 

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The organizational history of Evofem is described in Evofem’s unaudited condensed consolidated financial statements as of September 30, 2017 appearing elsewhere within this proxy statement/prospectus/information statement.

 

2. Basis of Presentation

The unaudited pro forma condensed consolidated financial statements were prepared in accordance with the regulations of the SEC. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2017 is presented as if the merger had been completed on September 30, 2017. The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2017 and the year ended December 31, 2016 assumes that the merger occured on January 1, 2016, and combines the historical results of Neothetics and Evofem.

For accounting purposes, Evofem is considered to be the acquiring company and the merger will be accounted for as a reverse recapitalization of Neothetics by Evofem. Under reverse recapitalization accounting the assets and liabilities of Neothetics will be recorded, as of the completion of the merger, at their fair value which approximates book value because of the short-term nature of the instruments. Consequently, the unaudited condensed consolidated financial statements of Evofem reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. The historical financial statements of Neothetics and Evofem, which are provided elsewhere in this proxy statement/prospectus/information statement, have been adjusted to give pro forma effect to events that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.

To the extent there are significant changes to the business following completion of the merger, the assumptions and estimates set forth in the unaudited pro forma condensed consolidated financial statements could change significantly. Accordingly, the pro forma adjustments are subject to further adjustments as additional information becomes available and as additional analyses are conducted following the completion of the merger. There can be no assurances that these additional analyses will not result in material changes to the estimates of fair value.

 

3. Pro Forma Adjustments and Assumptions

The pro forma adjustments were based on the preliminary information available at the time of the preparation of the unaudited pro forma condensed consolidated financial information. The unaudited pro forma condensed consolidated financial information, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical audited financial statements of Evofem and Neothetics for the year ended December 31, 2016 and the historical unaudited condensed consolidated financial information of Evofem and Neothetics as of and for the nine months ended September 30, 2017.

 

A1 Reclassify NEOT restricted cash and accrued bonus and paid-time off payable to conform with EVO balance sheet presentation.

 

A2. Expense in-process research and development determined to have no alternative use to Evofem subject to final valuation upon closing of the merger.

 

A3. Reflects the elimination of NEOTs historical stockholders’ equity balances, including accumulated deficit.

 

A4. Record issuance of 158,490,892 shares of Evofem common stock upon cashless exercise of Invesco Warrant immediately prior to the closing of the merger.

 

A5. Reclassify Evofem Series D 2X liquidation preference and Series D redeemable convertible preferred stock to additional paid-in capital.

 

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A6. Reclassify the net proceeds from Evofem’s issuance of an aggregate of 40,016,067 shares of Evofem convertible preferred stock to common stock at Evofem’s par value ($0.001 per share) and additional paid-in capital, net of par value, upon conversion to Evofem common stock immediately prior to the closing of the merger.

 

A7. Reflects the cancellation of 4,759,091 shares of Evofem’s unvested restricted common stock, which will not vest upon closing of the merger.

 

A8. Recognize the exchange of 274,866,962 shares of Evofem common stock outstanding immediately prior to the closing of the merger for 82,893,740 shares of Neothetics’ common stock upon closing of the merger.

 

A9. Accrue for legal, accounting and other direct costs related to the merger incurred during October 2017, which are not recognized in Evofem’s or Neothetics’ financial statements as of September 30, 2017.

 

A10. Reflects $20.0 million in proceeds from the sale of Neothetics’ common stock to Invesco in the Invesco Financing to be completed immediately after the closing of the merger.

 

A11. Accrue Susan Knudson 2017 retention bonus under Neothetics’ 2014 Equity Incentive Plan, as approved by Neothetics’ board of directors in July 2017.

 

B1. Reflects the elimination of Evofem’s loss on issuance of Series D convertible preferred stock and loss on extinguishment of related-party debt recognized upon the issuance of Evofem’s Series D redeemable convertible preferred stock, or Series D, issued in July and December 2016.

 

B2. Reflects the elimination of Evofem’s change in fair value of Series D 2X liquidation preference associated with Evofem’s Series D stock issued in July and December 2016.

 

B3. Reflects the elimination of Evofem’s accretion of Series D redeemable convertible preferred stock dividends associated with the issuance of Evofem’s Series D stock issued in July and December 2016.

 

C1. Reflects the elimination of Evofem’s loss on issuance of Evofem Series D convertible preferred stock recognized upon the issuance of Evofem Series D stock, or Series D, issued in August 2017.

 

C2. Reflects the elimination of Evofem’s change in fair value of Series D 2X liquidation preference associated with Evofem’s Series D stock issued in July and December 2016 and August 2017.

 

C3. Reflects the elimination of Evofem’s accretion of Series D redeemable convertible preferred stock dividends associated with the issuance of Evofem’s Series D stock issued in July and December 2016 and August 2017.

 

C4. Remove direct costs related to the merger recognized by Evofem’s ($154) and Neothetics ($217) during the nine months ended September 30, 2017.

 

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DESCRIPTION OF NEOTHETICS CAPITAL STOCK

The following description of Neothetics’ common stock and preferred stock summarizes the material terms and provisions of Neothetics’ common stock and the preferred stock that it may offer under this proxy statement/prospectus/information statement. For the complete terms of Neothetics’ common stock and preferred stock, please refer to its certificate of incorporation and its bylaws, each as amended to date, that are incorporated by reference into the registration statement of which this proxy statement/prospectus/information statement is a part or may be incorporated by reference in this proxy statement/prospectus/information statement. The terms of these securities may also be affected by the DGCL. The summary below is qualified in its entirety by reference to Neothetics’ certificate of incorporation and bylaws, as in effect at the time of any offering of securities under this proxy statement/prospectus/information statement.

General

Neothetics’ amended and restated certificate of incorporation authorizes it to issue up to 300,000,000 shares of common stock, $0.0001 par value per share, and 5,000,000 shares of preferred stock, $0.0001 par value per share.

As of October 20, 2017, there were:

 

    13,841,747 shares of common stock outstanding;

 

    zero shares of preferred stock outstanding;

 

    1,555,573 shares of common stock issuable upon exercise of outstanding options; and

 

    warrants outstanding for the purchase of an aggregate of 71,257 shares of common stock.

Common Stock

Voting

Each holder of Neothetics common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws which will become effective immediately prior to the completion of this offering do not provide for cumulative voting rights. Because of this absence of cumulative voting, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose.

Dividends

Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Neothetics Board out of legally available funds.

Liquidation

In the event of Neothetics’ liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of Neothetics’ debts and other liabilities and the satisfaction of any liquidation preferences that may be granted to the holders of any then outstanding shares of preferred stock.

Rights and Preferences

Holders of common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences, and privileges of the 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, which it may designate and issue in the future.

 

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Fully-paid

All of the outstanding shares of Neothetics’ common stock are, and the shares of common stock issued upon the conversion of any securities convertible into Neothetics’ common stock will be, fully paid and non-assessable. The shares of common stock offered by this prospectus or upon the conversion of any preferred stock or debt securities or exercise of any warrants offered pursuant to this prospectus, when issued and paid for, will also be, fully paid and non-assessable.

Neothetics’ common stock is listed on the NASDAQ Capital Market under the symbol “NEOT.”

Preferred Stock

The Neothetics Board has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and:

 

    to establish from time to time the number of shares to be included in each such series;

 

    to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon; and

 

    to increase or decrease the number of authorized shares of any such series (but not below the number of shares of such series then outstanding).

The Neothetics Board 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 Neothetics’ common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, delay, defer or prevent Neothetics’ change of control and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. Neothetics has no current plans to issue any shares of preferred stock.

Warrants

Neothetics’ outstanding warrants contain customary net exercise provisions and contain provisions for the adjustment of the exercise price and the number of shares issuable upon the exercise of the warrant in the event of certain stock dividends, stock splits, recapitalizations, reclassifications, consolidations and other fundamental transactions.

Registration Rights

In September 2014, in connection with Neothetics’ Series D convertible preferred stock financing, Neothetics entered into a Fourth Amended and Restated Investors’ Rights Agreement, or the Existing Rights Agreement, with the purchasers of Neothetics’ outstanding preferred stock and certain holders of common stock and warrants to purchase Neothetics’ common stock and preferred stock, including entities with which certain of Neothetics’ directors are affiliated. The Existing Rights Agreement will be terminated in connection with the closing of the Financing. For a description of the registration rights to be granted to the Investors pursuant to the Securities Purchase Agreement under the Post-Merger Registration Rights Agreements see the section entitled “ Agreements Related to the Merger — Post-Merger Registration Rights Agreement” beginning on page 128 of this proxy statement/prospectus/information statement.

Possible Anti-Takeover Effects of Delaware Law and Neothetics’ Certificate of Incorporation and Bylaws

Provisions of the DGCL and Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult to acquire the company by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected

 

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to discourage certain types of coercive takeover practices and takeover bids that the Neothetics Board may consider inadequate and to encourage persons seeking to acquire control of the company to first negotiate with the Neothetics Board. Neothetics believes that the benefits of increased protection of its ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the company outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms. As described in Proposal No. 4 beginning on page 138 of this proxy statement/prospectus/information statement, the Neothetics Board has recommended the Neothetics stockholders approve a certificate amendment to the amended and restated certificate of incorporation of Neothetics to cause the post-merger combined entity not to be subject to the provisions of Section 203 of the DGCL.

Delaware Anti-Takeover Statute

Neothetics’ is subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, unless the business combination or the acquisition of shares that resulted in a stockholder becoming an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status did own) 15% or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the Neothetics Board, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by Neothetics’ stockholders. In approving Proposal No. 4, Neothetics stockholders will cause the post-merger combined entity not to be subject to or governed by Section 203 of the DGCL.

Classified Board

Neothetics’ amended and restated certificate of incorporation and Neothetics’ amended and restated bylaws provide that the Neothetics Board is divided into three classes. The directors designated as Class I directors have terms expiring at the annual meeting of stockholders in 2018. The directors designated as Class II directors will have terms expiring at the annual meeting of stockholders in 2019, and the directors designated as Class III directors will have terms expiring at the annual meeting of stockholders in 2020. Directors for each class will be elected at the annual meeting of stockholders held in the year in which the term for that class expires and thereafter will serve for a term of three years. At any meeting of stockholders for the election of directors at which a quorum is present, the election will be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. Under the classified board provisions, it would take at least two elections of directors for any individual or group to gain control of Neothetics’ board. Accordingly, these provisions could discourage a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of the company.

Removal of Directors

Neothetics’ amended and restated bylaws provide that its stockholders may only remove its directors with cause.

Amendment

Neothetics’ amended and restated certificate of incorporation and its amended and restated bylaws provide that the affirmative vote of the holders of at least 80% of its voting stock then outstanding is required to amend certain provisions relating to the number, term, election and removal of its directors, the filling of its board vacancies, stockholder notice procedures, the calling of special meetings of stockholders and the indemnification of directors.

 

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Size of Board and Vacancies

Neothetics’ amended and restated bylaws provide that the number of directors on the Neothetics Board is fixed exclusively by the Neothetics Board. Newly created directorships resulting from any increase in Neothetics’ authorized number of directors will be filled by a majority of the Neothetics Board then in office, provided that a majority of the entire board of directors, or a quorum, is present and any vacancies in the Neothetics Board resulting from death, resignation, retirement, disqualification, removal from office or other cause will be filled generally by the majority vote of Neothetics’ remaining directors in office, even if less than a quorum is present.

Special Stockholder Meetings

Neothetics’ amended and restated certificate of incorporation provides that only the Chairman of the Neothetics Board, Neothetics’ Chief Executive Officer or the Neothetics Board pursuant to a resolution adopted by a majority of the total number of directors it would have if there were no vacancies may call special meetings of Neothetics’ stockholders.

Stockholder Action by Unanimous Written Consent

Neothetics’ amended and restated certificate of incorporation expressly eliminates the right of Neothetics’ stockholders to act by written consent other than by unanimous written consent.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Neothetics’ amended and restated bylaws provides advance notice procedures with respect to stockholder proposals and nomination of candidates for election as directors other than nominations made by or at the direction of the Neothetics Board or a committee of the Neothetics Board.

No Cumulative Voting

The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless Neothetics’ certificate of incorporation provides otherwise. Neothetics’ amended and restated certificate of incorporation does not provide for cumulative voting.

Undesignated Preferred Stock

The authority that is possessed by the Neothetics Board to issue preferred stock could potentially be used to discourage attempts by third parties to obtain control of the company through a merger, tender offer, proxy contest, or otherwise by making it more difficult or more costly to obtain control of the company. The Neothetics Board may issue preferred stock with voting rights or conversion rights that, if exercised, could adversely affect the voting power of the holders of common stock.

Authorized but Unissued Shares

Neothetics’ authorized but unissued shares of common stock and preferred stock will be available for future issuance without stockholder approval. Neothetics may use additional shares for a variety of purposes, including future public offerings to raise additional capital, to fund acquisitions and as employee compensation. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of the company by means of a proxy contest, tender offer, merger or otherwise.

The above provisions may deter a hostile takeover or delay a change in control or management of Neothetics.

Transfer Agent and Registrar

The transfer agent and registrar for Neothetics’ capital stock is Philadelphia Stock Transfer, Inc. The transfer agent and registrar’s address is 2320 Haverford Road, Suite 230, Ardmore, Pennsylvania 19003.

 

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COMPARISON OF RIGHTS OF HOLDERS OF NEOTHETICS STOCK AND EVOFEM STOCK

General

Both Neothetics and Evofem are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Evofem stockholders will become stockholders of Neothetics, and their rights will be governed by the DGCL, the amended and restated bylaws of Neothetics and the amended and restated certificate of incorporation of Neothetics.

The summary below describes the material differences between the current rights of Evofem stockholders under the Evofem amended and restated certificate of incorporation and the Evofem amended and restated bylaws and the rights of the Evofem stockholders, post-merger, under the Neothetics amended and restated certificate of incorporation and Neothetics amended and restated bylaws, as applicable, and as in effect immediately following the merger.

While Neothetics and Evofem believe that the summary tables cover the material differences between the rights of their respective stockholders prior to the merger and the rights of Evofem stockholders following the merger, these summary tables may not contain all of the information that is important to you. These summaries are not intended to be a complete discussion of the respective rights of Evofem and Neothetics stockholders and are qualified in their entirety by reference to the DGCL and the various documents of Evofem and Neothetics that are referred to in the summaries. You should carefully read this entire proxy statement/prospectus/information statement and the other documents referred to in this proxy statement/prospectus/information statement for a more complete understanding of the differences between being a stockholder of Evofem or Neothetics before the merger and being a stockholder of Neothetics after the merger. Neothetics has filed copies of its current amended and restated certificate of incorporation and amended and restated bylaws with the SEC and will send copies of the documents referred to in this proxy statement/prospectus/information statement to you upon your request. Evofem will also send copies of its amended and restated certificate of incorporation and amended and restated bylaws to you upon your request. See the section entitled “ Where You Can Find More Information ” on page 240 of this proxy statement/prospectus/information statement.

The summary below does not give effect to the Reverse Stock Split or to any amendment of the Evofem amended and restated certificate of incorporation to increase the number of authorized shares of Evofem common stock to accommodate the issuance of shares of Evofem common stock issuable upon exercise of the Investor Warrants. (See the section entitled “ Agreements Related to the Merger — Securities Purchase Agreement ” beginning on page 127 of this proxy statement/prospectus/information statement).

Authorized Capital Stock

Evofem

Evofem’s amended and restated certificate of incorporation authorizes the issuance of up to 157,836,540 shares of common stock, $0.001 par value per share, and 57,501,624 shares of preferred stock, $0.001 par value per share, of which 12,768,492 shares are designated as Evofem Series A Preferred Stock, 31,034,696 shares are designated as Evofem Series B Preferred Stock, 5,037,784 shares are designated as Evofem Series C Preferred Stock, 8,660,572 shares are designated as Evofem Series C-1 Preferred Stock and 80 shares are designated as Evofem Series D Preferred Stock.

Neothetics

Neothetics’ amended and restated certificate of incorporation authorizes the issuance of up to 300,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share.

 

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Dividends

Evofem

Evofem’s amended and restated certificate of incorporation provides the holders of shares of Evofem Series D Preferred Stock the right to receive dividends at the rate per annum of $60,000 per share (subject to appropriate adjustment for stock splits, stock dividends combinations or other similar recapitalization events), or the Accruing Dividend. The Accruing Dividend accrues whether or not declared by the Evofem Board, but is payable only upon (i) the redemption of the Evofem Series D Preferred Stock as contemplated by Section 3 of Article IV B of Evofem’s amended and restated certificate of incorporation, (ii) the sale, license, conveyance or other disposition of all or substantially all of the property or business of Evofem or (iii) Evofem’s merger or consolidation of with another corporation, limited liability company or other entity, or each of (i) through (iii) above, a Liquidation Transaction, unless in the cases of (ii) and (iii) above, the holders of at least a majority of each of the Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C Preferred Stock, Evofem Series C-1 Preferred Stock and Evofem Series D Preferred Stock, voting as a separate class, elect not to treat a transaction as a Liquidation Transaction. The merger is expected to be treated as a Liquidation Transaction. For more information regarding the treatment of the Accruing Dividend in connection with the merger, see the section entitled “ The Merger Agreement — Exchange Ratios ” beginning on page 109 of this proxy statement/prospectus/information statement. As provided in Evofem’s amended and restated certificate of incorporation, Evofem may not declare, pay or set aside dividends for holders of shares of any other class or series of Evofem capital stock without first or simultaneously, declaring, paying or setting aside, as applicable, the Accruing Dividend for the benefit of the holders of Evofem Series D Preferred Stock.

Neothetics

Under Neothetics’ amended and restated bylaws, subject to any restrictions as may be contained in the DGCL or the amended and restated certificate of incorporation of Neothetics, Neothetics may declare and pay dividends upon shares of Neothetics’ capital stock. Neothetics’ amended and restated certificate of incorporation provides that Neothetics’ board of directors is authorized and therefore may, subject to any limitations prescribed by the DGCL, provide for the issuance of shares of Neothetics preferred stock in one or more series and to fix the designations, powers, preferences, relative, participating, optional or other special rights and any qualifications, limitations and restrictions of the shares of each such series, including implicitly the right of any newly designated shares to receive dividends.

Liquidation Preference

Evofem

Evofem’s amended and restated certificate of incorporation, provides that in the event of any liquidation, dissolution or winding up of Evofem or a Liquidation Transaction:

 

    (i) first, the holders of Evofem Series D Preferred Stock are entitled to receive, on a pro rata pari passu basis, prior and in preference to any distribution of any of the assets of Evofem to the holders of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C Preferred Stock, Evofem Series C-1 Preferred Stock or Evofem common stock, an amount per share of Evofem Series D Preferred Stock equal to the original issue price for each share of Evofem Series D Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalization events), plus any unpaid Accruing Dividend. Alternatively, in the event of a Liquidation Transaction, holders of shares of Evofem Series D Preferred Stock are entitled to receive an amount equal to twice the original issue price, plus any unpaid Accrued Dividends. For more information regarding the payment of the preference for shares of Evofem Series D Preferred Stock in connection with the merger, which is expected to be treated as a Liquidation Transaction, see the section entitled “ The Merger Agreement — Exchange Ratios ” beginning on page 109 of this proxy statement/prospectus/information statement;

 

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    (ii) second, the holders of Evofem Series C Preferred Stock are entitled to receive, on a pro rata pari passu basis, prior and in preference to any distribution of any of the assets of Evofem to the holders of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C-1 Preferred Stock or Evofem common stock, an amount per share of Evofem Series C Preferred Stock equal to the original issue price for each share of Evofem Series C Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalization events), plus declared but unpaid dividends thereon, or such amount as would have been payable had all shares of Evofem Series C Preferred Stock been converted into Evofem common stock immediately prior to such liquidation, dissolution or winding up of Evofem or such Liquidation Transaction; then

 

    (iii) third, the holders of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock and Evofem Series C-1 Preferred Stock are entitled to receive, on a pro rata pari passu basis, prior and in preference to any distribution of any of the assets to the holders of Evofem common stock, an amount per share of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock and Evofem Series C-1 Preferred Stock, as applicable, equal to the applicable original issue price for each share of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock or Evofem Series C-1 Preferred Stock, (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalization events), plus declared but unpaid dividends, or such amount as would have been payable had all shares of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock or Evofem Series C-1 Preferred Stock, respectively, been converted into Evofem common stock immediately prior to such liquidation, dissolution or winding up of Evofem or such Liquidation Transaction.

 

    After the payment of the full preferential amounts specified above, the remaining assets would be distributable solely to the holders of Evofem common stock. The per share original issue price is currently $1.9579445 for the Evofem Series A Preferred stock, $3.2222 for Evofem Series B Preferred Stock, $3.97 for each of the Evofem Series C Preferred Stock and Evofem Series C-1 Preferred Stock and $500,000 for the Evofem Series D Preferred Stock. These amounts are subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalization events.

Neothetics

Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws do not provide for any liquidation preference for any series or class of Neothetics capital stock, but the amended and restated certificate of incorporation does provide that Neothetics’ board of directors is authorized and therefore may, subject to any limitations prescribed by the DGCL, provide for the issuance of shares of Neothetics preferred stock in one or more series and to fix the designations, powers, preferences, relative, participating, optional or other special rights and any qualifications, limitations and restrictions of the shares of each such series.

Conversion Rights, Pre-Emptive Rights and Protective Provisions

Evofem

Evofem’s amended and restated certificate of incorporation provides that holders of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C Preferred Stock and Evofem Series C-1 Preferred Stock have the right to convert their shares into shares of Evofem common stock at any time at a conversion rate in accordance with the terms of Evofem’s amended and restated certificate of incorporation. In addition, upon the closing of a firm commitment underwritten initial public offering resulting in at least $150 million of gross proceeds and a pre-money valuation of at least $520 million dollars, each outstanding share of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C Preferred Stock and Evofem Series C-1 Preferred Stock will be automatically converted into the number of shares of Evofem common stock obtained by multiplying such share by the applicable preferred stock conversion rate in accordance with the terms of Evofem’s amended and restated certificate of incorporation. This conversion rate is subject to anti-dilution

 

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adjustments further described in Evofem’s amended and restated certificate of incorporation. Each share of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C Preferred Stock and Evofem Series C-1 Preferred Stock is convertible into 1 share of Evofem common stock as of the date hereof.

Upon the closing of an equity financing of Evofem resulting in gross proceeds to Evofem of at least $45 million, each share of Series D Preferred Stock, plus all Accrued Dividends thereon, would, in accordance with the terms of Evofem’s amended and restated certificate of incorporation, convert into shares of Evofem capital stock issued in the equity financing. If Evofem completes an equity financing resulting in gross proceeds to Evofem of less than $45 million, each holder of Series D Preferred Stock would have the option to convert their shares of Evofem Series D Preferred Stock into the shares of Evofem capital stock issued in the financing. The conversion rate for shares of Series D Preferred Stock is a rate equal to 50% of the price per share paid by the investors in the equity financing. No such equity financing has occurred or is expected to occur prior to the merger.

As long as any shares of Evofem preferred stock are outstanding, Evofem may not take any of the following actions without the approval of the holders of a majority of each of the Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C Preferred Stock, Evofem Series C-1 Preferred Stock, and Evofem Series D Preferred Stock, each voting as a separate class, including any approvals required by Evofem’s Stockholder Agreement:

 

    create, allot, issue (or agree to create, allot or issue) any shares or securities in Evofem, or grant any option, warrant or other right to subscribe for, convert into or otherwise require the creation, allotment or issue of any such shares or securities, whether conditional or not, other than pursuant to Evofem’s equity incentive plan in existence as of the date hereof;

 

    increase, repay, subdivide, consolidate, capitalize, redenominate or otherwise vary the share capital of Evofem;

 

    subject to certain exceptions described in Evofem’s amended and restated certificate of incorporation, approve any merger, liquidation, dissolution or acquisition of Evofem;

 

    amend, alter, waive or repeal the amended and restated certificate of incorporation or the bylaws of Evofem in a manner that adversely affects the powers, preferences or rights of the Evofem preferred stock;

 

    undertake any liquidation transaction which results in an enterprise value to Evofem of less than $520.0 million dollars;

 

    purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on any shares of capital stock of Evofem prior to the Evofem preferred stock other than repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for Evofem or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

 

    create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by Evofem, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of Evofem, or 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;

 

   

reclassify, alter or amend any existing security of Evofem that is pari passu with the preferred stock in respect of the distribution of assets on the liquidation, dissolution or winding up of Evofem, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Evofem preferred stock in respect of any such right, preference, or privilege or reclassify, alter or amend any existing security of Evofem that is junior to the preferred stock in respect of the distribution of assets on the liquidation, dissolution or winding up of Evofem,

 

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the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the preferred stock in respect of any such right, preference or privilege;

 

    amend, modify, vary, alter or abrogate the rights, privileges or restrictions attaching to the preferred stock;

 

    enter into any negotiations or reach any agreement for Evofem to sell, transfer or otherwise dispose of any significant asset (excluding, for the avoidance of doubt, any sale or transfer in the ordinary course of business) or any material part of Evofem business or undertaking, whether by a single transaction or series of transactions, whether related or not;

 

    establish any equity incentive plan or other employee benefit arrangement plan after the date hereof;

 

    enter into any contract or arrangement with a related party that is not in the ordinary course of business and at arm’s length terms; or

 

    enter into any agreement, commitment or arrangement to do any of the foregoing.

Mr. Pike, Mr. Darden, Woodford Investment Management and Invesco are also entitled to certain preemptive rights in accordance with the terms of the Evofem Stockholder Agreement. Subject to certain customary exceptions described in the Evofem Stockholder Agreement, these rights require Evofem, before it may sell or issue new Evofem securities, to first offer these new Evofem securities to Mr. Pike, Mr. Darden, Woodford Investment Management and Invesco who may purchase, or who may allow their respective affiliates to purchase, their respective pro rata portions of the new Evofem securities on the terms Evofem proposes to offer the new Evofem securities to other investors. The Evofem Stockholder Agreement will be terminated immediately prior to completion of the merger.

Neothetics

Neothetics’ amended and restated certificate of incorporation does not provide that the holders of Neothetics capital stock have preemptive, conversion or other protective rights, but it does provide that Neothetics’ board of directors is authorized and therefore may, subject to any limitations prescribed by law, provide for the issuance of shares of Neothetics preferred stock in one or more series and may fix the designations, powers, preferences, relative, participating, optional or other special rights and any qualifications, limitations and restrictions of the shares of each such series.

Number of Directors

Evofem

Evofem’s amended and restated bylaws provide that the number of members of the Evofem Board may be fixed from time to time by the Evofem Board. The Evofem Stockholder Agreement provides that the Evofem Board may consist of no more than 9 members with four persons designated by Joseph Pike (currently Thomas F. Darden, II, Saundra Pelletier, Colin Rutherford, with the other seat being vacant), three persons designated by the holders of a majority of the shares of Evofem capital stock party to the Evofem Stockholder Agreement (currently Simon Best, Natalie Douglas and Thomas Lynch). Invesco and Woodford Investment Management also each have the right to increase the size of the Evofem Board by one director and to appoint their own respective designee. The number of directors is currently fixed at 6. The Evofem Stockholder Agreement will be terminated immediately prior to completion of the merger.

Neothetics

Neothetics’ amended and restated certificate of incorporation and its amended and restated bylaws provide that the Neothetics’ board of directors will consists of three classes of directors and that the number of directors will

 

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be fixed from time to time by Neothetics’ board of directors. The number of directors is currently fixed at 4. Neothetics’ directors are elected by its stockholders for a term of three years with these terms expiring on a staggered basis.

Upon completion of the merger, the authorized number of Neothetics directors will be increased to 7. See the section entitled “ Management Following the Merger ” beginning on page 189 of this proxy statement/prospectus/information statement.

Stockholder Nominations and Proposals

Evofem

Evofem’s amended and restated bylaws provide that advance notice of a stockholder’s proposal must be delivered to Evofem’s Secretary not less than 90 days and not more than 120 days prior to the anniversary of the mailing date of the proxy materials for the previous year’s annual meeting (provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 30 days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10 th day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.

Neothetics

Neothetics’ amended and restated bylaws provide that advance notice of a stockholder’s proposal must be delivered to Neothetics’ Secretary not less than 90 days and not more than 120 days prior to the anniversary of the mailing date of the proxy materials for the previous year’s annual meeting (provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

Removal of Directors; Vacancies on the Board of Directors

Evofem

Evofem’s amended and restated bylaws provide that, unless otherwise restricted by applicable law, any director may be removed from the Evofem Board at any time, with or without cause, by the holders of a majority of the shares of capital stock of Evofem entitled to vote at an election of directors.

Evofem’s amended and restated bylaws provide that vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office or by a sole remaining director. In addition, the Evofem Board may determine by resolution that a vacancy may be filled by the Evofem stockholders.

However, the parties to the Evofem Stockholder Agreement have agreed to vote their shares, including any votes with respect to removals or vacancies, to ensure the board composition proscribed by the Evofem Stockholder Agreement. See the section entitled “ Comparison of Rights of Holders of Neothetics Stock and Evofem Stock — Number of Directors ” beginning on page 226 of this proxy statement/prospectus/information statement. The Evofem Stockholder Agreement will be terminated immediately prior to completion of the merger.

 

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Neothetics

Under Neothetics’ amended and restated bylaws, subject to any limitation imposed by law, or Neothetics’ amended and restated certificate of incorporation, and subject to the rights of the holders of any series of Neothetics preferred stock with respect to such series of preferred stock, any director may be removed from Neothetics’ board of directors only with cause by the affirmative vote of the holders of a majority of the shares of capital stock then entitled to vote in the election of directors.

Under Neothetics’ amended and restated bylaws, subject to any limitation imposed by law and the rights of the holders of any series of preferred stock, and unless the Neothetics Board otherwise determines, newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, provided a quorum is present, and other vacancies may be filled by the majority vote of the remaining directors then in office.

Voting Stock

Evofem

Evofem’s amended and restated certificate of incorporation provides that the holders of Evofem common stock are entitled to one vote for each share of stock held by them and holders of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C Preferred Stock and Evofem Series C-1 Preferred Stock are entitled to one vote for each share of common stock into which such share of Evofem preferred stock is convertible. Each holder of Evofem Series D Preferred Stock is entitled to one vote for each share of Evofem Series D Preferred Stock. Under the Evofem Stockholder Agreement, certain funds managed by Woodford Investment Management have agreed to be bound by certain voting threshold limitations further described in the Evofem Stockholder Agreement. The Evofem Stockholder Agreement will terminate immediately prior to the completion of the merger.

Neothetics

Neothetics’ amended and restated certificate of incorporation provides that the holders of Neothetics common stock are entitled to one vote per share of Neothetics common stock. The amended and restated certificate of incorporation of Neothetics provides that the Neothetics’ board of directors is authorized and therefore may, subject to any limitations prescribed by law, provide for the issuance of shares of Neothetics preferred stock in one or more series and to fix the designations, powers, preferences, relative, participating, optional or other special rights, including voting rights of the shares of each such series.

Cumulative Voting

Evofem

Evofem’s amended and restated certificate of incorporation and amended and restated bylaws do not have a provision granting cumulative voting rights in the election of its directors.

Neothetics

Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws do not have a provision granting cumulative voting rights in the election of its directors.

Stockholder Action by Written Consent

Evofem

Evofem’s amended and restated bylaws provide that, unless otherwise provided in the amended and restated certificate of incorporation, or by statute, any action required or permitted to be taken at any annual or special

 

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meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

Neothetics

Neothetics’ amended and restated certificate of incorporation provides that subject to the rights of the holders of any series of Neothetics preferred stock with respect to such series of preferred stock, 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 in writing setting forth the action so taken is signed by all holders of outstanding Neothetics stock.

Notice of Stockholder Meetings

Evofem

Evofem’s amended and restated bylaws provide that all notices of meetings with stockholders shall be in writing and specify the place, date, and hour of the meeting, the means of remote communications if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Evofem’s amended and restated bylaws also provide that all such notices of meetings shall be sent not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting.

Neothetics

Neothetics’ amended and restated bylaws provide that all notices of meetings with stockholders shall be given in writing or by electronic transmission and state the place, time and date of the meeting, the means of remote communications if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the place at which a list of stockholders may be examined and the purpose or purposes of the meeting. Neothetics’ amended and restated bylaws also provide that all such notices be given not less than 10 or more than 60 days before the date of the meeting, to each stockholder of record entitled to vote at the meeting.

Special Stockholder Meetings

Evofem

Evofem’s amended and restated bylaws provide that a special meeting of the stockholders may be called at any time by the chairman of the board, the Chief Executive Officer, the Evofem Board acting pursuant to a resolution adopted by a majority of the total number of authorized directors, or by stockholders holding not less than 25% of the votes at the meeting.

Neothetics

Neothetics’ amended and restated certificate of incorporation provides that only Neothetics’ board of directors, chairperson of the board and chief executive officer may call special meetings of the stockholders of Neothetics.

Drag-Along Rights

Evofem

The Evofem Stockholder Agreement provides that if the holders of at least 50% of the shares of issued and outstanding of Evofem common stock on an as converted basis (excluding shares of Evofem preferred stock held

 

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by funds managed by Invesco and funds managed by Woodford Investment Management) and Invesco and Woodford Investment Management approve a Liquidation Transaction or the resale of shares of Evofem capital stock by Evofem stockholders representing more than 50% of the voting power of the then issued and outstanding Evofem capital stock, Invesco and Woodford Investment Management shall have the option to require all holders of Evofem common stock that are party to the Stockholder Agreement to vote all their shares of Evofem capital stock in favor of such transaction and to sell all their shares of Evofem capital stock pursuant to the terms of such transaction. The Evofem Stockholder Agreement will terminate immediately prior to the completion of the merger.

Neothetics

Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws do not have a provision granting drag-along rights to any holder of Neothetics capital stock.

Tag-Along Rights

Evofem

If Mr. Darden or Mr. Pike, subject to certain customary exceptions, wish to transfer, sell or otherwise dispose of shares of Evofem capital stock, the Evofem Stockholder Agreement provides that Mr. Darden and Mr. Pike must notify Invesco and Woodford Investment Management of the proposed transfer, sale or disposition and permit them or their respective affiliates to participate on a pro-rata basis in the proposed sale or transfer. The Evofem Stockholder Agreement will terminate immediately prior to the completion of the merger.

Neothetics

Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws do not have a provision granting tag-along rights to any holder of Neothetics capital stock.

Redemption

Evofem

Evofem’s amended and restated certificate of incorporation provides that the holders of a majority of the issued and outstanding shares of Evofem Series D Preferred Stock may, on or after July 18, 2018, require Evofem to redeem all issued and outstanding shares of Evofem Series D Preferred Stock at a redemption price per share of $500,000 plus any related unpaid Accrued Dividend per share.

Neothetics

Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws do not have a provision granting redemption rights to any holder of Neothetics capital stock. The amended and restated certificate of incorporation of Neothetics provides that the Neothetics’ board of directors is authorized and therefore may, subject to any limitations prescribed by law, provide for the issuance of shares of Neothetics preferred stock in one or more series and to fix the designations, powers, preferences, relative, participating, optional or other special rights, including implicitly the provision of redemption rights for each such series.

Indemnification

Evofem

Evofem’s amended and restated certificate of incorporation provide that Evofem may indemnify its directors and officers to the fullest extent permitted by law, and Evofem’s amended and restated bylaws provide that Evofem

 

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shall indemnify its officers and directors to the fullest extent permitted by the DGCL or any other applicable law provided, that (i) Evofem and its officers and directors may enter into contractual arrangements modifying the extent of this indemnification, and (ii) Evofem is not required to indemnify a director or officer with respect to a proceeding unless the indemnification is expressly required by law, the proceeding was authorized by the Evofem Board, the indemnification is provided by the corporation in its discretion pursuant to the powers granted to Evofem by the DGCL or the indemnification is required by Section 145(d) of the DGCL.

Evofem’s amended and restated bylaws further provide that Evofem shall have the power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law.

Neothetics

Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws provide that Neothetics is required to indemnify its officers and directors and, pursuant to its amended and restated bylaws, will indemnify, certain other persons acting on behalf of Neothetics to the fullest extent permitted by applicable law; provided, however, that Neothetics is not be required to provide indemnification in connection with any proceeding for these persons unless the indemnification is expressly required to be made by law or the proceeding was authorized by Neothetics’ board of directors.

Amendment of Certificate of Incorporation or Bylaws

Evofem

Other than as set forth in the protective provisions in Evofem’s amended and restated certificate of incorporation and as provided by law, Evofem’s amended and restated certificate of incorporation does not have other restrictions for amending Evofem’s amended and restated certificate of incorporation except that any amendment of the amended and restated certificate of incorporation may not amend or repeal Article VIII of Evofem’s amended and restated certificate of incorporation (which pertains to personal liability of directors and indemnification) and may not adversely affect any right or protection of any director, officer, employee or other agent of Evofem existing at the time of such amendment. See the section entitled “ Comparison of Rights of Holders of Neothetics Stock and Evofem Stock — Conversion Rights, Pre-Emptive Rights and Protective Provision s” beginning on page 224 of this proxy statement/prospectus/information statement.

Evofem’s amended and restated bylaws provide that the Evofem Board may be adopt, amend or repeal Evofem’s amended and restated bylaws and that Evofem’s stockholders may also adopt, amend or repeal Evofem’s amended and restated bylaws, provided that a majority vote of the holders of all Evofem outstanding capital stock entitled to vote generally in the election of directors, voting together as a single class, shall be required in addition to any vote of holders of any class series of stock of Evofem required by law or Evofem’s amended and restated certificate of incorporation.

Neothetics

Neothetics’ amended and restated certificate of incorporation provides that its provisions may be amended or repealed in the manner and at the time prescribed by Delaware law and provided that Articles VI (which pertains to the number of directors), VII (which pertains to the classification of directors), VIII (which pertains to the ability of the stockholders to act by written consent), IX (which pertains to the ability to call special stockholder meetings), X (which pertains to the amendment of bylaws), XII (which pertains to personal liability of directors and indemnification) and XIV (which pertains to amendments) may only be amended by the affirmative vote of the holders of record of no less than 80% of the issued and outstanding shares of Neothetics capital stock then entitled to vote.

 

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Neothetics’ amended and restated bylaws provide that Neothetics’ board of directors may adopt, amend or repeal Neothetics’ amended and restated bylaws and that Neothetics’ stockholders also have the same power to adopt, amend or repeal Neothetics’ amended and restated bylaws, provided that any amendment of Sections 7, 8, and 10 of Article I (which pertain to stockholder nomination matters, the required vote for directors and the removal of directors), Sections 2 and 12 of Article II (which pertain to the qualification, number, term and remuneration of directors and vacancies on the board of directors), Article XIII (which pertains to director and officer indemnification), Article XIV(which pertains to forums for certain actions) and Article XV (which pertains to amendments) of Neothetics’ amended and restated bylaws may only be amended upon the affirmative approval of the holders of no less than 80% of the issued and outstanding Neothetics capital stock then entitled to vote.

 

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PRINCIPAL STOCKHOLDERS OF NEOTHETICS

The following table sets forth information regarding ownership of Neothetics’ common stock as of October 20, 2017 (or such other date as provided below) based on information available to Neothetics and filings with the SEC by (a) each person known to Neothetics to own more than 5% of the outstanding shares of its common stock, (b) each director and nominee for director of the Company, Chief Financial Officer, and each other named executive officer, and (c) all of Neothetics’ directors and executive officers as a group. Each stockholder’s percentage ownership is based on 13,841,747 shares of common stock outstanding as of October 20, 2017. The information in this table is based solely on statements in filings with the SEC or other reliable information.

 

Name and Address of Beneficial Owner (1)

  

  Shares Beneficially Owned  

 
     Number (2)           Percentage    

5% or Greater Stockholders

     

Entities affiliated with Domain Partners (3)

One Palmer Square

Princeton, NJ 08542

     3,143,602        22.71

Entities affiliated with Craig Drill Capital (4)

724 Fifth Avenue

9 th Floor

New York, NY 10019

     1,363,000        9.85

RMI Investments S.à.r.l. (5)

7, rue Robert Stümper

L-2557 Luxembourg

     1,585,549        11.45

Ervington Investments Limited (6)

Chrysanthou Mylona, 3030 Limassol

Cyprus

     1,349,740        9.75

Directors and Named Executive Officers

     

Kim P. Kamdar, Ph.D. (3)

     3,309,375        23.91

Maxim Gorbachev (4)

     1,646,839        11.90

Martha J. Demski (7)

     149,380        1.08

Jeffrey M. Nugent (8)

     123,169        *  

George W. Mahaffey (9)

     —          *  

Susan A. Knudson (10)

     344,554        2.49

Kenneth W. Locke (11)

     —          *  

All directors and executive officers as a group (8 persons) (12)

     5,867,815        42.39

 

* Represents beneficial ownership of less than 1% of the outstanding shares of Neothetics’ common stock.
(1) Unless otherwise indicated, the address of each beneficial owner is c/o Neothetics, Inc., 9171 Towne Centre Drive, Suite 250, San Diego, CA 92122.
(2) Beneficial ownership of shares and percentage ownership are determined in accordance with the rules of the SEC. In calculating the number of shares beneficially owned by an individual or entity and the percentage ownership of that individual or entity, shares underlying stock options held by that individual or entity that are either currently exercisable or exercisable within 60 days from October 20, 2017 are deemed outstanding. The standard form of award agreement under Neothetics’ 2014 Equity Incentive Plan, or the 2014 Plan, provides that the participants may exercise all vested and unvested options. Therefore, Neothetics has included the entire amount of shares underlying each of the options held by its directors and named executive officers in the table. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other individual or entity. Unless otherwise indicated and subject to community property laws where applicable, the individuals and entities named in the table above have sole voting and investment power with respect to all shares of Neothetics’ common stock shown as beneficially owned by them.

 

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(3) Consists of (1) 3,091,643 shares of common stock owned by Domain Partners VII, L.P., (2) 48,025 shares of common stock owned by DP VII Associates, L.P, (3) 3,934 shares of common stock owned by Domain Associate, LLC and options to purchase (4) 165,773 shares currently exercisable or exercisable within 60 days of October 20, 2017. One Palmer Square Associates VII, LLC, or One Palmer Square, is the general partner of Domain Partners VII and DP VII Associates. The managing members of One Palmer Square are James Blair, Jesse Treu, Brian Dovey and Nicole Vitullo. Each of James Blair, Jesse Treu, Brian Dovey and Nicole Vitullo share voting and investment power with respect to the securities held by Domain Partners VII and DP VII Associates. The managing members of Domain Associates are James Blair, Jesse Treu, Brian Dovey, Nicole Vitullo, Brian Halak and Kim P. Kamdar. Each of James Blair, Jesse Treu, Brian Dovey, Nicole Vitullo, Brian Halak and Kim P. Kamdar share voting and investment power with respect to the securities held by Domain Associates. Each of James Blair, Jesse Treu, Brian Dovey and Nicole Vitullo disclaims beneficial ownership of the securities held by Domain Partners VI and DP VI Associates except to the extent of his or her pecuniary interest therein, if any. Each of James Blair, Jesse Treu, Brian Dovey, Nicole Vitullo, Brian Halak, Kim P. Kamdar and Dennis Podlesak disclaims beneficial ownership of the securities held by Domain Associates except to the extent of his or her pecuniary interest therein, if any. Dr. Kamdar is a member of Neothetics’ Board of Directors.
(4) The foregoing information is based solely upon information contained in a Schedule 13GA filed with the SEC on January 6, 2017 filed by Drill A. Craig. Consists of (1) 965,400 shares of common stock owned by Craig Drill Capital, L.P. and (2) 397,600 shares of common stock owned by Craig Drill Capital II, L.P. Craig Drill Capital, LLC is the general partner of Craig Drill Capital, L.P. Craig A. Drill is the managing director of Craig Drill Capital, LLC and shares voting and investment powers with respect to the shares held by Craig Drill Capital, LLC. Each of the reporting persons disclaims beneficial ownership of such shares, except to the extent of their proportionate pecuniary interest therein, if any.
(5) Consists of (1) 1,585,549 shares held by RMI Investments S.à.r.l., or the RMI Investments, and options to purchase (2) 61,290 shares currently exercisable or exercisable within 60 days of October 20, 2017 held by Mr. Gorbachev. RMI LLC, the parent company of RMI Investments, and RMI Partners LLC, the management company of RMI LLC, may be deemed to beneficially own such shares. Mr. Gorbachev is a managing director at RMI Partners LLC and may be deemed to beneficially own such shares. Vladimir Gurdus is the general director of RMI Partners LLC and may be deemed to beneficially own such shares. Each of Messrs. Gorbachev and Gurdus share voting and investment power with respect to the securities held by RMI Investments. Each of RMI LLC, RMI Partners LLC, Mr. Gorbachev and Mr. Gurdus disclaims beneficial ownership of these securities, except to the extent of their respective pecuniary interest therein, if any. Mr. Gorbachev is a member of Neothetics’ Board of Directors.
(6) The foregoing information is based solely upon information contained in a Schedule 13D filed with the SEC on January 13, 2016 filed by Ervington Investments Limited. Consists of 1,349,740 shares of common stock held of record by Ervington Investments Limited. Ervington Investments Limited, Greenleas International Holdings Ltd., and Harmony Trust Settlement all share voting and investment powers with respect to the shares held by Ervington Investments Limited.
(7) Represents options to purchase 149,380 shares currently exercisable or exercisable within 60 days of October 20, 2017.
(8) Represents options to purchase 123,169 shares currently exercisable or exercisable within 60 days of October 20, 2017.
(9) George Mahaffey previously served as our Chief Executive Officer until his resignation on March 17, 2016. As of October 20, 2017, Mr. Mahaffey does not beneficially own any shares of the Company’s common stock.
(10) Represents options to purchase 344,554 shares currently exercisable or exercisable within 60 days of October 20, 2017.
(11) Kenneth Locke previously served as our Chief Scientific Officer until his resignation on July 1, 2016. As of October 20, 2017, Mr. Locke does not beneficially own any shares of the Company’s common stock.
(12) Shares beneficially include options to purchase 1,138,664 shares currently exercisable or exercisable within 60 days of October 20, 2017 and 4,729,151 shares of common stock.

 

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PRINCIPAL STOCKHOLDERS OF EVOFEM

The following table sets forth certain information concerning the ownership of Evofem’s common stock as of October 20, 2017, by (i) those persons who are known to Evofem to be the beneficial owner(s) of more than five percent of Evofem’s common stock, (ii) each of Evofem’s directors and named executive officers and (iii) all directors and named executive officers of Evofem as a group.

The number of shares beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership generally includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of October 20, 2017, through the exercise of stock options, warrants or other rights. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

 

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The percentage of shares beneficially owned is computed on the basis of 121,135,156 shares of Evofem capital stock outstanding as of October 20, 2017. This number (i) assumes the conversion of 12,618,279 shares of Evofem Series A Preferred Stock outstanding as of October 20, 2017 into 12,618,279 shares of Evofem common stock, 13,801,318 shares of Evofem Series B Preferred Stock outstanding as of October 20, 2017 into 13,801,318 shares of Evofem common stock, 8,558,686 shares of Evofem Series C-1 Preferred stock outstanding as of October 20, 2017 into 8,558,686 shares of Evofem common stock and 5,037,784 shares of Evofem Series C Preferred Stock outstanding as of October 20, 2017 into 5,037,784 shares of Evofem common stock, each of which will occur immediately prior to the closing of the merger contemplated in this proxy statement/prospectus/information statement, (ii) includes 75 shares of Evofem Series D Preferred Stock not currently convertible but entitled to 1 vote per share, and (iii) includes 81,119,014 shares of Evofem common stock outstanding as of October 20, 2017. The table does not reflect Evofem’s issuance of the Investor Warrants prior to the merger as contemplated by the Securities Purchase Agreement and does not reflect the shares of Evofem common stock issuable upon exercise of the Investor Warrants. Shares of Evofem common stock that an entity, person, director or executive officer has the right to acquire within 60 days of October 20, 2017 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated below, the address of each beneficial owner listed is c/o Evofem Biosciences, Inc., 12400 High Bluff Drive, Suite 600, San Diego, CA 92130.

 

Name and Address of Beneficial Owner

   Evofem Shares
Beneficially
Owned
     Percent of Shares
Beneficially
Owned
 

5% Stockholders

     

Entities affiliated with Invesco Asset Management Limited (1) D

Perpetual Park

     56,768,539        46.9

Henley-on-Thames

Oxfordshire, RG9 1HH, United Kingdom

     

Entities affiliated with Woodford Investment Management Limited (2) D

     22,817,670        18.8

9400 Garsington Road

Oxford, OX4 2HN, United Kingdom

     

Entities affiliated with Joseph Pike (3) D

     22,366,412        18.5

9663 Mashie Court

Naples, FL 34108

     

Brickhaven II, L.L.C. (4) D

     8,896,620        7.3

2351 Hales Road

Raleigh, NC 27608

     

Directors and Named Executive Officers

     

Thomas Lynch (5) P

     150,000        *  

Simon Best (6)

     9,166        *  

Thomas Darden (7) D

     8,896,620        7.3

Natalie Douglas (8)

     9,166        *  

Colin Rutherford (9)

     9,166        *  

Saundra Pelletier (10) P

     4,462,362        3.6

Justin J. File (11) P

     1,787,499        1.5

Kelly Culwell, M.D. (12) P

     212,500        *  

Directors and executive officers as a group (11 Persons) (13)

     15,775,645        12.8

 

* Includes beneficial ownership of less than 1% of the outstanding shares of Evofem’s common stock.

Party to the Support Agreement, pursuant to which stockholder agreed to vote shares of Evofem stock owned by stockholder or over which stockholder has voting control in a certain manner. See the section

 

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  entitled “ Agreements Related to the Merger — Support Agreements” beginning on page 127 of this proxy statement/prospectus/information statement.
D Party to the Evofem Stockholder Agreement, pursuant to which stockholder agreed to vote shares of Evofem stock owned by stockholder or over which stockholder has voting control in a certain manner. See the section entitled “ Certain Relationships and Related Party Transactions of Evofem — Evofem Stockholder Agreement ” beginning on page 210 of this proxy statement/prospectus/information statement.
P In accordance with the terms of the restricted stock and stock unit agreements, Mr. Lynch, Ms. Pelletier, Mr. File and Dr. Culwell have agreed not to vote any shares of unvested restricted stock.
(1) Includes (i) 13,839,099 shares of Evofem common stock, 6,881,299 shares of Evofem common stock issuable upon conversion of 6,881,299 shares of Evofem Series A Preferred Stock, 7,526,461 shares of Evofem common stock issuable upon conversion of 7,526,461 shares of Evofem Series B Preferred Stock and 4,667,426 shares of Evofem common stock issuable upon conversion of 4,667,426 shares of Evofem Series C-1 Preferred Stock held by Invesco Perpetual High Income Fund, or PHIF, and (ii) 10,029,729 shares of Evofem common stock, 4,987,144 shares of Evofem common stock issuable upon conversion of 4,987,144 shares of Evofem Series A Preferred Stock, 5,454,717 shares of Evofem common stock issuable upon conversion of 5,454,717 shares of Evofem Series B Preferred Stock and 3,382,664 shares of Evofem common stock issuable upon conversion of 3,382,664 shares of Evofem Series C-1 Preferred Stock held by Invesco Perpetual Income Fund, or PIF. This number does not include the 158,999,371 shares of Evofem common stock issuable upon the exercise of the Investor Warrants to be issued contingent upon and immediately prior to closing of the merger contemplated in this proxy statement/prospectus/information statement. See the section entitled “ Agreements Related to the Merger — Securities Purchase Agreement” beginning on page 127 of this proxy statement/prospectus/information statement. Invesco Asset Management Limited acts as agent for and on behalf of PHIF and PIF, each as a discretionary managed client. Invesco Asset Management Limited has the power to direct the vote and disposition of the common stock held by the PHIF and PIF. Accordingly, Invesco Asset Management Limited may be deemed to be the beneficial owner of an aggregate amount of 56,768,539 shares of common stock, consisting of the shares held directly by PHIF and PIF, as described above.
(2) Includes (i) 20,298,778 shares of Evofem common stock, 1,007,557 shares of Evofem common stock issuable upon conversion of 1,007,557 shares of Evofem Series C Preferred Stock and 59 shares of Evofem Series D Preferred Stock, of which, although not convertible to common stock, are entitled to 1 vote per share of Series D Preferred Stock held by CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund, or WEIF, (ii) 2 shares of Evofem Series D Preferred Stock, of which, although not convertible to common stock, are entitled to 1 vote per share of Series D Preferred Stock held by Omnibus Income & Growth Fund, a sub fund of Omnis Portfolio Investments ICVC , or OIGF, and (iii) 1,511,335 shares of Evofem common stock issuable upon conversion of 1,511,335 shares of Evofem Series C Preferred Stock and 14 shares of Evofem Series D Preferred Stock, of which, although not convertible to common stock, are entitled to 1 vote per share of Series D Preferred Stock held by Woodford Patient Capital Trust Plc, or WPCT. This number shares of Evofem capital stock issuable upon the exercise of the Evofem Series D Warrants. See the section entitled “ The Merger — S tock Options and Warrants — Evofem Warrants ” beginning on page 89 of this proxy statement/prospectus/information statement. Woodford Investment Management Limited acts as agent for and on behalf of WEIF, OIGF and WPCT, each as a discretionary managed client. Woodford Investment Management Limited has the power to direct the vote and disposition of the common stock held by WEIF, OIGF and WPCT. Accordingly, Woodford Investment Management Limited may be deemed to be the beneficial owner of an aggregate amount of 22,817,760 shares of common stock, consisting of the shares held by WEIF, OIGF and WPCT, as described above.
(3)

Includes (i) 14,062,267 shares of Evofem common stock and 1,239,295 shares of common stock issuable upon conversion of 1,239,295 shares of Evofem Series C Preferred Stock held by The Joseph D. Pike Family Trust, or JDP Trust, (ii) 2,164,270 shares of Evofem common stock and 190,680 shares of Evofem common stock issuable upon the conversion of 190,680 shares of Evofem Series C Preferred Stock held by Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust I dated March 14, 2012, or Pike Trust I, (iii) 2,164,270 shares of Evofem common stock and 190,680 shares of Evofem common stock issuable upon the conversion of 190, 680 shares of Evofem Series C Preferred Stock held by Joseph D. Pike and

 

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  Chan P. Pike, as Trustees of the Pike Legacy Trust II dated March 14, 2012, Pike Trust II, and (iv) 2,164,270 shares of Evofem common stock and 190,680 shares of Evofem common stock issuable upon the conversion of 190,680 shares of Evofem Series C Preferred Stock held by Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust III dated March 14, 2012, or Pike Trust III. Joseph Pike is the managing director of JDP Trust, Pike Trust I, Pike Trust II and Pike Trust III and shares voting and dispositive power over the shares held by each entity. Mr. Pike disclaims beneficial ownership of the securities reported herein except to the extent of his pecuniary interest therein.
(4) Includes (i) 8,179,897 shares of Evofem common stock and 707,557 shares of Evofem common stock issuable upon the conversion of 707,557 shares of Evofem Series C Preferred Stock held by Brickhaven II, L.L.C, or Brickhaven, and (ii) 9,166 shares of Evofem common stock that may be acquired pursuant to the exercise of Evofem Options held by Mr. Darden within 60 days of October 20, 2017. Mr. Darden is the managing director of Brickhaven and shares voting and dispositive power with respect to the shares held by Brickhaven and may be deemed to beneficially own the 8,887,454 shares held directly by Brickhaven. Mr. Darden disclaims beneficial ownership of the securities reported herein except to the extent of his pecuniary interest therein.
(5) Includes 150,000 shares of Evofem common stock that may be acquired pursuant to the exercise of Evofem Options within 60 days of October 20, 2017. Does not include 100,000 shares of Evofem common stock issuable pursuant to a restricted stock unit award agreement. The restricted stock unit award agreement will be cancelled prior to and upon completion of the merger contemplated in this proxy statement/prospectus/information statement. See the section entitled “ The Merger — Interests of the Evofem Directors and Executive Officers in the Merger — Ownership Interests ” beginning on page 87 of this proxy statement/prospectus/information statement.
(6) Includes 9,166 shares of Evofem common stock that may be acquired pursuant to the exercise of Evofem Options within 60 days of October 20, 2017.
(7) Includes (i) 8,179,897 shares of Evofem common stock and 707,557 shares of Evofem common stock issuable upon the conversion of 707,557 shares of Evofem Series C Preferred Stock held by Brickhaven and (ii) 9,166 shares of Evofem common stock that may be acquired pursuant to the exercise of Evofem Options within 60 days of October 20, 2017. Mr. Darden is the managing director of Brickhaven and shares voting and dispositive power with respect to the shares held by Brickhaven and may be deemed to beneficially own the 8,887,454 shares held directly by Brickhaven. Mr. Darden disclaims beneficial ownership of the securities reported herein except to the extent of his pecuniary interest therein.
(8) Includes 9,166 shares of Evofem common stock that may be acquired pursuant to the exercise of Evofem Options within 60 days of October 20, 2017.
(9) Includes 9,166 shares of Evofem common stock that may be acquired pursuant to the exercise of Evofem Options within 60 days of October 20, 2017.
(10) Includes (i) 3,259,091 shares of unvested Evofem common stock held by Ms. Pelletier subject to restricted stock agreements and (ii) 1,203,271 shares of Evofem common stock that may be acquired pursuant to the exercise of Evofem Options within 60 days of October 20, 2017. In accordance with a restricted stock cancellation agreement, all restricted stock relating to the restricted stock awards granted to Ms. Pelletier will be cancelled immediately prior to, but contingent upon, the consummation of the merger contemplated in this proxy statement/prospectus/information statement. See the section entitled “ The Merger — Interests of the Evofem Directors and Executive Officers in the Merger — Ownership Interests ” beginning on page 87 of this proxy statement/prospectus/information statement.
(11) Includes (i) 1,400,000 shares of unvested Evofem common stock held by Mr. File subject to a restricted stock agreement and (ii) 387,499 shares of Evofem common stock that may be acquired pursuant to the exercise of Evofem Options within 60 days of October 20, 2017. In accordance with a restricted stock cancellation agreement, all restricted stock relating to the restricted stock award granted to Mr. File will be cancelled immediately prior to, but contingent upon, the consummation of the merger contemplated in this proxy statement/prospectus/information statement. See the section entitled “ The Merger — Interests of the Evofem Directors and Executive Officers in the Merger — Ownership Interests ” beginning on page 87 of this proxy statement/prospectus/information statement.

 

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(12) Includes (i) 50,000 shares of unvested Evofem common stock held by Dr. Culwell subject to a restricted stock agreement and (ii) 162,500 shares of Evofem common stock that may be acquired pursuant to the exercise of Evofem Options within 60 days of October 20, 2017. In accordance with a restricted stock cancellation agreement, all restricted stock relating to the restricted stock award granted to Dr. Culwell will be cancelled immediately prior to, but contingent upon, the consummation of the merger contemplated in this proxy statement/prospectus/information statement. See the section entitled “ The Merger — Interests of the Evofem Directors and Executive Officers in the Merger — Ownership Interests ” beginning on page 87 of this proxy statement/prospectus/information statement.
(13) Includes (i) 8,179,897 shares of Evofem common stock and 707,557 shares of common stock issuable upon the conversion of 707,557 shares of Evofem Series C Preferred Stock held directly by Brickhaven but deemed to be beneficially owned by Thomas Darden, as described in note 4 and 7, (ii) 4,759,091 shares of common stock pursuant to restricted stock agreements, which will be cancelled immediately prior to, but contingent upon, the consummation of the merger contemplated in this proxy statement/prospectus/information statement, and (iii) 2,129,100 shares of Evofem common stock that may be acquired by Evofem’s current executive officers and directors pursuant to the exercise of Evofem Options within 60 days of October 20, 2017.

 

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LEGAL MATTERS

DLA Piper LLP (US) will pass upon the validity of the Neothetics common stock offered by this proxy statement/prospectus/information statement. The material U.S. federal income tax consequences of the merger will be passed upon for Neothetics by DLA Piper LLP (US) and for Evofem by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

EXPERTS

Neothetics

The financial statements of Neothetics, Inc. at December 31, 2016 and 2015, and for each of the three years in the period ended December 31, 2016, included in the Proxy Statement of Neothetics, Inc., which is referred to and made a part of this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

Evofem

The consolidated financial statements of Evofem Biosciences, Inc. and its subsidiaries as of and for the years ended December 31, 2016 and 2015, included in this proxy statement/prospectus/information statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein (which report expresses an unmodified opinion and includes an emphasis-of-matter paragraph relating to the Company’s ability to continue as a going concern), and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

Neothetics files annual, quarterly and special reports, proxy statements and other information are with the SEC. You may read and copy any reports, statements or other information that Neothetics files at the SEC public reference room in at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Neothetics SEC filings are also available to the public from commercial document retrieval services and on the website maintained by the SEC at http://www.sec.gov. Reports, proxy statements and other information concerning Neothetics also may be inspected at the offices of the National Association of Securities Dealers, Inc., Listing Section, 1735 K Street, Washington, D.C. 20006.

As of the date of this proxy statement/prospectus/information statement, Neothetics has filed a registration statement on Form S-4 to register with the SEC the Neothetics common stock that Neothetics will issue to Evofem stockholders in the merger. This proxy statement/prospectus/information statement is a part of that registration statement and constitutes a prospectus of Neothetics, as well as a proxy statement of Neothetics for its special meeting and an information statement for the purpose of Evofem for its written consent.

Neothetics has supplied all information contained in this proxy statement/prospectus/information statement relating to Neothetics and Evofem has supplied all information contained in this proxy statement/prospectus/information statement relating to Evofem.

If you would like to request documents from Neothetics or Evofem, please send a request in writing or by telephone to either Neothetics of Evofem at the following addresses:

 

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

Telephone: (858) 750-1008

Attn: Investor Relations

  

Evofem Biosciences, Inc.

12400 High Bluff Drive, Suite 600

San Diego, CA 92130

Telephone: (858) 550-1900

Attn: Ellen Thomas Sullivan

 

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If you are a Neothetics stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact Neothetics’ proxy solicitor:

PHILADELPHIA STOCK TRANSFER

(866) 223-0448 (toll free)

TRADEMARK NOTICE

“Neothetics” and the Neothetics logo are unregistered trademarks of Neothetics in the United States and other jurisdictions and are registered trademarks in the European Union. “Evofem Biosciences, Inc.” is an unregistered trademark of Evofem in the United States and other jurisdictions. “Evofem” and “Amphora” are registered trademarks of Evofem in the United States and other jurisdictions. Other third-party logos and product/trade names are registered trademarks or trade names of their respective companies.

OTHER MATTERS

Stockholder Proposals

Neothetics stockholders are entitled to present proposals for action at a forthcoming meeting if they comply with the requirements of Neothetics bylaws and the rules established by the SEC under the Exchange Act. Under these requirements, to be considered for inclusion in Neothetics’ proxy materials for Neothetics’ 2017 annual meeting, stockholder proposals must have been submitted in writing by December 29, 2016, to Neothetics’ principal executive offices and comply with the requirements as to form and substance established by the SEC for such proposals in order to be included in Neothetics’ proxy materials. Stockholders who wish to make a proposal (including director nominations) at Neothetics’ 2017 annual meeting that are not to be included in Neothetics’ proxy materials for the 2017 annual meeting must notify Neothetics in writing delivered to its principal executive offices no earlier than February 15, 2017 and no later than March 17, 2017. Stockholders are also advised to review Neothetics’ bylaws, which contain additional requirements relating to advance notice of stockholder proposals and director nominations. A copy of Neothetics’ bylaws is available to stockholders upon written request to Neothetics’ corporate secretary.

 

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Table of Contents

INDEX TO FINANCIAL STATEMENTS

 

Neothetics

  

Financial Statements as of December 31, 2016 and December 2015

  

Report of Independent Registered Public Accounting Firm

     F-2  

Balance Sheets

     F-3  

Statements of Operations

     F-4  

Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

     F-5  

Statements of Cash Flows

     F-6  

Notes to Financial Statements

     F-7  

Unaudited Financial Statements as of September 30, 2017

  

Balance Sheets

     F-21  

Statements of Operations

     F-22  

Statements of Cash Flows

     F-23  

Notes to Unaudited Financial Statements

     F-24  

Evofem

  

Consolidated Financial Statements as of December 31, 2016 and December 2015

  

Report of Independent Auditors

     F-33  

Consolidated Balance Sheets

     F-34  

Consolidated Statements of Operations

     F-35  

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

     F-36  

Consolidated Statements of Cash Flows

     F-37  

Notes to Consolidated Financial Statements

     F-38  

Unaudited Condensed Consolidated Financial Statements as of September 30, 2017

  

Condensed Consolidated Balance Sheets

     F-66  

Condensed Consolidated Statements of Operations

     F-67  

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

     F-68  

Condensed Consolidated Statements of Cash Flows

     F-69  

Notes to Unaudited Condensed Consolidated Financial Statements

     F-70  

 

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Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Neothetics, Inc.

We have audited the accompanying balance sheets of Neothetics, Inc. as of December 31, 2016 and 2015, and the related statements of statements of operations, statements of convertible preferred stock and shareholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2016. 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 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neothetics, Inc. at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

Since the date of completion of our audit of the accompanying financial statements and initial issuance of our report thereon dated March 23, 2017, the Company, as discussed in Note 1, has announced negative results from the Phase 2 Proof-of-Concept clinical trial of its lead product candidate. These negative results adversely affect the Company’s operations and liquidity. Note 1 describes management’s plans to address this issue.

/s/ Ernst & Young LLP

San Diego, California

March 23, 2017,

except for the fourth, fifth and sixth paragraphs of Note 1 and Note 10, as to which the date is

November 15, 2017

 

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Table of Contents

NEOTHETICS, INC.

BALANCE SHEETS

 

     December 31,  
     2016     2015  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 11,477,852     $ 37,748,603  

Prepaid expenses and other current assets

     1,029,546       1,976,997  
  

 

 

   

 

 

 

Total current assets

   $ 12,507,398     $ 39,725,600  

Restricted cash

     200,000       200,000  

Property and equipment, net

     109,320       186,372  
  

 

 

   

 

 

 

Total assets

   $ 12,816,718     $ 40,111,972  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 503,739     $ 4,017,192  

Accrued clinical trial expenses

     359,067       1,422,810  

Other accrued expenses

     39,386       903,148  

Long-term debt, current portion

     —         2,756,351  
  

 

 

   

 

 

 

Total current liabilities

     902,192       9,099,501  

Long-term debt, net of current portion

     —         7,205,176  

Stockholders’ equity:

    

Preferred stock, $0.0001 par value; 5,000,000 shares authorized, no shares issued and outstanding

     —         —    

Common stock — $0.0001 par value; 300,000,000 shares authorized; 13,828,496 and 13,750,016 shares issued and outstanding at December 31, 2016 and 2015 respectively

     1,382       1,374  

Additional paid-in capital

     137,763,499       136,637,678  

Accumulated deficit

     (125,850,355     (112,831,757
  

 

 

   

 

 

 

Total stockholders’ equity

     11,914,526       23,807,295  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 12,816,718     $ 40,111,972  
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

NEOTHETICS, INC.

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
     2016     2015     2014  

Expenses:

      

Research and development

   $ 6,578,678     $ 34,409,664     $ 5,174,876  

General and administrative

     5,463,622       7,639,427       4,416,181  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     12,042,300       42,049,091       9,591,057  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (12,042,300     (42,049,091     (9,591,057

Interest income

     59,465       26,033       7,555  

Interest expense

     (1,035,763     (1,133,987     (374,891

Loss on change in fair value of preferred stock warrants

     —         —         (860,843
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (13,018,598   $ (43,157,045   $ (10,819,236
  

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (0.94   $ (3.15   $ (5.36
  

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute basic and diluted net loss per share

     13,801,003       13,696,033       2,017,601  
  

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

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NEOTHETICS, INC.

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

    Series A
Convertible
Preferred Stock
    Series B
Convertible
Preferred Stock
    Series B-2
Convertible
Preferred Stock
    Series C
Convertible
Preferred Stock
    Series D
Convertible
Preferred Stock
          Common Stock     Additional
Paid-In
Capital
    Accumulated
Deficit
    Total
Stockholders’
Equity
(Deficit)
 
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount           Shares     Amount        

Balance at December 31, 2013

    1,500,000     $ 1,455,686       12,432,430     $ 23,095,634       4,402,438     $ 6,816,594       19,608,195     $ 26,120,739       —       $ —             508,009     $ 51     $ 2,164,063     $ (58,855,476   $ (56,691,362

Issuance of preferred stock for cash, net of $7,285 of offering costs

    —         —         —         —         —         —         5,714,288       7,992,718       —         —             —         —         —         —         —    

Issuance of preferred stock for cash, net of $566,580 offering costs

    —         —         —         —         —         —         —         —         3,333,334       5,433,421           —         —         —         —         —    

Common stock issued upon exercise of options

    —         —         —         —         —         —         —         —         —         —             54,920       5       76,295       —         76,300  

Share-based compensation

    —         —         —         —         —         —         —         —         —         —             —         —         612,952       —         612,952  

Initial public offering of common stock at $14.00 per share, net of $7,361,037 offering costs

    —         —         —         —         —         —         —         —         —         —             4,650,000       465       57,738,498       —         57,738,963  

Conversion of preferred stock to common stock

    (1,500,000     (1,455,686     (12,432,430     (23,095,634     (4,402,438     (6,816,594     (25,322,483     (34,113,457     (3,333,334     (5,433,421         8,225,062       822       70,913,970         70,914,792  

Conversion of preferred stock warrants to common stock warrants

    —         —         —         —         —         —         —         —         —         —             —         —         3,415,020       —         3,415,020  

Net exercise of warrants

                            233,320       23       (23     —         —    

Net loss

    —         —         —         —         —         —         —         —         —         —             —         —         —         (10,819,236     (10,819,236
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

    —       $ —         —       $ —         —       $ —       $ —       $ —         —       $ —             13,671,311     $ 1,366     $ 134,920,775     $ (69,674,712   $ 65,247,429  

Common stock issued upon exercise of options

    —         —         —         —         —         —         —         —         —         —             48,167       5       96,499       —         96,504  

Common stock issued upon purchase of the employee stock purchase plan

    —         —         —         —         —         —         —         —         —         —             8,038       1       42,125       —         42,126  

Issuance of restricted shares, net of shares repurchased for minimum tax liability

    —         —         —         —         —         —         —         —         —         —             22,500       2       193,498       —         193,500  

Share-based compensation

    —         —         —         —         —         —         —         —         —         —             —         —         1,384,781       —         1,384,781  

Net loss

    —         —         —         —         —         —         —         —         —         —             —         —         —         (43,157,045     (43,157,045
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

    —       $ —         —       $ —         —       $ —         —       $ —         —       $ —             13,750,016     $ 1,374     $ 136,637,678     $ (112,831,757   $ 23,807,295  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common stock issued upon exercise of options

    —         —         —         —         —         —         —         —         —         —             29,300       3       33,539       —         33,542  

Issuance of restricted shares, net of shares repurchased for minimum tax liability

    —         —         —         —         —         —         —         —         —         —             49,180       5       —         —         5  

Debt amendment warrant costs

    —         —         —         —         —         —         —         —         —         —             —         —         9,417       —         9,417  

Share-based compensation

    —         —         —         —         —         —         —         —         —         —             —         —         1,082,865       —         1,082,865  

Net loss

    —         —         —         —         —         —         —         —         —         —             —         —         —         (13,018,598     (13,018,598
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

    —       $ —         —       $ —         —       $ —         —       $ —         —       $ —             13,828,496     $ 1,382     $ 137,763,499     $ (125,850,355   $ 11,914,526  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

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NEOTHETICS, INC.

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
     2016     2015     2014  

Operating activities

      

Net loss

   $ (13,018,598   $ (43,157,045   $ (10,819,236

Adjustments to reconcile net loss to net cash used in operating activities:

      

Loss on sale of assets

     4,858       6,140       —    

Depreciation and amortization

     69,094       58,425       17,669  

Non-cash interest expense on notes payable and debt

     100,290       220,447       84,330  

Share-based compensation

     1,082,869       1,578,279       612,952  

Loss on change in fair value of preferred stock warrants

     —         —         860,843  

Changes in operating assets and liabilities:

      

Prepaid expenses and other current assets

     947,452       (1,051,224     (783,910

Accounts payable and accrued expenses

     (5,440,958     4,433,561       455,234  
  

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

     (16,254,993     (37,911,417     (9,572,118

Investing activities

      

Proceeds from sale of property and equipment

     3,100       —         —    

Purchase of property and equipment

     —         (226,128     (18,078
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     3,100       (226,128     (18,078

Financing activities

      

Proceeds from bank loan

     —         —         10,000,000  

Prepayment resulting in debt extinguishment

     (9,514,058     —         —    

Principal payments on bank loan

     (538,342     —         (209,698

Issuance of common stock from exercise of options

     33,542       96,506       76,300  

Issuance of common stock from employee stock purchase plan

     —         42,126       —    

Issuance of preferred stock for cash, net of offering costs

     —         —         13,568,140  

Proceeds from IPO, net of offering costs

     —         —         57,738,963  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (10,018,858     138,632       81,173,705  
  

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash, cash equivalents, and restricted cash

     (26,270,751     (37,998,913     71,583,509  

Cash, cash equivalents, and restricted cash, beginning of period

     37,948,603       75,947,516       4,364,007  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash, end of period

   $ 11,677,852     $ 37,948,603     $ 75,947,516  
  

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow activity

      

Cash paid for interest

   $ 973,115     $ 912,500     $ 351,891  

Supplemental disclosure of non-cash financing activities

      

Warrants issued for services in connection with issuance of preferred stock

   $ —       $ —       $ 142,001  

Warrants issued in connection with Loan and Security Agreement

   $ —       $ —       $ 207,429  

Conversion of preferred stock warrants to common stock warrants

   $ —       $ —       $ 3,415,020  

Conversion of convertible preferred stock into common stock

   $ —       $ —       $ 70,913,970  

See accompanying notes.

 

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NEOTHETICS, INC.

NOTES TO FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

The Company was incorporated in Delaware on February 1, 2007, under the name Lipothera, Inc. In September 2008, the Company changed its name to Lithera, Inc. In August 2014, the Company changed its name to Neothetics, Inc. The Company is a clinical-stage specialty pharmaceutical company developing therapeutics for the aesthetic market. The Company’s focus is on the further development and commercialization of LIPO-202, including for the reduction of localized fat deposits under the chin, or submental fat, and for the reduction of central abdominal bulging pending results from the submental Phase 2 proof of concept trial.

As of December 31, 2016, the Company has devoted substantially all of its efforts to product development, raising capital, and building infrastructure and has not realized revenues from its planned principal operations.

The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred net losses from operations since inception and have an accumulated deficit of $125.9 million at December 31, 2016. We have cash and cash equivalents as of December 31, 2016 totaling $11.5 million. We have prepared cash flow forecasts which indicate, based on our current cash resources available, that we will have sufficient resources to fund our business, including our on-going Phase 2 proof of concept trial for the reduction of submental fat, for at least the next 12 months from the date of this filing. Based on the results of this trial, the Company will need to raise additional funding in the form of an equity or debt financing or through entering into a collaboration in order to fund the completion of any future trials and further development of LIPO-202. The Company may in the future seek additional capital from public or private offerings of its capital stock or it may elect to seek to fund operations through a debt facility. If the Company issues equity or debt securities to raise additional funds, its existing stockholders may experience dilution, it may incur significant financing costs, and the new equity or debt securities may have rights, preferences and privileges senior to those of its existing stockholders. The Company’s ability to continue as a going concern and meet its minimum liquidity requirements in the future is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the Company cannot generate sufficient additional financing on acceptable terms, it may be forced to significantly alter its business strategy, substantially curtail its current operations, or cease operations altogether.

Recent Events

In June 2017, the Company announced that its Phase 2 proof-of-concept clinical trial of its lead product candidate LIPO-202 did not demonstrate improvement on any efficacy measurements or separation from placebo. As a consequence of the negative results from the Phase 2 proof-of-concept clinical trial of its lead product candidate LIPO-202, the Company announced its plans to initiate a process to explore and review a range of strategic alternatives focusing on seeking an acquisition, business combination or partnership that will allow for it to maximize shareholder value from its remaining assets and cash resources. Oppenheimer and Co., Inc. was retained to act as the Company’s exclusive financial advisor for this process. Further related to the negative clinical trial results, the Company implemented a reduction of the Company’s full-time workforce in order to reduce operating expenses and conserve cash resources.

On October 17, 2017, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Nobelli Merger Sub, Inc., its wholly owned subsidiary (“Merger Sub”), and Evofem Biosciences, Inc., a privately-held Delaware corporation (“Evofem”), pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Evofem, with Evofem becoming a wholly-owned subsidiary of the Company and the surviving corporation of the merger (the “Merger”). We cannot predict whether and to what extent we will resume drug development activities and what our future cash needs would be for any such activities. If the Merger is not

 

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successful, our Board of Directors may decide to pursue a dissolution and liquidation of our Company. In such an event, the amount of cash available for distribution to our shareholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities, in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash due to the financial position of the depository institution in which those deposits are held.

Fair Value of Financial Instruments

The carrying amounts of prepaid and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short term maturity of these items.

Property and Equipment

Property and equipment, which primarily consist of office furniture and equipment and computer equipment, are stated at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While the Company’s current and historical operating losses and negative cash flows are indicators of impairment, management believes that future cash flows to be received support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses since inception.

 

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Research and Development Costs

Research and development expenses consist primarily of salaries and related overhead expenses; fees paid to consultants and contract research organizations; costs related to acquiring and manufacturing clinical trial materials; and costs related to compliance with regulatory requirements.

All research and development costs are charged to expense as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are recorded when the realizability of such deferred tax assets is not more likely than not.

The guidance on accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. During 2016 and 2015, the Company had not recognized interest and penalties in the balance sheets or statements of operations. The Company is subject to taxation in the U.S. and state jurisdictions. The Company’s tax years from inception are subject to examination by the United States and California authorities due to the carryforwards of unutilized net operating losses (NOLs) and research and development credits.

Share-Based Compensation

Share-based compensation for the Company includes amortization related to all stock options, restricted stock awards and shares issued under the employee stock purchase plan, based on the grant-date fair value. The fair value of each option and restricted stock award is estimated on the date of grant using the Black-Scholes option pricing model. The expected life of the awards is based on the simplified method described in SEC Staff Accounting Bulletin No. 107. The expected volatility assumption is based upon the historical volatility of a number of publicly traded companies in similar stages of clinical development. The risk-free interest rate is based on the yield of U.S. Treasury bills with a life that approximates the expected life of the awards. The Company recognizes share-based compensation on a straight-line basis over the vesting term of the options.

Option grants to non-employees are valued at fair value and are expensed over the period services are provided. These options are subject to periodic revaluation to reflect the current fair value at each reporting period until the non-employee completes the performance obligation or the date on which a performance commitment is reached. During the year ended December 31, 2016, there were 250,000 shares issued to non-employee consultants. There was no non-cash compensation to consultants for the years ended December 31, 2015 and 2014.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding during the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities, which include common stock warrants and outstanding stock options under the stock option plan, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.

 

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The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive.

 

     December 31,
2016
     December 31,
2015
     December 31,
2014
 

Warrants for common stock

           71,257              71,257              71,257  

Common stock options and restricted stock awards issued and outstanding

     871,203        1,363,027        1,198,830  
  

 

 

    

 

 

    

 

 

 
     942,460        1,434,284        1,270,087  
  

 

 

    

 

 

    

 

 

 

Recent Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (the “FASB) issued Accounting Standards Update (or “ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the effect that this guidance will have on our financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. This pronouncement gives guidance to clarify how certain cash receipts and payments should be presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the timing of adoption of this guidance and the impact of the adoption of this guidance on its financial statements.

In March 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payments, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adoption on its financial statements.

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 requires that lessees recognize assets and liabilities for the rights and obligations for leases with a lease term of more than one year. The amendments in this ASU are effective for annual periods ending after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of adoption on its financial statements.

In August 2014, the FASB issued ASU 2014-15 (“ASU 2014-15”), Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under the new guidance, management is required to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The provisions of this standard are effective for annual periods ending after December 31, 2016, and for annual and interim periods thereafter. We adopted this guidance for the year ended December 31, 2016 and management believes that our existing cash and cash equivalents will be sufficient to fund our operations into the second quarter 2018.

3. Fair Value Measurements

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, including warrants issued in connection with financing arrangements, and long-term debt. Fair value

 

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estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The carrying amount of cash and cash equivalents, accounts payable, and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of these instruments. The Company believes that the fair value of long-term debt approximates its carrying value based on the borrowing rates currently available to the Company for loans with similar terms.

The authoritative guidance for fair value measurements defines fair value 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. Market participants are buyers or sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance prioritizes three levels of inputs into the following hierarchy:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 and 2015 are as follows:

 

            Fair Value Measurements at Reporting Date Using  
     Balance as of
December 31,
2016
     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets

           

Money market fund (1)

   $ 11,477,852      $ 11,477,852      $           —        $           —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 11,477,852      $ 11,477,852      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Included as a component of cash and cash equivalents on accompanying balance sheet.

 

            Fair Value Measurements at Reporting Date Using  
     Balance as of
December 31,
2015
     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets

           

Money market fund (1)

   $ 36,752,200      $ 36,752,200      $           —        $           —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 36,752,200      $ 36,752,200      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Included as a component of cash and cash equivalents on accompanying balance sheet.

 

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4. Property and Equipment

Property and equipment consist of the following:

 

     December 31,  
     2016      2015  

Office furniture and equipment

   $ 254,049      $ 279,547  

Less accumulated depreciation and amortization

     (144,729      (93,175
  

 

 

    

 

 

 
   $ 109,320      $ 186,372  
  

 

 

    

 

 

 

Depreciation and amortization expense related to furniture and equipment amounted to $69,094, $58,425, and $17,669, for the years ended December 31, 2016, 2015, and 2014 respectively.

5. Debt

Loans

In February 2010, and as amended during 2012, the Company entered into a loan and security agreement (2010 Loan and Security Agreement) with Silicon Valley Bank (SVB), for borrowings of $3,750,000, collateralized by all assets of the Company. In connection with the borrowings, the Company issued warrants to the bank for the purchase of a total of 64,865 shares of Series B convertible preferred stock and warrants to purchase 75,000 shares of Series C convertible preferred stock. Effective upon the IPO, this was converted to a warrant to purchase 24,419 shares of common stock at a weighted average exercise price of $9.90 and expire ten years from the date of issuance.

In 2013, through the payoff of the loan in June 2014 the Company paid interest equal to 7.78% above the 24-month Treasury Rate with a floor of 8.00%. The Company recorded total interest expense of $4,186 for the twelve months ended December 31, 2014, related to the 2010 Loan and Security Agreement, as amended

In June 2014, the Company entered into a Loan and Security Agreement (Loan Agreement) with Hercules Technology Growth Capital Inc. that provided for borrowings up to $10.0 million available to the Company in two tranches. Upon closing of the Loan Agreement, the Company borrowed $4.0 million. In October 2014, the Company entered into the first amendment of the Loan Agreement and borrowed the remaining $6.0 million available under the agreement.

In connection with the Loan Agreement, in June 2014, the Company issued warrants to purchase shares of Series C convertible preferred stock equal to 4% of the amount advanced under the loan. Effective upon the IPO, this was converted to a warrant to purchase 46,838 shares of common stock at $8.54, which expires on June 11, 2024. The fair value of the warrants issued was $207,429, based on the fair value of such Series C warrants at the date of issuance. The warrants’ fair value and financing fees of approximately $133,000 were recorded as a debt discount.

In March 2016, the Company entered into the second amendment of the Loan Agreement that provided for a prepayment of the outstanding loan carrying amount of $5.5 million with a prepayment fee of $110,000. In connection with the second amendment, the Company re-priced the outstanding warrants to purchase 46,838 shares of common stock at a new exercise price of $0.62, which will expire in September 2022 unless exercised prior to such expiration date. The Company recorded a debt discount of $9,417 associated with the fair value of the warrants issued in connection with the amendment. In addition, the Company incurred loan amendment fees and legal fees of $52,400, which the Company recorded as a debt discount.

In September 2016, the Company prepaid the remaining outstanding balance under the Loan Agreement at a carrying amount of $4.0 million with a prepayment fee of $120,000 and an end of term fee of $300,000.

 

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Accordingly, the Loan Agreement was terminated on September 23, 2016. Upon termination of the Loan Agreement, the prepayment fees of $230,000 and unamortized end of term fee of $260,000 were recorded as interest expense

From June 2014 through payoff in September 2016, the Company paid interest equal to the greater of either 9.0%, plus the Prime Rate as reported in The Wall Street Journal, less 3.25% or 9.0%. The Company recorded total interest expense of $1,035,763, $1,133,987 and $374,891 for the twelve months ended December 31, 2016, December 31, 2015 and December 31, 2014, respectively.

Letter of Credit

In January 2015, the Company executed a lease amendment with LJ Gateway, LLC for new office space. In connection with this lease amendment the Company issued a stand-by letter of credit in the amount of $200,000 in lieu of a security deposit. The standby letter of credit is secured by a restricted money market account. The terms of the standby letter of credit expire in May 2020 and are subject to automatic yearly renewal prior to this date.

6. Convertible Preferred Stock and Stockholders’ Equity

Common Stock

On December 1, 2015, the Company entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald, as a sales agent pursuant to which the Company may offer and sell from time to time, through Cantor Fitzgerald shares of Neothetics common stock, par value $0.0001 per share, having an aggregate offering price of up to $20.0 million. The minimum share price for this Controlled Equity Offering is selected at the discretion of the board of directors.

The Company cannot provide any assurances that it will issue any shares pursuant to the Sales Agreement. Subject to the terms and conditions of the Sales Agreement, Cantor Fitzgerald will use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of the NASDAQ Capital Market to sell shares from time to time based upon Neothetics’ instructions, including any price, time or size limits specified by Neothetics. Under the Sales Agreement, Cantor Fitzgerald may sell shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 under the U.S. Securities Act of 1933, as amended, or any other method permitted by law, including in privately negotiated transactions. Neothetics will pay Cantor Fitzgerald a commission of 3.0% of the aggregate gross proceeds from each sale of shares and has agreed to provide Cantor Fitzgerald with customary indemnification and contribution rights. Neothetics has also agreed to reimburse Cantor Fitzgerald for legal fees and disbursements, not to exceed $50,000 in the aggregate, in connection with entering into the Sales Agreement.

The Sales Agreement may be terminated by Cantor Fitzgerald or Neothetics at any time upon notice to the other party, or by Cantor Fitzgerald at any time in certain circumstances, including the occurrence of a material and adverse change in Neothetics’ business or financial condition that makes it impractical or inadvisable to market the shares or to enforce contracts for the sale of the shares. As of December 31, 2016, no shares were issued pursuant to the Sales Agreement.

Stock Compensation Plan

The Company adopted a Stock Option Plan in 2007, or the 2007 Plan under which 1,271,360 shares of common stock were reserved for issuance to employees, non-employee directors, and consultants of the Company. Effective upon the completion of the Company’s IPO, the board of directors determined not to grant any further awards under the 2007 Plan.

 

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In September 2014, the Company’s board of directors and stockholders approved and adopted the 2014 Equity Incentive Plan (the 2014 Plan). The 2014 Plan became effective immediately prior to the Company’s IPO. A total of 1,000,000 shares of common stock were initially reserved for issuance under the 2014 Plan. This reserve automatically increased on January 1, 2015 and will continue to increase each subsequent anniversary through 2024, by an amount equal to the smaller of (a) 4% of the number of shares of common stock issued and outstanding on the date immediately preceding December 31 and (b) an amount determined by our board of directors. All shares that remained available, expired, or otherwise terminated without having been exercised in full and unvested shares that were forfeited to or repurchased by us under the 2007 Plan were rolled into 2014 Plan. The 2014 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, or RSU’s, performance shares, and units and other cash-based or share-based awards. In addition, the 2014 Plan contains a mechanism through which we may adopt a deferred compensation arrangement in the future. Recipients of stock options shall be eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant.

The following table summarizes stock option and restricted stock award transactions under the 2014 Plan during the years ended December 31, 2016, December 2015 and 2014:

 

     Options
Outstanding
    Weighted
Average
Exercise Price
     Weighted
Average
Contractual
Life — Years
     Total
Intrinsic
Value
 

Outstanding at December 31, 2013

     368,566     $          1.59        6.2     

Granted

     906,752     $ 1.68        

Exercised

     (54,920   $ 1.39        

Forfeited

     (21,568   $ 1.33        
  

 

 

   

 

 

       

Outstanding at December 31, 2014

     1,198,830     $ 1.68        8.3      $ 10,489,128  
  

 

 

   

 

 

    

 

 

    

 

 

 

Granted

     400,719     $ 7.28        

Exercised

     (97,348   $ 0.99         $ 767,354  

Forfeited

     (139,174   $ 4.49        
  

 

 

   

 

 

       

Outstanding at December 31, 2015

     1,363,027     $ 3.09        7.9      $ 244,998  
  

 

 

   

 

 

    

 

 

    

 

 

 

Granted

     563,856     $ 1.09        

Exercised

     (78,480   $ 0.43         $ 37,646  

Forfeited

     (977,200   $ 2.27        
  

 

 

   

 

 

       

Outstanding and exercisable at December 31, 2016

     871,203     $ 2.95        8.6      $ 18,363  
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and options expected to vest at December 31, 2016

     840,403     $ 3.00        8.6      $ 15,934  
  

 

 

   

 

 

    

 

 

    

 

 

 

The 2014 Plan allows for the exercise of unvested options, which are subject to repurchase until vesting occurs. All options exercised to date were fully vested at date of exercise. No grants expired during the year ended December 31, 2016.

The weighted average fair value of options granted was $0.46 and 3.14 for the twelve months ended December 31, 2016 and December 31, 2015, respectively. The weight average fair value of options vested was $1.50 at December 31, 2016. Total cash received upon the exercise of stock options was $33,542 for the year ended December 31, 2016. The unrecognized compensation cost related to non-vested stock options and restricted stock awards outstanding at December 31, 2016 and December 31, 2015, net of expected forfeitures, was $420,339 and $3,102,234, respectively, to be recognized over a weighted-average remaining vesting period of approximately 1.7 and 2.6 years, respectively.

 

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Share-Based Compensation

The estimated fair value of each option award granted was determined on the date of grant using the Black-Scholes option-pricing valuation model with the following weighted-average assumptions for options grants.

 

     Year Ended December 31,  
     2016     2015     2014  

Weighted Average Assumptions:

      

Risk-free interest rate

     1.61     1.69     1.85

Expected dividend yield

     0     0     0

Expected volatility

     44.89     43.72     87.00

Expected term (in years)

     5.4       5.8       6.0  

The risk-free interest rate assumption was based on the yield of an applicable rate for U.S. Treasury instruments with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company never paying cash dividends and having no expectation of paying cash dividends in the foreseeable future. The weighted average expected term of options was calculated using the simplified method as permitted by accounting guidance for stock-based compensation. In addition, due to the Company’s limited historical data, the estimated volatility was calculated based upon the historical volatility of comparable companies in the biotechnology industry whose share prices are publicly available for a sufficient period of time.

Employee Stock Purchase Plan

In November 2014, the Company adopted the 2014 Employee Stock Purchase Plan (the “ESPP”), which enables eligible employees to purchase shares of the Company’s common stock using their after tax payroll deductions of up to 15% of their eligible compensation, subject to certain restrictions.

The ESPP initially authorized the issuance of 170,000 shares of common stock pursuant to purchase rights granted to employees. The number of shares of common stock reserved for issuance automatically increased on January 1, 2015 and will continue to increase on each January 1 thereafter through January 1, 2024, by the smaller of (a) 1.0% of the total issued and outstanding Shares on the preceding December 31, and (b) a number of Shares determined by the Board of Directors of the Company. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code.

The Company estimates the fair value of shares issued to employees under the ESPP using a Black-Scholes option-pricing model. The Black-Scholes model requires the use of subjective and complex assumptions, including (a) the expected stock price volatility, (b) the calculation of the expected term of the award, (c) the risk free interest rate and (d) the expected dividend yield, which determine the fair value of share-based awards.

There were no shares issued under the ESPP during the year ended December 31, 2016.

The weighted average assumptions used to estimate the fair value of shares issued under the ESPP in the years ended December 31, 2015 and 2014 using the Black-Scholes option pricing model were as follows:

 

     For the Year Ended  
       2015         2014    

Weighted Average Assumptions:

    

Risk-free interest rate

     0.39     0.34

Expected dividend yield

     0     0

Expected volatility

     45.13     45.43

Expected term (in years)

     1.23       1.27  

 

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The Company recognized non-cash share-based compensation expense related to its ESPP, restricted stock awards and stock options granted to employees and directors in its research and development and its general and administrative functions as follows:

 

     Year Ended December 31,  
     2016      2015      2014  

Research and development

   $ 163,996      $ 410,099      $ 235,867  

General and administrative

     918,869        974,682        377,085  
  

 

 

    

 

 

    

 

 

 
   $ 1,082,865      $ 1,384,781      $ 612,952  
  

 

 

    

 

 

    

 

 

 

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance is as follows:

 

     December 31,
2016
     December 31,
2015
 

Warrants issued and outstanding

     71,257        71,257  

Stock options and restricted stock awards issued and outstanding

     871,203        1,363,027  

Authorized for future option grants

     2,276,079        1,312,734  

Employee stock purchase plan

     436,175        298,675  
  

 

 

    

 

 

 
     3,654,714        3,045,693  
  

 

 

    

 

 

 

7. Income Taxes

As of December 31, 2016, the Company had federal and California tax net operating loss (NOL) carryforwards available to reduce its future taxable income of approximately $119,242,000 and $63,992,000, respectively. The federal NOL begins to expire in 2027 and the state NOL begins to expire in 2017 unless previously utilized. At December 31, 2016, the Company has federal and state research tax credits of $3,803,000 and $2,623,000, respectively. The federal research credit expires in 2027 unless previously utilized. The California research credit will carry forward indefinitely until utilized.

Utilization of the NOL and R&D credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders. Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions, including the IPO in 2014, which on their own or combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in the future.

The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company’s formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. If the Company has experienced an ownership change at any time since its formation, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the 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 NOL or R&D credit carryforwards before utilization. Further, until a study is

 

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completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets, with a corresponding reduction of the valuation allowance.

Until the study is completed, the Company has removed federal and state operating losses of approximately $44,276,000 and federal and state research and development credits of approximately $5,534,000 from its deferred tax asset schedule and has recorded a corresponding decrease to its valuation allowance.

Significant components of the Company’s deferred tax assets for federal and state income taxes at December 31, 2016 and 2015 are shown below. A valuation allowance has been established as realization of such deferred tax assets is uncertain.

 

     2016      2015  

Deferred tax assets:

     

Accrued compensation

     46,000        138,000  

Non-qualified Stock Options

     173,000        349,000  

Other, net

     34,000        106,000  
  

 

 

    

 

 

 

Total deferred tax assets

     253,000        593,000  

Valuation allowance

     (253,000      (593,000
  

 

 

    

 

 

 
   $ —        $ —    
  

 

 

    

 

 

 

There was no material income tax expense for the years ended December 31, 2016 and 2015.

A reconciliation of income tax expense as compared to the tax expense calculated by applying the statutory federal and state tax rate to income before taxes for the years ended December 31 is as follows:

 

     2016     2015     2014  

Income tax at statutory rates

     39.8     39.8     40.0

Warrant liability remeasurement

     0.0     0.0     (3.0 %) 

NOL not recorded due to 382 limitations

     (36.7 %)      (39.3 %)      (34.0 %) 

Other

     (3.1 %)      (0.5 %)      (3.0 %) 
  

 

 

   

 

 

   

 

 

 

Total tax expense

     0.0     0.0     0.0
  

 

 

   

 

 

   

 

 

 

The Company follows the provisions under the Income Taxes topic of the Codification which addresses accounting for the uncertainty in income taxes. The evaluation of a tax position in accordance with this topic is a two-step process. The first step involves recognition. The Company determines whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position derive from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measures to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority.

The Company files income tax returns in the United States and California. The Company currently has no years under examination by any jurisdiction; however, the Company is subject to income tax examination by

 

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federal and state for years beginning in 2013 and 2012, respectively. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where NOLs and tax credits were generated and carried forward, and make adjustment up to the amount of the carryforwards. The Company does not have any unrecognized tax benefits as of December 31, 2016 and does not anticipate that the amount of unrecognized tax benefits will significantly change within the next twelve months. The Company has not recognized interest or penalties in its consolidated statements of operations and comprehensive loss since inception.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and/or penalties in the statements of operations for the years ended December 31, 2016, 2015, and 2014 or for the period from February 1, 2007 to December 31, 2016.

8. Commitments

Operating Leases

The Company entered into a non-cancelable operating lease for its facilities on January 20, 2015. The lease expires in March 2020. Rent expense was $429,927, $388,997 and $228,281 for the years ended December 31, 2016, 2015 and 2014, respectively. The payments escalate over the term of the lease; however, the Company recognizes the expense on a straight-line basis over the term of the lease.

The following table summarizes the minimum lease payments under this commitment.

 

2017

   $ 395,520  

2018

     410,850  

2019

     431,508  

2020

     109,293  

2021 and thereafter

     —    
  

 

 

 

Total

   $ 1,347,171  
  

 

 

 

9. Subsequent Events

The Company has evaluated the effects of subsequent events in its financial statements through November 15, 2017, which is the date the financial statements were available to be issued.

In the first quarter of 2017, the Company entered into an Eleventh Amendment to the Lease with LJ Gateway Office LLC. Concurrent with entering into the Lease Amendment, the Company entered into a Sublease with Abacus Data Systems, Inc. (“Abacus”). This Lease Amendment provides for an additional space consisting of approximately 3,580 square feet located at Suite No. 250, 9171 Towne Centre Drive, San Diego California (the “New Premises”). The Company intends to occupy the New Premises as its headquarters while subleasing the entire Original Premises to Abacus. The base monthly rent for the New Premises will be $10,203 per month commencing on February 13, 2017.

Upon occurrence of Abacus retaining possession of the original premises, Abacus shall receive a discount of 50% off the base rent for months five through nine and will not have to pay base rent for the first month as well as months three and four. Additionally, Abacus will pay to the Company a base rent of $27,768 for the seconds’ month rent and an additional $30,317 security deposit. The base rent will increase by three percent on each annual anniversary.

Merger Agreement with Evofem Biosciences (Unaudited)

On October 17, 2017, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Nobelli Merger Sub, Inc., its wholly owned subsidiary (“Merger Sub”), and Evofem

 

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Biosciences, Inc., a privately-held Delaware corporation (“Evofem”), pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Evofem, with Evofem becoming a wholly-owned subsidiary of the Company and the surviving corporation of the merger (the “Merger”). The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

Immediately prior to the effective time of the Merger (the Effective Time), each outstanding share of Evofem’s preferred stock (other than shares of Evofem’s Series D preferred stock) will be converted into one share of Evofem common stock. Subject to the terms and conditions of the Merger Agreement, at the Effective Time: (a) each share of Evofem common stock (on an as-converted basis) will be converted solely into the right to receive shares of the Company’s common stock (the Company Common Stock) equal to the common stock exchange ratio described in the Merger Agreement; (b) each outstanding shares of Evofem Series D preferred stock will be converted solely into the right to receive shares of the Company Common Stock equal to the Series D preferred stock exchange ratio described in the Merger Agreement; and (c) each outstanding Evofem stock option that has not previously been exercised prior to the Effective Time will be assumed by the Company. Warrants to purchase shares of Evofem capital stock will be assumed by the Company at the Effective Time and then immediately amended and restated to become warrants to purchase up to an aggregate of 12 million shares of the Company Common Stock (the Company Post-Merger Warrants). The exercise price for the Company Post-Merger Warrants will be equal to the average of the closing sale prices of the Company Common Stock as quoted on The NASDAQ Capital Market for the 30 consecutive trading day period commencing with the first trading day immediately following the Effective Time.

Immediately following the Merger, the name of the Company will be changed from “Neothetics, Inc.” to “Evofem Biosciences, Inc.” The Merger Agreement contemplates that the Board of Directors of the Company will consist of seven members at the Effective Time, six of which will be designated by Evofem and one of which will be designated by the Company. The member to be designated by the Company is expected to be one of the current directors of the Company. The executive officers of the Company immediately after the Effective Time will be designated by Evofem with Evofem’s Chief Executive Officer, Saundra Pelletier, being the Company’s Chief Executive Officer.

The Merger Agreement contains customary representations, warranties and covenants made by the Company and Evofem, including covenants relating to obtaining the requisite approvals of the stockholders of the Company and Evofem, indemnification of directors and officers, the Company’s and Evofem’s conduct of their respective businesses between the date of signing the Merger Agreement and the closing of the Merger. Consummation of the Merger is subject to certain closing conditions, including, among other things, approval by the stockholders of the Company and Evofem. The Merger Agreement contains certain termination rights for both the Company and Evofem, and further provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Evofem a termination fee of up to $1.5 million or Evofem may be required to pay the Company a termination fee of $1.5 million.

The Merger Agreement contemplates that the Company will also seek approval from its stockholders to effect a reverse stock split intended to increase its trading price above the minimum requirements of The NASDAQ Capital Market. Subject to stockholder approval, the Company expects to implement the reverse stock split at a ratio to be mutually agreed to by the Company and Evofem within the range approved by the Company’s stockholders immediately prior to the Effective Time.

Concurrently with the execution of the Merger Agreement, the Company entered into a Securities Purchase Agreement with Evofem and certain investors of Evofem (the Securities Purchase Agreement) pursuant to which, conditioned upon and immediately following the Merger, the Company will issue and sell in a private placement transaction (the Financing) $20 million of Company Common Stock and Evofem will issue warrants to purchase shares of Evofem common stock immediately prior to the Effective Time (the Investor Warrants). The Investor

 

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Warrants are contemplated to be automatically exercised on a cashless basis at the Effective Time, and the shares of Evofem common stock issued upon exercise of the Investor Warrant will be eligible to receive shares of the Company Common Stock in an amount equal to the common stock exchange ratio upon completion of the Merger. Upon consummation of the Financing, the Merger Agreement contemplates that the Company will terminate its existing Fourth Amended and Restated Investors’ Rights Agreement, dated September 22, 2014, by and between the Company and the investors listed therein (the Existing Investors), and enter into a registration rights agreement with certain of the Existing Investors and certain investors of Evofem.

10. Retrospective Adoption ASU 2016-18

The Company elected to early adopt ASU 2016-18 Restricted Cash in the first quarter of 2017 and has retrospectively adjusted the 2016 and 2015 statements of cash flows as a result of adoption. ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents are now 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. As a result of the retrospective adoption of ASC 2016-18, as of December 31, 2016 and 2015, the financial statements presented $200,000 of a restricted money market account, used to secure the standby letter of credit issued in connection with a lease amendment, in the beginning and ending period total amounts shown on the statement of cash flows.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statement of cash flows.

 

     December 31,  
     2016      2015  

Cash and cash equivalents

   $ 11,477,852      $ 37,748,603  

Restricted cash

     200,000        200,000  
  

 

 

    

 

 

 

Total cash, cash equivalents and restricted cash

   $ 11,677,852      $ 37,948,603  
  

 

 

    

 

 

 

 

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Neothetics, Inc.

Condensed Balance Sheets

(Unaudited)

 

     September 30,
2017
    December 31,
2016
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 5,750,266     $ 11,477,852  

Prepaid expenses and other current assets

     380,005       1,029,546  
  

 

 

   

 

 

 

Total current assets

     6,130,271       12,507,398  

Restricted cash

     93,382       200,000  

Property and equipment, net

     22,463       109,320  
  

 

 

   

 

 

 

Total assets

   $ 6,246,116     $ 12,816,718  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 410,163     $ 503,739  

Accrued severance

     191,496       109,525  

Other accrued expenses

     794,739       288,928  
  

 

 

   

 

 

 

Total current liabilities

     1,396,398       902,192  

Stockholders’ equity:

    

Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding

     —         —    

Common stock, $0.0001 par value; 300,000,000 shares authorized; 13,831,747 and 13,828,496 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

     1,383       1,382  

Additional paid-in capital

     138,332,367       137,763,499  

Accumulated deficit

     (133,484,032     (125,850,355
  

 

 

   

 

 

 

Total stockholders’ equity

     4,849,718       11,914,526  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 6,246,116     $ 12,816,718  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

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Neothetics, Inc.

Condensed Statements of Operations

(Unaudited)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
                 2017                             2016                             2017                             2016              

Operating expenses:

        

Research and development

   $ 486,828     $ 964,937     $ 3,592,760     $ 5,653,432  

General and administrative

     1,332,848       905,176       4,081,001       4,407,408  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,819,676       1,870,113       7,673,761       10,060,840  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (1,819,676     (1,870,113     (7,673,761     (10,060,840

Interest income

     13,400       13,935       40,084       50,078  

Interest expense

     —         (506,302     —         (1,035,763
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (1,806,276   $ (2,362,480   $ (7,633,677   $ (11,046,525
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (0.13   $ (0.17   $ (0.55   $ (0.80
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute basic and diluted net loss per share

     13,831,747       13,816,464       13,830,981       13,786,207  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

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Neothetics, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

     Nine Months Ended September 30,  
                 2017                             2016              

Operating activities

    

Net loss

   $ (7,633,677   $ (11,046,525

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     25,652       52,896  

Loss on disposal of assets

     55,705       962  

Noncash interest expense on debt

     —         100,290  

Share-based compensation

     565,410       970,381  

Changes in operating assets and liabilities:

    

Prepaid expenses and other current assets

     649,541       1,467,577  

Accounts payable and accrued expenses

     494,206       (4,911,427
  

 

 

   

 

 

 

Net cash used in operating activities

     (5,843,163     (13,365,846
  

 

 

   

 

 

 

Investing activities

    

Proceeds from sale of property and equipment

     5,500       —    
  

 

 

   

 

 

 

Net cash provided by investing activities

     5,500       —    

Financing activities

    

Partial prepayment resulting in loan extinguishment

     —         (9,514,058

Principal payments on bank loan

     —         (485,942

Loan amendment costs

     —         (52,400

Proceeds from issuance of common stock from exercise of options

     3,459       33,542  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     3,459       (10,018,858
  

 

 

   

 

 

 

Net decrease in cash, cash equivalents and restricted cash

     (5,834,204     (23,384,704

Cash, cash equivalents and restricted cash, beginning of period

     11,677,852       37,948,603  
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash, end of period

   $ 5,843,648     $ 14,563,899  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow activity

    

Cash paid for interest

     —       $ 664,292  

The accompanying notes are an integral part of these condensed financial statements.

 

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Neothetics, Inc.

Notes to Unaudited Condensed Financial Statements

1. Organization and Basis of Presentation

Neothetics, Inc. (Neothetics or the Company) was incorporated in Delaware on February 1, 2007, under the name Lipothera, Inc. In September 2008, the Company changed its name to Lithera, Inc. In August 2014, the Company changed its name to Neothetics, Inc. The Company is a clinical-stage specialty pharmaceutical company that has been focused on developing therapeutics for the aesthetic market. Our focus has been on localized fat reduction and body contouring. Our lead product candidate, LIPO-202, is a first-in-class injectable formulation of the long-acting ß2-adrenergic receptor agonist, salmeterol xinafoate, which is an active ingredient in the U.S. Food and Drug Administration, or FDA, approved inhaled products SEREVENT DISKUS ® , ADVAIR HFA ® and ADVAIR DISKUS ® . In June 2017, the Company announced that its Phase 2 proof-of-concept clinical trial of its lead product candidate LIPO-202 did not demonstrate improvement on any efficacy measurements or separation from placebo. As a consequence of the negative results from the Phase 2 proof-of-concept clinical trial of its lead product candidate LIPO-202, the Company announced its plans to initiate a process to explore and review a range of strategic alternatives focusing on seeking an acquisition, business combination or partnership that will allow for it to maximize shareholder value from its remaining assets and cash resources. Oppenheimer and Co., Inc. was retained to act as the Company’s exclusive financial advisor for this process. Further related to the negative clinical trial results, the Company announced a reduction of the Company’s current full-time workforce in order to reduce operating expenses and conserve cash resources.

On October 17, 2017, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Nobelli Merger Sub, Inc., its wholly owned subsidiary (“Merger Sub”), and Evofem Biosciences, Inc., a privately-held Delaware corporation (“Evofem”), pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Evofem, with Evofem becoming a wholly-owned subsidiary of the Company and the surviving corporation of the merger (the “Merger”). The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

Immediately prior to the effective time of the Merger (the Effective Time), each outstanding share of Evofem’s preferred stock (other than shares of Evofem’s Series D preferred stock) will be converted into one share of Evofem common stock. Subject to the terms and conditions of the Merger Agreement, at the Effective Time: (a) each share of Evofem common stock (on an as-converted basis) will be converted solely into the right to receive shares of the Company’s common stock (the Company Common Stock) equal to the common stock exchange ratio described in the Merger Agreement; (b) each outstanding shares of Evofem Series D preferred stock will be converted solely into the right to receive shares of the Company Common Stock equal to the Series D preferred stock exchange ratio described in the Merger Agreement; and (c) each outstanding Evofem stock option that has not previously been exercised prior to the Effective Time will be assumed by the Company. Warrants to purchase shares of Evofem capital stock will be assumed by the Company at the Effective Time and then immediately amended and restated to become warrants to purchase up to an aggregate of 12 million shares of the Company Common Stock (the Company Post-Merger Warrants). The exercise price for the Company Post-Merger Warrants will be equal to the average of the closing sale prices of the Company Common Stock as quoted on The NASDAQ Capital Market for the 30 consecutive trading day period commencing with the first trading day immediately following the Effective Time.

Immediately following the Merger, the name of the Company will be changed from “Neothetics, Inc.” to “Evofem Biosciences, Inc.” The Merger Agreement contemplates that the Board of Directors of the Company will consist of seven members at the Effective Time, six of which will be designated by Evofem and one of which will be designated by the Company. The member to be designated by the Company is expected to be one of the current directors of the Company. The executive officers of the Company immediately after the Effective

 

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Time will be designated by Evofem with Evofem’s Chief Executive Officer, Saundra Pelletier, being the Company’s Chief Executive Officer.

The Merger Agreement contains customary representations, warranties and covenants made by the Company and Evofem, including covenants relating to obtaining the requisite approvals of the stockholders of the Company and Evofem, indemnification of directors and officers, the Company’s and Evofem’s conduct of their respective businesses between the date of signing the Merger Agreement and the closing of the Merger. Consummation of the Merger is subject to certain closing conditions, including, among other things, approval by the stockholders of the Company and Evofem. The Merger Agreement contains certain termination rights for both the Company and Evofem, and further provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Evofem a termination fee of up to $1.5 million or Evofem may be required to pay the Company a termination fee of $1.5 million.

The Merger Agreement contemplates that the Company will also seek approval from its stockholders to effect a reverse stock split intended to increase its trading price above the minimum requirements of The NASDAQ Capital Market. Subject to stockholder approval, the Company expects to implement the reverse stock split at a ratio to be mutually agreed to by the Company and Evofem within the range approved by the Company’s stockholders immediately prior to the Effective Time.

In accordance with the terms of the Merger Agreement, certain affiliated stockholders of Evofem have each entered into a support agreement with Evofem (the Support Agreements). The Support Agreements place certain restrictions on the transfer of the shares of the Evofem held by the respective signatories thereto and include covenants as to the voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and against any actions that could adversely affect the consummation of the Merger.

Concurrently with the execution of the Merger Agreement, the Company entered into a Securities Purchase Agreement with Evofem and certain investors of Evofem (the Securities Purchase Agreement) pursuant to which, conditioned upon and immediately following the Merger, the Company will issue and sell in a private placement transaction (the Financing) $20 million of Company Common Stock and Evofem will issue warrants to purchase shares of Evofem common stock immediately prior to the Effective Time (the Investor Warrants). The Investor Warrants are contemplated to be automatically exercised on a cashless basis at the Effective Time, and the shares of Evofem common stock issued upon exercise of the Investor Warrant will be eligible to receive shares of the Company Common Stock in an amount equal to the common stock exchange ratio upon completion of the Merger. Upon consummation of the Financing, the Merger Agreement contemplates that the Company will terminate its existing Fourth Amended and Restated Investors’ Rights Agreement, dated September 22, 2014, by and between the Company and the investors listed therein (the Existing Investors), and enter into a registration rights agreement with certain of the Existing Investors and certain investors of Evofem.

The merger will be treated by Neothetics as a reverse merger under the acquisition method of accounting in accordance with U.S. GAAP. For accounting purposes, Evofem is considered to be acquiring Neothetics in the merger based upon the following factors: (i) Evofem’s stockholders are expected to own the majority of the voting interests of the combined company immediately following the closing of the merger; (ii) directors appointed by Evofem will hold 6 out of 7 board seats in the combined company board of directors; and (iii) Evofem’s management will hold all key positions in the management of the combined company. The transaction will be accounted for under the acquisition method of accounting under existing U.S. GAAP, which is subject to change and interpretation.

The accompanying unaudited financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K (Annual Report) filed with the Securities and Exchange Commission (SEC). The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with the instructions to Form

 

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10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The Company has incurred significant net losses from its operations since its inception and has an accumulated deficit of $133.5 million as of September 30, 2017. In the first nine months of 2017, the Company used $5.8 million of cash in operations. At September 30, 2017, the Company had cash and cash equivalents of $5.8 million. There is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements for the quarter ended September 30, 2017 are issued.

We cannot predict whether and to what extent we will resume drug development activities and what our future cash needs would be for any such activities. If the Merger is not successful, our Board of Directors may decide to pursue a dissolution and liquidation of our Company. In such an event, the amount of cash available for distribution to our shareholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities, in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.

Restricted Cash

Restricted cash as of September 30, 2017 represents a $93,382 restricted money market account used to secure the standby letter of credit issued in connection with a lease amendment. The restriction will lapse when the standby letter of credit expires (see Note 5 “Debt”).

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statement of cash flows.

 

     September 30,  
     2017      2016  

Cash and cash equivalents

   $ 5,750,266      $ 14,363,899  

Restricted cash

     93,382        200,000  
  

 

 

    

 

 

 

Total cash, cash equivalents and restricted cash

   $ 5,843,648      $ 14,563,899  
  

 

 

    

 

 

 

 

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Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash due to the financial position of the depository institution in which those deposits are held.

Fair Value of Financial Instruments

The carrying amounts of prepaid and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short maturity of these items.

Property and Equipment

Property and equipment, which primarily consist of office furniture and equipment and computer equipment, are stated at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While the Company’s current and historical operating losses and negative cash flows are indicators of impairment, management believes that future cash flows to be received support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses since inception.

Research and Development Costs

Research and development expenses consist primarily of salaries and related overhead expenses, fees paid to consultants and contract research organizations, costs related to acquiring and manufacturing clinical trial materials, and costs related to compliance with regulatory requirements.

All research and development costs are charged to expense as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are recorded when the realizability of such deferred tax assets is not more likely than not.

The guidance on accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. The Company has not recognized interest and penalties in the balance sheets or statements of operations. The Company is subject to taxation in the U.S. and state jurisdictions. The Company’s tax years from inception are subject to examination by the United States and California authorities due to the carryforwards of unutilized net operating losses (NOLs) and research and development credits.

 

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Share-Based Compensation

Share-based compensation expense for stock option grants, restricted stock awards and employee stock purchase plan shares is recorded at the estimated fair value of the award as of the grant date and is recognized as expense on a straight-line basis over the requisite service period of the stock-based award. The estimation of stock options, restricted stock awards and employee stock purchase plan fair value requires management to make estimates and judgments about, among other things, employee exercise behavior, forfeiture rates and volatility of the Company’s common stock. The judgments directly affect the amount of compensation expense that will be recognized.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding during the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities, which include warrants and outstanding stock options and restricted stock awards under the stock compensation plans, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive.

 

     Nine Months Ended
September 30,
 
     2017      2016  

Warrants for common stock

     71,257        71,257  

Common stock options and restricted stock awards issued and outstanding

     1,565,573        1,190,913  
  

 

 

    

 

 

 
     1,636,830        1,262,170  
  

 

 

    

 

 

 

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (or ASU) 2016-02, Leases. ASU 2016-02 requires that lessees recognize assets and liabilities for the rights and obligations for leases with a lease term of more than one year. The amendments in this ASU are effective for annual periods ending after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of adoption on its financial statements.

3. Fair Value Measurements

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, including warrants issued in connection with financing arrangements, and long-term debt. Fair value estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The carrying amount of cash and cash equivalents, accounts payable, and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of these instruments. The Company believes that the fair value of long-term debt approximates its carrying value based on the borrowing rates currently available to the Company for loans with similar terms.

 

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The authoritative guidance for fair value measurements defines fair value 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. Market participants are buyers or sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance prioritizes three levels of inputs into the following hierarchy:

Level 1  — Quoted prices in active markets for identical assets or liabilities.

Level 2  — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3  — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 are as follows:

 

            Fair Value Measurements at Reporting Date Using  
     Balance as of
Sept 30,
2017
     Quoted Prices
in Active
Markets for
Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets

           

Money market fund (1)

   $ 5,750,266      $ 5,750,266      $           —        $           —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 5,750,266      $ 5,750,266      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Included as a component of cash and cash equivalents on accompanying balance sheet.

 

            Fair Value Measurements at Reporting Date Using  
     Balance as of
December 31,
2016
     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets

           

Money market fund (1)

   $ 11,477,852      $ 11,477,852      $           —        $           —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 11,477,852      $ 11,477,852      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Included as a component of cash and cash equivalents on accompanying balance sheet.

4. Property and Equipment

Property and equipment consist of the following:

 

     September 30,
2017
     December 31,
2016
 

Office furniture and equipment

   $ 100,577      $ 254,049  

Less accumulated depreciation and amortization

     (78,114      (144,729
  

 

 

    

 

 

 
   $ 22,463      $ 109,320  
  

 

 

    

 

 

 

 

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5. Debt

Loans

In February 2010, and as amended during 2012, the Company entered into a loan and security agreement (2010 Loan and Security Agreement) with Silicon Valley Bank (SVB), for borrowings of $3,750,000, collateralized by all assets of the Company. In connection with the borrowings, the Company issued warrants to the bank for the purchase of a total of 64,865 shares of Series B convertible preferred stock and warrants to purchase 75,000 shares of Series C convertible preferred stock. Effective upon the IPO, this was converted to a warrant to purchase 24,419 shares of common stock at a weighted average exercise price of $9.90 and expire ten years from the date of issuance. The 2010 Loan and Security Agreement was paid in full in June 2014.

In June 2014, the Company entered into a Loan and Security Agreement (Loan Agreement) with Hercules Technology Growth Capital Inc. that provided for borrowings up to $10.0 million available to the Company in two tranches. Upon closing of the Loan Agreement, the Company borrowed $4.0 million. In October 2014, the Company entered into the first amendment of the Loan Agreement and borrowed the remaining $6.0 million available under the agreement.

In connection with the Loan Agreement, in June 2014, the Company issued warrants to purchase shares of Series C convertible preferred stock equal to 4% of the amount advanced under the loan. Effective upon the IPO, this was converted to a warrant to purchase 46,838 shares of common stock at $8.54, which expires eight years after the date of issuance. The fair value of the warrants issued was $207,429, based on the fair value of such Series C warrants at the date of issuance. The warrants’ fair value and financing fees of approximately $133,000 were recorded as a debt discount.

In March 2016, the Company entered into the second amendment of the Loan Agreement that provided for a prepayment of the outstanding loan carrying amount of $5.5 million with a prepayment fee of $110,000. In connection with the second amendment, the Company re-priced the outstanding warrants to purchase 46,838 shares of common stock at a new exercise price of $0.62, which expire in September 2022 unless exercised prior to such expiration date. The Company recorded a debt discount of $9,417 associated with the fair value of the warrants issued in connection with the amendment. In addition, the Company incurred loan amendment fees and legal fees of $52,400, which the Company recorded as a debt discount.

In September 2016, the Company prepaid the remaining outstanding balance under the Loan Agreement at a carrying amount of $4.0 million with a prepayment fee of $120,000 and an end of term fee of $300,000. Accordingly, the Loan Agreement was terminated on September 23, 2016. Upon termination of the Loan Agreement, the prepayment fees of $230,000 and unamortized end of term fee of $260,000 were recorded as interest expense.

From June 2014 through payoff in September 2016, the Company paid interest equal to the greater of either 9.0%, plus the Prime Rate as reported in The Wall Street Journal, less 3.25% or 9.0%. The Company recorded total interest expense of $0 and $154,057 related to the Loan Agreement for the three months ended September 30, 2017 and 2016, respectively.

Letter of Credit

In January 2015, the Company executed a lease amendment with LJ Gateway, LLC for new office space. In connection with this lease amendment the Company issued a stand-by letter of credit in the amount of $200,000 in lieu of a security deposit. Pursuant to the terms set forth in the lease amendment, as of March 31, 2017, the stand-by letter of credit was reduced to $93,382. The standby letter of credit is secured by a restricted money market account. The terms of the standby letter of credit expire in May 2020, which is subject to automatic yearly renewal prior to this date.

 

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6. Stockholders’ Equity

Warrants

As of September 30, 2017, warrants to purchase 71,257 shares of common stock remain outstanding, of which 24,419 warrants to purchase shares of common stock are at a weighted average exercise price of $9.90 and 46,838 warrants to purchase shares of common stock are at an exercise price of $0.62.

Common Stock

On December 1, 2015, the Company entered into a Controlled Equity Offering Sales Agreement, or Sales Agreement, with Cantor Fitzgerald, as a sales agent pursuant to which the Company may offer and sell from time to time, through Cantor Fitzgerald shares of Neothetics common stock, par value $0.0001 per share, having an aggregate offering price of up to $20.0 million. The minimum share price for this Controlled Equity Offering is selected at the discretion of the board of directors. Through September 30, 2017, no shares of common stock have been sold pursuant to this Sales Agreement.

Stock Compensation Plans

The following table summarizes the Company’s stock compensation plan activity for the nine months ended September 30, 2017:

 

     Options
Outstanding
     Weighted
Average
Exercise Price
 

Outstanding and exercisable at December 31, 2016

     871,203      $           2.95  

Granted

     875,300      $ 1.88  

Exercised

     (3,251    $ 1.06  

Forfeited

     (177,679    $ 2.17  
  

 

 

    

Outstanding and exercisable at September 30, 2017

     1,565,573      $ 2.44  
  

 

 

    

The Company recognized non-cash share-based compensation expense related to its 2014 Employee Stock Purchase Plan, restricted stock awards and stock options granted to employees and directors as follows:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
               2017                          2016                          2017                          2016            

General and administrative

   $        110,976      $          67,687      $         365,556      $         851,837  

Research and development

     32,364        15,331        199,854        118,544  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 143,340      $ 83,018      $ 565,410      $ 970,381  
  

 

 

    

 

 

    

 

 

    

 

 

 

Common Stock Reserved for Future Issuance

The following shares of common stock are reserved for future issuance at September 30, 2017:

 

Warrants issued and outstanding

     71,257  

Stock options issued and outstanding

     1,565,573  

Authorized for future awards under stock compensation plans

     2,131,598  

Employee Stock Purchase Plan

     574,460  
  

 

 

 
     4,342,888  
  

 

 

 

 

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7. Commitments

Operating Leases

The Company entered into a noncancelable operating lease for its facilities on January 20, 2015. The lease expires in March 2020.

On January 31, 2017, the Company entered into an Eleventh Amendment to the Lease with LJ Gateway Office LLC. Concurrent with entering into the Lease Amendment, the Company entered into a Sublease with Abacus Data Systems, Inc. (“Abacus”) providing for the sublease of existing office space . This Lease Amendment also provides the Company with additional office space located at Suite No. 250, 9171 Towne Centre Drive, San Diego California, which the Company occupies as its headquarters.

Upon occurrence of Abacus retaining possession of the original premises in February 2017, Abacus received rent abatement for months one, three, and four as well as a discount of 50% off the base rent for months five through nine. Abacus paid the Company a base rent of $27,768 for the second month’s rent and $30,317 security deposit. The base rent will increase by three percent on each annual anniversary. In February 2017, the Company recorded $353,000 of sublease liability. The Company has recorded the rental income collected or accrued under the sublease as a reduction of rent expense. Rent expense and sublease rental income under the Lease Amendment and Sublease for the three months ended September 30, 2017 were $75,000 and $75,000, respectively, and for the nine months ended September 30, 2017 were $217,000 and $189,000 respectively.

The following table summarizes the minimum lease payments and sublease receipts under the lease agreements:

 

     Lease Payments      Sublease Receipts  

2017

   $ 130,572      $ 69,420  

2018

              410,848                 342,374  

2019

     431,507        352,644  

2020

     109,293        90,143  

2021

     —          —    
  

 

 

    

 

 

 

Total

   $ 1,082,220      $ 854,581  
  

 

 

    

 

 

 

8. Subsequent Events

For purposes of the financial statements as of September 30, 2017, the Company evaluated subsequent events for recognition and measurement purposes through November 8, 2017, the date the financial statements were issued. The Company has evaluated subsequent events for purposes of disclosure through November 15, 2017.

 

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

Evofem Biosciences, Inc.:

San Diego, California

We have audited the accompanying consolidated financial statements of Evofem Biosciences, Inc. and its subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of operations, convertible preferred stock and stockholders’ deficit, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis-of-Matter Regarding Going Concern

The accompanying consolidated financial statements for the year ended December 31, 2016 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 suffered recurring losses from operations and has a net capital deficiency that raises 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

/s/ DELOITTE & TOUCHE LLP

San Diego, California

SEPTEMBER 8, 2017

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

U.S. dollars in thousands (except share data)

 

     December 31,  
     2015     2016  

Assets

    

Current assets:

    

Cash

   $ 16,522     $ 10,937  

Restricted cash

     600       550  

Deferred initial public offering costs

     3,396       —    

Prepaid and other current assets

     368       781  

Assets held for discontinued operations

     738       —    
  

 

 

   

 

 

 

Total current assets

     21,624       12,268  

Property and equipment, net

     521       1,086  

Other noncurrent assets

     27       1,017  

Noncurrent assets held for discontinued operations

     237       —    
  

 

 

   

 

 

 

Total assets

   $ 22,409     $ 14,371  
  

 

 

   

 

 

 

Liabilities, convertible preferred stock and stockholders’ deficit

    

Current liabilities:

    

Accounts payable

   $ 2,549     $ 2,015  

Accrued expenses

     1,944       5,337  

Accrued compensation

     988       1,617  

Related-party payables

     37       —    

Related-party note payable

     14,750       —    

Liabilities held for discontinued operations

     198       —    

Series D 2X liquidation preference

     —         8,030  
  

 

 

   

 

 

 

Total current liabilities

     20,466       16,999  

Deferred rent

     80       172  

Other noncurrent liabilities

     253       213  
  

 

 

   

 

 

 

Total liabilities

     20,799       17,384  

Commitments and contingencies (Note 7)

    

Convertible preferred stock, $0.001 par value; 57,501,554 and 57,501,604 shares authorized at December 31, 2015 and 2016, respectively:

    

Series A convertible preferred stock, 12,768,492 shares issued and outstanding at December 31, 2015; 12,618,279 shares issued and outstanding at December 31, 2016

     23,848       23,848  

Series B convertible preferred stock, 13,965,612 shares issued and outstanding at December 31, 2015; 13,801,318 shares issued and outstanding at December 31, 2016

     43,616       43,616  

Series C-1 convertible preferred stock, 8,660,572 shares issued and outstanding at December 31, 2015; 8,558,686 shares issued and outstanding at December 31, 2016

     34,382       34,382  

Series C convertible preferred stock, 5,037,784 shares issued and outstanding at December 31, 2015 and 2016

     19,469       19,469  

Series D redeemable convertible preferred stock, no shares issued and outstanding at December 31, 2015; 60 shares issued and outstanding at December 31, 2016

     —         56,757  

Stockholders’ deficit:

    

Common stock, $0.001 par value; 157,836,540 shares authorized at December 31, 2015 and 2016; 76,610,860 shares issued and outstanding at December 31, 2015; 81,119,014 shares issued and outstanding at December 31, 2016

     76       81  

Additional paid-in capital

     15,524       20,806  

Accumulated deficit

     (135,305     (201,972
  

 

 

   

 

 

 

Total stockholders’ deficit

     (119,705     (181,085
  

 

 

   

 

 

 

Total liabilities, convertible preferred stock and stockholders’ deficit

   $ 22,409     $ 14,371  
  

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

In thousands (except share and per share data)

 

     Years Ended December 31,  
           2015                 2016        

Operating expenses :

    

Research and development

   $ 17,196     $ 14,855  

Abandoned initial public offering costs

     —         4,705  

General and administrative

     15,019       15,083  
  

 

 

   

 

 

 

Total operating expenses

     32,215       34,643  
  

 

 

   

 

 

 

Loss from operations

     (32,215     (34,643

Other income (expense):

    

Interest income

     3       77  

Other (expense) income, net

     (150     38  

Loss on issuance of Series D redeemable convertible preferred stock

     —         (26,635

Loss on extinguishment of related-party note payable

     —         (6,651

Change in fair value of Series D 2X liquidation preference

     —         (543
  

 

 

   

 

 

 

Total other expense, net

     (147     (33,714
  

 

 

   

 

 

 

Loss from continuing operations before income tax

     (32,362     (68,357

Income tax (expense) benefit

     (1     613  
  

 

 

   

 

 

 

Loss from continuing operations

     (32,363     (67,744

Discontinued operations:

    

(Loss) income from discontinued operations, net of income tax

     (257     80  

Gain on sale of discontinued operations, net of income tax

     —         997  
  

 

 

   

 

 

 

Net (loss) gain on sale of discontinued operations

     (257     1,077  
  

 

 

   

 

 

 

Net loss

     (32,620     (66,667
  

 

 

   

 

 

 

Accretion of Series D redeemable convertible preferred stock dividends

     —         (1,144
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (32,620   $ (67,811
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

 

In thousands (except share data)

 

    Series A
Convertible
Preferred Stock
    Series B
Convertible
Preferred Stock
    Series C-1
Convertible
Preferred Stock
    Series C
Convertible
Preferred Stock
    Series D
Redeemable
Convertible
Preferred
Stock
    Common Stock     Additional
Paid-in
Capital
    Accumulated
Deficit
    Total
 Stockholders’
Deficit
 
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount        

Balance at December 31, 2014

    12,768,492     $ 23,848       13,965,612     $ 43,616       —       $ —         —       $ —         —       $ —         76,610,860     $ 76     $ 14,152     $ (102,685   $ (88,457

Issuance of Series C-1 convertible preferred stock upon conversion of EvoMed Debt

    —         —         —         —         8,660,572       34,382       —         —         —         —         —         —         —         —         —    

Issuance of Series C convertible preferred stock for cash, net of issuance costs of $531

    —         —         —         —         —         —         5,037,784       19,469       —         —         —         —         —         —         —    

Stock-based compensation

    —         —         —         —         —         —         —         —         —         —         —         —         1,372       —         1,372  

Net loss

    —         —         —         —         —         —         —         —         —         —         —         —         —         (32,620     (32,620
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

    12,768,492       23,848       13,965,612       43,616       8,660,572       34,382       5,037,784       19,469       —         —         76,610,860       76       15,524       (135,305     (119,705

Issuance of Series D redeemable convertible preferred stock at fair value upon conversion and cancellation of related-party note payable

    —         —         —         —         —         —         —         —         10       9,790       —         —         5,000       —         5,000  

Issuance of Series D redeemable convertible preferred stock at fair value for cash, net of issuance costs of $186

    —         —         —         —         —         —         —         —         50       45,823       —         —         —         —         —    

Cancellation of shares formerly held by EvoMed

    (150,213     —         (164,294     —         (101,886     —         —         —         —         —         (250,937     —         —         —         —    

Accretion of Series D redeemable convertible preferred stock dividends

    —         —         —         —         —         —         —         —         —         1,144       —         —         (1,144     —         (1,144

Issuance of restricted common stock

    —         —         —         —         —         —         —         —         —         —         4,759,091       5       (5     —         —    

Stock-based compensation

    —         —         —         —         —         —         —         —         —         —         —         —         1,431       —         1,431  

Net loss

    —         —         —         —         —         —         —         —         —         —         —         —         —         (66,667     (66,667
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

    12,618,279     $ 23,848       13,801,318     $ 43,616       8,558,686     $ 34,382       5,037,784     $ 19,469       60     $ 56,757       81,119,014     $ 81     $ 20,806     $ (201,972   $ (181,085
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

In thousands

 

     Years Ended December 31,  
           2015                 2016        

Cash flows from operating activities from continuing operations:

    

Net loss

   $ (32,620   $ (66,667

Loss (gain) on sale of discontinued operations

     257       (1,077
  

 

 

   

 

 

 

Net loss from continuing operations

     (32,363     (67,744

Adjustments to reconcile net loss from continuing operations to net cash and restricted cash used in operating activities from continuing operations:

    

Loss on issuance of Series D redeemable convertible preferred stock

     —         26,635  

Loss on extinguishment of related-party note payable

     —         6,651  

Abandoned initial public offering costs

     —         4,705  

Tax benefit

     —         (615

Change in fair value of Series D 2X liquidation preference

     —         543  

Stock-based compensation

     1,372       1,431  

Depreciation and amortization

     17       92  

Deferred rent

     (31     (17

Noncash interest expense

     118       —    

Changes in operating assets and liabilities from continuing operations:

    

Prepaid and other assets

     (190     (153

Accounts payable

     1,314       105  

Accrued expenses and other liabilities

     (128     3,321  

Accrued compensation

     944       629  
  

 

 

   

 

 

 

Net cash and restricted cash used in operating activities from continuing operations

     (28,947     (24,417
  

 

 

   

 

 

 

Cash flows from investing activities from continuing operations:

    

Purchases of property and equipment

     (525     (498
  

 

 

   

 

 

 

Net cash and restricted cash used in investing activities from continuing operations

     (525     (498
  

 

 

   

 

 

 

Cash flows from financing activities from continuing operations:

    

Proceeds from advances from related parties, including note payable

     26,914       —    

Payments on advances from related parties, including note payable

     (385     (4,787

Proceeds from issuance of Series C convertible preferred stock, net of issuance costs

     19,656       —    

Proceeds from issuance of Series D redeemable convertible preferred stock, net of issuance costs

     —         24,814  

Cash paid for deferred initial public offering costs and Series C issuances costs

     (2,076     (1,966
  

 

 

   

 

 

 

Net cash and restricted cash provided by financing activities from continuing operations

     44,109       18,061  
  

 

 

   

 

 

 

Net cash and restricted cash provided by (used in) continuing operations

     14,637       (6,854

Net cash and restricted cash provided by discontinued operating activities

     363       619  

Net cash and restricted cash provided by discontinued investing activities

     —         600  
  

 

 

   

 

 

 

Net change in cash and restricted cash

     15,000       (5,635

Cash and restricted cash, beginning of period

     2,122       17,122  
  

 

 

   

 

 

 

Cash and restricted cash, end of period

   $ 17,122     $ 11,487  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ —       $ 73  
  

 

 

   

 

 

 

Cash paid for taxes

   $ 1     $ 2  
  

 

 

   

 

 

 

Supplemental disclosure of noncash investing and financing activities:

    

Purchases of property and equipment in accounts payable

   $ 3     $ —    
  

 

 

   

 

 

 

Tenant improvement allowances paid by landlord

   $ —       $ 162  
  

 

 

   

 

 

 

Conversion of EvoMed Debt into Series C-1 convertible preferred stock

   $ 34,382     $ —    
  

 

 

   

 

 

 

Conversion of related-party note payable into Series D redeemable convertible preferred stock

   $ —       $ 5,000  
  

 

 

   

 

 

 

Forgiveness of note payable by related-party

   $ —       $ 5,000  
  

 

 

   

 

 

 

Transfer of leasehold improvements under UTC Lease to related-party

   $ 77     $ —    
  

 

 

   

 

 

 

Series C preferred stock issuance costs included in accounts payable

   $ 187     $ —    
  

 

 

   

 

 

 

Issuance of restricted stock awards

   $ —       $ 5  
  

 

 

   

 

 

 

Deferred initial public offering costs included in accounts payable and accrued expenses

   $ 1,320     $ 850  
  

 

 

   

 

 

 

Issuance of Series D 2X liquidation preference

   $ —       $ 7,487  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

1. Description of Business and Basis of Presentation

Description of Business

Evofem Biosciences, Inc., formerly Evofem Holdings, Inc. (Evofem Biosciences) is a San Diego-based biotechnology company which develops and markets products that are woman-controlled, non-invasive and rapidly reversible. Evofem Biosciences’ primary goal is to provide women in every global market with access to effective products that are well suited to their lifestyle and consistent with their core values. Evofem Biosciences’ lead product candidate, Amphora ® , is a non-hormonal vaginal gel believed to have multipurpose prevention technology properties, including contraception, prevention of reoccurring bacterial vaginosis and prevention of the transmission of chlamydia and gonorrhea.

Evofem Biosciences was incorporated in the state of Delaware in July 2015. Evofem Biosciences operations include those of its wholly-owned subsidiaries, Evofem Inc. (Evofem), a Delaware corporation Evofem North America, Inc., a Delaware corporation (ENA), Evofem Limited, LLC a Delaware limited liability company and Evofem Ltd., a limited company registered in England and Wales and those of its partially owned subsidiary, Evolution Pharma, a Dutch limited partnership (EP) with 99% of the outstanding partnership interests held by Evofem Biosciences and 1% of the outstanding partnership interests held by Evofem Limited LLC (collectively, the Company or Management). Evofem Limited, LLC and Evofem Ltd. are currently inactive.

Prior to October 2015, Evofem was a wholly-owned subsidiary of EvoMed LLC (EvoMed). In October 2015, through an agreement of merger, Evofem became a wholly-owned subsidiary of Evofem Biosciences at which time (i) each share of Evofem equity securities outstanding were exchanged for two shares of a security having the same rights, preferences and privileges in Evofem Biosciences (the October 2015 Reorganization), (ii) each stock option to purchase shares of Evofem Biosciences common stock outstanding under the 2012 equity incentive plan was exchanged for stock options to purchase two shares of Evofem Biosciences common stock and (iii) the Company and the option holders agreed to cancel approximately 52.0% of the then outstanding stock options of Evofem Biosciences. See Stock Option Exchange and Cancellation discussion in Note 11 — Equity Incentive Plan for further details on the cancellation of the stock options. The consolidated financial statements and the notes thereto have been retroactively adjusted to reflect the stock split affected in the October 2015 Reorganization.

Functional Currency

The functional currency of the Company’s wholly-owned subsidiaries, EP and Evofem Ltd, is the United States Dollar. Accordingly, historical exchange rates are used to revalue nonmonetary assets and liabilities and current exchange rates are used to revalue monetary assets and liabilities at each reporting date. For transactions not denominated in the United States Dollar, costs and expenses are recorded at exchange rates that approximate the rates in effect on the transaction date. Transaction gains and losses generated from the revaluation of monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary are included in other (expense) income, net in the consolidated statements of operations.

Consolidation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). All intercompany accounts and transactions have been eliminated in consolidation.

 

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Risks, Uncertainties and Going Concern

The Company’s principal operations have been related to development of Amphora, raising capital, research and development, recruiting management and building a corporate infrastructure. The Company has incurred operating losses and negative cash flows from operating activities since inception. As of December 31, 2016, the Company had cash (unrestricted) of $10.9 million, a working capital deficit of $4.7 million and an accumulated deficit of $202.0 million. The Company anticipates it will continue to incur net losses into the foreseeable future.

In August 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements — Going Concern (ASU No. 2014-15), which requires management of public and private companies to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that fact. Management is required to make this evaluation for both annual and interim reporting periods and is required to evaluate and disclose whether its plans alleviate that doubt. The Company adopted ASU No. 2014-15 in December 2016, as required by the ASU. The adoption of ASU No. 2014-15 resulted in increased disclosures, as per below, and had no quantitative impact on the Company’s consolidated financial statements.

The Company is subject to risks common to other life science companies in the development stage including, but not limited to, uncertainty of product development and commercialization, lack of marketing and sales history, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection of proprietary technology, ability to raise additional financing, and compliance with FDA and other government regulations. If the Company does not successfully commercialize any product candidates, it will be unable to generate recurring product revenue or achieve profitability. Management’s plans to meet its short and long term operating cash flow requirements include obtaining additional funding.

In August 2017, as more fully described in Note 14 — Subsequent Events to these audited consolidated financial statements , the Company sold 15 shares of Series D redeemable convertible preferred stock (Series D) for net proceeds of $7.4 million. The uncertainties associated with the Company’s ability to (i) obtain additional equity financing on terms that are favorable to the Company, (ii) enter into collaborative agreements with strategic partners and (iii) succeed in its future operations, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the Company be unable to continue its operations. If the Company is not able to obtain the required funding in the near future, through its planned private equity financing or other means, or is not able to obtain funding on terms that are favorable to the Company, it will have a material adverse effect on its operations and strategic development plan for future growth. If the Company cannot successfully raise additional funding and implement its strategic development plan, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these could materially and adversely affect the Company’s liquidity, financial condition and business prospects and the Company may have to cease operations.

 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the notes thereto.

On an ongoing basis, Management evaluates its estimates related to, but not limited to, the useful lives of property and equipment, the recoverability of long-lived assets, pre-clinical and clinical trial accruals, the

 

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measurement of the Series D 2X Liquidation Preference, assumptions used in estimating the fair value of stock-based compensation expense and other contingencies. The Company’s assumptions regarding the measurement of the Series D 2X Liquidation Preference and stock-based compensation are more fully described in Note 6 — Fair Value of Financial Instruments and Note 11 — Equity Incentive Plan , respectively. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. The Company makes adjustments when facts and circumstances dictate. The estimates are the basis for making judgments about the carrying values of assets and liabilities and recorded expenses that are not readily apparent from other sources. As future events and their effects cannot be determined with precision, actual results may materially differ from those estimates or assumptions.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and restricted cash. Deposits in the Company’s checking and time deposit accounts are maintained in federally insured financial institutions in excess of federally insured limits. The Company invests in funds through a major U.S. bank and is exposed to credit risk in the event of default to the extent of amounts recorded on the consolidated balance sheets.

The Company has not experienced any losses in such accounts and believes it is not exposed to significant concentrations of credit risk on its cash and restricted cash balances due to the financial position of the depository institutions in which these deposits are held.

Cash and Restricted Cash

As of December 31, 2015 and 2016, cash consists of readily available cash in checking accounts. Restricted cash consists of cash held in monthly time deposit accounts, which are collateral for the Company’s credit card and facility lease.

In December 2016, the Company elected to early adopt the FASB ASU No. 2016-18 — Statements of Cash Flows (Topic 230): Restricted Cash (ASU No. 2016-18). As such the Company’s consolidated statements of cash flows for the years ended December 31, 2015 and 2016 have been presented consistent with the interpretative guidance in ASU No. 2016-18.

The following table provides a reconciliation of cash and restricted cash, reported within the consolidated statements of cash flows as of December 31, (in thousands):

 

     2015      2016  

Cash

   $ 16,522      $ 10,937  

Restricted cash

     600        550  
  

 

 

    

 

 

 

Total cash and restricted cash presented in the consolidated statements of cash flows

   $ 17,122      $ 11,487  
  

 

 

    

 

 

 

Fair Value of Financial Instruments

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, that are required to be recorded at fair value, the Company considers the principal or most advantageous market in which to transact and the market-based risk. The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis.

 

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The valuation of assets and liabilities are subject to fair value measurements using a three-tiered approach and fair value measurement is classified and disclosed by the Company in one of the following three categories:

 

Level 1:    Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2:    Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3:    Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The carrying amounts reported in the consolidated balance sheets for cash, restricted cash, accounts payable, accrued expenses and accrued compensation approximate their fair values due to their short-term nature. As of December 31, 2015, due to the nature of related-party transactions, the fair value of the related-party note payable could not be determined. As of December 31, 2016, the Company had no related-party notes outstanding and based on the borrowing rate currently available to the Company for loans with similar terms, which is considered a Level 2 input, the Company believes the fair value of the Flex Note approximates its carrying value. See Note 3 — Discontinued Operations for a description of the Flex Note received as consideration for the Softcup Sale.

Deferred Initial Public Offering Costs

During 2015, the Company initiated an initial public offering of its common stock (IPO) on the alternative investment market of the London Stock Exchange and recorded deferred IPO offering costs of $3.4 million as of December 31, 2015. Prior to March 2016, the Company recorded an additional $1.3 million in deferred IPO offering costs. In March 2016, the Company abandoned its efforts to raise capital through an IPO on the alternative investment market and recognized expense of $4.7 million in aggregate initial public offering costs. These costs included direct costs related to the abandoned transaction and are separately disclosed in the consolidated balance sheets and statements of operations during the years ended December 31, 2015 and 2016.

Assets and Liabilities Held for Discontinued Operations

In July 2016, the Company sold its Softcup line of business (the Softcup Sale). Therefore, all identifiable assets and liabilities associated with the Softcup line of business are presented in the Company’s consolidated balance sheets as assets held for discontinued operations, noncurrent assets held for discontinued operations and liabilities held for discontinued operations. See Note 3 — Discontinued Operations and Note 4 — Assets and Liabilities Held for Discontinued Operations for a description of the Softcup Sale and the identified assets and liabilities held for discontinued operations as of December 31, 2015, respectively. As the Softcup Sale was completed prior to December 31, 2016, the Company does not have assets or liabilities held for discontinued operations as of December 31, 2016.

Property and Equipment

Property and equipment generally consist of research equipment, computer equipment and software and office furniture, and are recorded at cost and depreciated over the estimated useful lives of the assets (generally three to five years) using the straight-line method. Leasehold improvements are stated at cost and are amortized on a straight-line basis over the lesser of the remaining term of the related lease or the estimated useful lives of the assets. Repairs and maintenance costs are charged to expense as incurred and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheets and any resulting gain or loss is reflected in the consolidated statements of operations in the period realized.

 

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Impairment of Long-Lived Assets

The Company reviews property and equipment for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An impairment loss would be recognized when estimated future undiscounted cash flows relating to the asset or asset group are less than its carrying amount. An impairment loss is measured as the amount by which the carrying amount of an asset or asset group exceeds its fair value. While the Company’s current and historical operating losses and negative cash flows are possible indicators of impairment, management believes that future cash flows to be generated by these assets support the carrying value of its long-lived assets and, accordingly, did not recognize any impairment losses during the years ended December 31, 2015 and 2016.

Series D 2X Liquidation Preference

In July 2016, the Company entered into a Series D redeemable convertible preferred stock (Series D) purchase agreement (Series D SPA) with Woodford Investment Management LLP (WIM), one of the Company’s existing investors. The terms of the Series D financing are described under the Series D Redeemable Convertible Preferred Stock discussion in Note 9 — Convertible Preferred Stock . Under the terms of the Series D SPA, in a liquidation transaction the Company’s Series D redeemable convertible preferred stock participates, prior and in preference to the other series of convertible preferred stock and common stock, at a rate of two times its initial investment, plus accrued and unpaid dividends (the Series D 2X Liquidation Preference). The Company determined the Series D 2X Liquidation Preference represented an embedded derivative which required bifurcation and separate liability accounting and was initially recorded at fair value. The Company’s accounting for the Series D 2X Liquidation Preference is described in Note 6 — Fair Value of Financial Instruments . Changes in the fair value of the Series D 2X Liquidation Preference are recognized as increases in or decreases to the change in fair value of Series D 2X Liquidation Preference, a component of other income (expense) in the consolidated statements of operations.

The Series D 2X Liquidation Preference will be marked-to-market until the earlier of (i) the automatic conversion into either preferred stock or common stock in a financing in which gross proceeds to the Company are greater than or equal to $45.0 million, (ii) the optional conversion into either preferred stock or common stock in a financing in which gross proceeds to the Company are less than $45.0 million, (iii) its redemption or (iv) upon a change in control event; at which time the Company will estimate the final fair value of the Series D 2X Liquidation Preference. Upon the occurrence of one of these events, the final change in fair value of the Series D 2X Liquidation Preference will be recognized within change in fair value of Series D 2X Liquidation Preference in the consolidated statements of operations and the Series D 2X Liquidation Preference liability will be reclassified to additional paid-in capital in the consolidated balance sheets.

Convertible Preferred Stock

The Company’s Series A, Series B, Series C-1, Series C convertible preferred stock and Series D redeemable convertible preferred stock are classified as temporary equity instead of stockholders’ deficit in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities, as the shares are conditionally redeemable at the holder’s option and upon certain change in control events that are outside the Company’s control, including liquidation, sale, or transfer of control of the Company. Upon such change in control events, holders of the Series A, Series B, Series C-1, Series C convertible preferred stock and Series D redeemable convertible preferred stock can cause its redemption.

Research and Development

Research and development (R&D) expenses include the costs associated with the Company’s R&D activities, including, but not limited to, payroll and personnel-related expenses, stock-based compensation expense, materials, laboratory supplies, clinical studies and outside services. R&D costs are expensed as

 

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incurred, except when accounting for nonrefundable advance payments for goods or services not yet received. These payments, if any, are capitalized at the time of payment and expensed as the related goods are delivered or the services are performed.

Patent Expenses

The Company expenses all costs incurred relating to patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the consolidated statements of operations.

Stock-based Compensation

Stock-based compensation expense for equity instruments issued to employees and nonemployee members of the Company’s board of directors (BOD) is measured based on estimating the fair value of each stock option on the date of grant using the Black-Scholes-Merton option-pricing model (the BSM). Equity instruments issued to nonemployees are valued using the BSM and are subject to revaluation as the underlying equity instruments vest.

Expensing

The following table summarizes the Company’s stock option expensing policies for employees and nonemployees:

 

    

Employees

  

Nonemployee (Consultant)

Service only condition

   Straight-line    Re-value through the performance commitment date

Performance criterion is probable of being met:

Service criterion is complete

   Recognize the grant date fair value of the award(s) once the performance criterion is considered probable of occurrence    Re-value the award(s) once the performance criterion is considered probable of occurrence and recognize expense for the then fair value of the award(s)

Service criterion is not complete

   Expense using an accelerated multiple-option approach (1) over the remaining requisite service period    Same as for employees, except the award will be marked-to-market through the performance commitment date.

Performance criterion is not probable of being met and:

Is not tied to the successful completion of an IPO by the Company

   No expense recognition is required until the performance criterion is considered probable at which point expense is recognized using an accelerated multiple-option approach    Same as for employees, except the award will be marked-to-market through the performance commitment date

Is tied to the successful completion of an IPO by the Company

   Upon closing of an IPO by the Company, recognize the grant date fair value of the award(s)    Same as for employees, except expense is recognized based upon the fair value of the Company’s common stock sold in the IPO

 

(1) The accelerated multiple-option approach results in compensation expense being recognized for each separately vesting tranche of the award as though the award was, in substance multiple awards, and, therefore, results in accelerated expense recognition during the earlier vesting periods.

 

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Determining Fair Value of Stock Options

The fair value of the shares of the Company’s common stock underlying its stock-based awards are estimated on each grant date by the BOD. To determine the fair value of the common stock underlying option grants, the BOD considers, among other things, valuations of the Company’s common stock prepared by an unrelated valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Given the absence of a public trading market for the Company’s common stock, the BOD exercises reasonable judgment and considers a number of objective and subjective factors to determine the best estimate of the fair value of the Company’s common stock, including the Company’s stage of development; progress of the Company’s R&D efforts; the Company’s operating and financial performance, including levels of available capital resources; the rights, preferences and privileges of the Company’s convertible preferred stock relative to those of its common stock; sales of the Company’s convertible preferred stock; the valuation of publicly traded companies in its industry, equity market conditions affecting comparable public companies and the lack of marketability of the Company’s common stock. The Company obtains valuations on at least an annual basis or when it determines that significant value generating or diminishing internal and/or external events have occurred, which would significantly increase or decrease the fair value of the common stock underlying its stock-based awards

For purposes of re-measuring the Company’s Series D 2X Liquidation Preference and the Company’s consultant stock options, the Company has valuations performed as of each interim reporting period, which result in concluded fair values for both the Series D 2X Liquidation Preference and the Company’s common stock underlying the stock options. The Company utilizes these concluded fair values to recognize the change in fair value of the Series D 2X Liquidation Preference and estimated consultant stock-based compensation expense using the BSM at each reporting date.

Forfeitures

The Company early adopted ASU No. 2016-09 Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU No. 2016-09). ASU No. 2016-09 simplified the accounting for employee share- based compensation including the accounting for (i) income taxes, (ii) forfeitures, and (iii) statutory tax withholding, as well as classification in the statement of cash flows. ASU No. 2016-09 allowed the Company to make a one-time policy election to record forfeitures when they occur. As the Company’s consolidated financial statements had not previously been made available for issuance, the Company retroactively adopted ASU No. 2016-09. The Company’s adoption of ASU No. 2016-09 had no impact on the Company’s financial position or results of operations. The Company has had no stock option exercises and, therefore, the simplification of statutory tax withholding requirements and the related changes in the statement of cash flows will be applied prospectively. See Note 13 — Income Taxes , for discussion of the impact on the adoption of ASU No. 2016-09 on the Company’s deferred tax assets.

Performance-based Awards

In September and October 2016, the Company issued restricted stock awards (RSAs) to members of management and a restricted stock unit (RSU) to the Company’s chairman of the BOD that are subject to both a time-based vesting restriction as well as a performance criterion (successful completion of an IPO by the Company). See Restricted Stock Awards discussion in Note 10 — Stockholders’ Deficit for terms of the RSAs. See the Consulting Agreements discussion in Note 8 — Related-party Transactions and the Restricted Stock Units discussion in Note 11 — Equity Incentive Plan for terms of the RSU. For these RSAs and the RSU, the Company determined that it is probable that the performance criterion (completion of an IPO by the Company) could be met after the requisite service period is completed. Effective January 1, 2016, the Company adopted ASU No. 2016-12 Compensation — Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service

 

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Period (ASU No. 2016-12) . The Company had no prior history of issuing stock options, RSAs or RSUs with both a time-based vesting restriction and a performance condition and, therefore, the adoption of ASU No. 2016-12 had no impact on the Company’s consolidated financial position or results of operations.

For performance-based RSAs (i) the fair value of the award is determined on the grant date, (ii) the Company assesses the probability of the individual milestone under the award being achieved and (iii) the fair value of the shares subject to the milestone is expensed over the implicit service period commencing once management believes the performance criteria is probable of being met which for an IPO is the IPO effective date.

Income Taxes

The accounting guidance for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities based on the technical merits of the position.

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.

Comprehensive Loss

Comprehensive loss includes all changes in equity during a period from nonowner sources. For each of the years ended December 31, 2015 and 2016, comprehensive loss is composed of net loss as the Company had no transactions from nonowner sources.

Recently Issued Accounting Pronouncements — Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU No. 2014-09), which amends the existing accounting standards for revenue recognition. ASU No. 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU No. 2014-09 will be effective for the Company beginning January 1, 2018. Although early adoption is permitted, the Company does not plan to early adopt ASU No. 2014-09. The Company plans to adopt ASU No. 2014-09 using the full retrospective approach, which will not have an impact on the Company’s financial position or results of operations; as the Company is pre-revenue and does not anticipate generating revenue prior to the Company’s required adoption date.

In February 2016, the FASB issued ASU No. 2016-02,  Leases (Topic 842 ) (ASU No. 2016-02), which changes the presentation of assets and liabilities relating to leases. The core principle of ASU No. 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6,  Elements of Financial Statements , and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. ASU No. 2016-02 will be effective for the Company beginning January 1, 2019. The Company’s 2015 Lease (See Note 7 — Commitments and Contingencies for details of the 2015 Lease) is due to expire in 2020 and will be subject to the provisions of ASU No. 2016-02, however, the Company has not yet assessed the impact of this new standard on its consolidated financial statements.

 

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In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU No. 2017-01), to 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. ASU No 2017-01 will be effective for the Company beginning January 1, 2018. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

 

3. Discontinued Operations

In June 2016, the Company’s BOD committed to a plan to sell its Softcup line of business (Softcup) and re-direct its available cash resources to further develop Amphora. In July 2016, the Company entered into an Asset Purchase Agreement with The Flex Company (Flex), whereby Flex would acquire certain assets and assume certain liabilities associated with Softcup. Total consideration for the Softcup sale was $1.9 million, with $0.6 million being received in cash at closing and the remaining $1.3 million due and payable under a note in favor of the Company (the Flex Note) through January 1, 2021 (the Maturity Date). The Flex Note bears simple interest at a rate of 5.0% per annum on the remaining principal amount outstanding and is payable each January 1 including accrued and unpaid interest beginning in 2017 through the Maturity Date.

The Flex Note is secured by the Softcup assets and has been recorded at present value, or approximately $1.3 million, as of the effective date. The Company’s incremental borrowing rate and the stated interest rate of the Flex Note are materially consistent.

The Softcup sale constitutes the sale of a business in accordance with the authoritative guidance and as of June 30, 2016, the Softcup sale met the criteria to be classified as held for sale and, therefore, a discontinued operation. For all periods presented prior to the Softcup sale, the carrying values of the assets acquired and the liabilities assumed in the consolidated balance sheets have been disclosed separately and are reflected in Note 4 — Assets and Liabilities Held for Discontinued Operations . After a short transition period (less than 30 days), the Company no longer has any continuing involvement with Softcup, as such the Company’s consolidated statements of operations and consolidated statements of cash flows exclude from continuing operations, Softcup revenue, related costs and the gain on the Softcup sale.

The following table presents major classes of line items constituting (loss) gain on sale of discontinued operations for the years ended December 31, (in thousands):

 

     2015     2016  

Revenue

   $ 2,608     $ 1,183  

Cost of goods sold

     (2,378     (906

Sales and marketing expenses

     (487     (150
  

 

 

   

 

 

 

Pretax (loss) gain on discontinued operations related to major classes of pretax (loss) gain

     (257     127  

Pretax gain on sale of discontinued operations

     —         1,565  
  

 

 

   

 

 

 

Total pretax (loss) gain on sale of discontinued operations

     (257     1,692  

Income tax expense

     —         (615
  

 

 

   

 

 

 

Net (loss) gain on sale of discontinued operations

   $ (257   $ 1,077  
  

 

 

   

 

 

 

 

4. Assets and Liabilities Held for Discontinued Operations

Due to the short-term nature of the Company’s accounts receivable, inventories, prepaid expenses and other current assets acquired as well as accounts payable and accrued expenses assumed by Flex, management determined the carrying values approximated fair value. Machinery and equipment required to produce the Softcup product has been valued at carrying value, which was lower than the present value of the machinery and equipment less cost to sell.

 

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The following tables present major classes of assets and liabilities related to discontinued operations as of December 31, 2015 (in thousands):

 

Current assets held for discontinued operations:

  

Accounts receivable, net

   $ 359  

Inventory

     251  

Prepaid and other current assets

     128  
  

 

 

 

Total current assets held for discontinued operations

     738  

Noncurrent assets held for discontinued operations:

  

Property and equipment, net

     237  
  

 

 

 

Total assets held for discontinued operations

   $ 975  
  

 

 

 

Liabilities held for discontinued operations:

  

Accounts payable

   $ 184  

Accrued expenses

     14  
  

 

 

 

Total liabilities held for discontinued operations

   $ 198  
  

 

 

 

 

5. Balance Sheet Details

Prepaid and other current assets consist of the following as of December 31, (in thousands):

 

     2015      2016  

Flex note receivable

   $ —        $ 250  

Clinical supplies

     —          178  

Insurance

     76        101  

Rent

     57        61  

Research and development costs

     —          51  

Marketing and communications costs

     54        —    

Other

     181        140  
  

 

 

    

 

 

 

Total

   $ 368      $ 781  
  

 

 

    

 

 

 

Property and Equipment, Net

Property and equipment, net, consists of the following, as of December 31, (in thousands):

 

     Useful Life      2015      2016  

Research equipment

     5 years      $ 125      $ 125  

Computer equipment and software

     3 years        32        6  

Office furniture

     5 years        —          205  

Leasehold improvements

     5 years or less        —          340  

Construction in-process

     —          403        508  
     

 

 

    

 

 

 
        560        1,184  

Less: accumulated depreciation and amortization

        (39      (98
     

 

 

    

 

 

 

Total, net

      $ 521      $ 1,086  
     

 

 

    

 

 

 

Depreciation expense was $17,000 and $0.1 million for the years ended December 31, 2015 and 2016, respectively.

 

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Other Noncurrent Assets

Other noncurrent assets consist of the following, as of December 31, (in thousands):

 

     2015      2016  

Flex note receivable, net of current portion

   $ —        $ 1,000  

Deposits

     27        17  
  

 

 

    

 

 

 

Total

   $ 27      $ 1,017  
  

 

 

    

 

 

 

Accrued Expenses

Accrued expenses consist of the following, as of December 31, (in thousands):

 

     2015      2016  

Accrued sublicense fees

   $ —        $ 3,010  

Accrued deferred IPO costs

     801        780  

Accrued research and development costs

     113        604  

Accrued board of director’s fees and related expenses

     56        226  

Accrued legal and other professional fees

     424        456  

Accrued other

     550        261  
  

 

 

    

 

 

 

Total

   $ 1,944      $ 5,337  
  

 

 

    

 

 

 

 

6. Fair Value of Financial Instruments

At December 31, 2015, the Company had no financial assets or financial liabilities measured at fair value on a recurring basis. At December 31, 2016, the Company had no financial assets and no Level 1 and Level 2 financial liabilities measured on a recurring basis.

The fair value of the Company’s Level 3 financial liabilities measured on a recurring basis at December 31, 2016, is summarized in the following table (in thousands):

 

     Level 3 Financial
Liabilities
 

Series D 2X Liquidation Preference

   $             8,030  
  

 

 

 

Series D 2X Liquidation Preference is stated at fair value and is considered a Level 3 input because the fair value measurement is based, in part, on significant inputs not observed in the market. The Company determined the fair value of Series D 2X Liquidation Preference as described below.

The following table summarizes the changes in Level 3 financial liabilities measured at fair value on a recurring basis for the year ended December 31, 2016 (in thousands):

 

     Series D 2X
Liquidation
Preference
 

Balance at December 31, 2015

   $ —    

Issuance of Series D 2X Liquidation Preference

             7,487  

Change in fair value of Series D 2X Liquidation Preference

     543  
  

 

 

 

Balance at December 31, 2016

   $ 8,030  
  

 

 

 

 

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Series D 2X Liquidation Preference

As described in the Series D 2X Liquidation Preference discussion in Note 2 — Summary of Significant Accounting Policies , the Company’s issuance of Series D redeemable convertible preferred stock resulted in the identification of an embedded derivative that required bifurcation and liability accounting at fair value. See the Series D Redeemable Convertible Preferred Stock discussion in Note 9 — Convertible Preferred Stock for the terms of the Series D.

To determine the fair value of the Company’s Series D 2X Liquidation Preference, the Company utilizes a hybrid valuation model that considers the probability of achieving certain exit scenarios, the entity’s cost of capital, the estimated period the Series D 2X Liquidation Preference will be outstanding, consideration received for the instrument with the Series D 2X Liquidation Preference and at what price and changes, if any, in the fair value of the underlying instrument to the Series D 2X Liquidation Preference. The valuation resulted in a concluded fair value of the Series D 2X Liquidation Preference as of July 18, 2016, the original issuance date, of $7.6 million.

In December 2016, upon the final closing of the Series D, the Company determined the issuance of the new shares of Series D had a favorable impact on the overall fair value of the derivative liability at issuance of $0.1 million due to (i) an increased number of shares outstanding as of December 31, 2016, (ii) changes in the Company’s forecast and (iii) changes in the timing of exit scenarios that resulted in a decreased enterprise value. Management recorded the $0.1 million as a reduction of the overall Series D 2X Liquidation Preference liability. As such, for the year ended December 31, 2016 the issuance of the Series D 2X Liquidation Preference was recorded as $7.5 million.

The estimated change in fair value of the Series D 2X Liquidation Preference liability for the year ended December 31, 2016 was $0.5 million.

 

7. Commitments and Contingencies

Operating Leases

In November 2009, Evofem entered into a lease for office space under a noncancelable lease agreement that expired in March 2017 (the UTC Lease), as amended. See Cosmederm Lease Termination discussion in Note 14 — Subsequent Events for information regarding the termination of the UTC Lease. Through January 2015, Evofem shared this office space with Cosmederm Biosciences, Inc. (Cosmederm) when Evofem assigned its rights and obligations under the UTC Lease to Cosmederm; an entity under common control at the time of the assignment. Effective March 1, 2015, Cosmederm took over the payments under the UTC Lease, however: (i) Evofem continued to provide supplemental financial support under the UTC Lease and (ii) was still legally responsible for the lease in the event of default by Cosmederm. In March 2016, the UTC Lease was amended to reduce the rentable square footage under the lease at which time the Company agreed to pay a portion of an early termination fee of approximately $0.1 million, which was recognized in general and administrative expenses in the consolidated statements of operations. The Company paid the early termination fee directly to Cosmederm.

As of December 31, 2016, the balance of the Company’s security deposit with the landlord under the UTC Lease was $17,000 (see Note 8 — Related-Party Transactions , for details of the Company’s transactions with Cosmederm and Note 14 — Subsequent Events for termination of the UTC Lease). The Company also has an equal liability to Cosmederm for the security deposit. Through December 31, 2016, the Company had not recognized a loss contingency under the UTC Lease as (i) Cosmederm continued to make payments, (ii) there were no indications that Cosmederm would not continue to perform under the UTC Lease and (iii) the Company did not consider it probable that Cosmederm would default under the UTC Lease. See Cosmederm Lease Termination discussion in Note 14 — Subsequent Events for information regarding the termination of the UTC Lease.

 

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Effective February 1, 2015, the Company entered into a sublease for office space under a noncancelable lease agreement that expires in March 2020 (the 2015 Lease). The sublease provides for two renewal periods of five years each, but the sub-lessor is not expected to renew its lease. In lieu of paying a security deposit directly to the sub-lessor, the Company maintains a time deposit in favor of the sub-lessor (the Deposit), which is included in restricted cash in the consolidated balance sheets. During months 13 through 58 of the 2015 Lease term, subject to certain restrictions, approximately $5,000 of the Deposit is creditable against monthly rent payments through November 2019 and approximately $66,000 of the Deposit is creditable against rent payments each month between December 2019 and March 2020. In July 2016, the Company received approximately $0.2 million from the landlord as reimbursement for costs incurred by the Company for leasehold improvements. As of December 31, 2015 and 2016, restricted cash maintained as collateral for the Company’s security deposit was $0.5 million and $0.4 million, respectively.

Concurrent with the execution of the 2015 Lease, the Company entered into a sublease with WomanCare Global Trading, Inc. (WCGT) whereby WCGT agreed to sublease approximately 50% (subject to annual adjustment) of the Company’s office space (the WCG Sublease). The Company remains the primary obligor under the WCG Sublease and records all sublease income as a reduction of rent expense in the consolidated statements of operations. WCGT paid an initial security deposit of approximately $0.3 million (the WCG Security Deposit). During months 13 through 58 of the 2015 Lease term, subject to certain restrictions, approximately $2,500 of the WCG Security Deposit is creditable against monthly rent payments through November 2019 and approximately $33,000 of the WCG Security Deposit is creditable against rent payments each month between December 2019 and March 2020. As of December 31, 2015, the WCG Security Deposit totaled approximately $0.3 million of which approximately $25,000 and $0.2 million is included in accrued expenses and other liabilities, respectively, in the consolidated balance sheets. As of December 31, 2016, the WCG Security Deposit totaled approximately $0.2 million of which approximately $30,000 and $0.2 million is included in accrued expenses and other liabilities, respectively, in the consolidated balance sheets.

Rent expense for the years ended December 31, 2015 and 2016, was $0.3 million and $0.4 million, respectively. Rent expense is recognized on a straight-line basis over the term of the lease. Accordingly, rent expense recognized in excess of rent paid is accounted for as deferred rent in the consolidated balance sheets. The current portion of deferred rent is included in accrued expenses in the consolidated balance sheets.

As of December 31, 2016, future minimum lease commitments under the above mentioned operating leases, together with sublease income, are as follows (in thousands):

 

     Operating
Leases
     Sublease
Income
     Net  

Year ended December 31, 2017 (1)

   $    1,087      $ (727    $ 360  

Year ended December 31, 2018 (1)

     905        (531      374  

Year ended December 31, 2019

     777        (388      389  

Year ended December 31, 2020

     201        (101      100  
  

 

 

    

 

 

    

 

 

 

Total

   $ 2,970      $ (1,747    $ 1,223  
  

 

 

    

 

 

    

 

 

 

 

(1) Includes lease payments of $0.4 million and $0.2 million for the years ended December 31, 2017 and 2018, respectively, due under the UTC Lease in the event of default by Cosmederm. In March 2017, the UTC Lease was terminated, see Cosmederm Lease Termination discussion in Note 14 — Subsequent Events for information regarding the termination of UTC Lease.

Contingencies

From time to time the Company may be involved in various lawsuits, legal proceedings or claims that arise in the ordinary course of business. There were no claims or actions pending against the Company as of December 31, 2015 and 2016, which would have, individually or in the aggregate, a material adverse effect on its

 

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business, liquidity, financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.

Intellectual Property Rights

In October 2015, ENA and EP, entered into separate sublicense agreements (the Sublicenses) with WomanCare Global Trading CIC (WCGCIC) for a contraceptive vaginal ring. In August 2016, ENA, EP and WCGCIC entered into a side letter to modify the timing of the 2016 and 2017 payments due under the Sublicenses. On an aggregate basis, consideration under the Sublicenses consisted of (i) payments or potential payments to the licensor of (a) an upfront payment of $10.0 million, (b) potential regulatory and commercial milestone payments up to $32.0 million, (c) potential royalty payments on net product sales and (d) potential royalty payments on net sales of an equivalent generic product and (ii) $5.0 million in annual sublicense fees through October 1, 2019 to WCGCIC. In December 2016, under the terms of the Sublicenses, ENA and EP provided 90-days written notice of termination of the Sublicenses to WCGCIC, which period concluded on March 28, 2017.

During the years ended December 31, 2015 and 2016, the Company recognized sublicense fees of $11.0 million and $6.0 million, respectively, which are included in R&D expenses in the consolidated statements of operations. As of December 31, 2015, the Company had no accrued sublicense fees. As of December 31, 2016, the Company had accrued sublicense fees of approximately $3.0 million, which are included in accrued expenses in the consolidated balance sheets.

 

8. Related-party Transactions

Consulting Agreements

In August 2013, the Company entered into a consulting agreement (the 2013 Consulting Agreement) with Joe Pike, the Company’s founder and then chairman of the BOD. Consideration under the 2013 Consulting Agreement was amended in January 2014 and January 2015. Pursuant to the 2013 Consulting Agreement, as amended, Mr. Pike provided consulting services with respect to management advisory services as requested from time to time. The 2013 Consulting Agreement, as amended, provided for monthly compensation of approximately $29,000. In November 2015, Mr. Pike resigned as chairman of the BOD. On September 14, 2016, the 2013 Consulting Agreement was terminated and included (i) a waiver by Mr. Pike for approximately $0.2 million in consulting fees and (ii) a termination fee of approximately $0.4 million, which included approximately $0.3 million for tax liabilities incurred as a result of the Company’s October 2015 Reorganization (see Founder Transactions below for additional information). During the years ended December 31, 2015 and 2016, compensation paid to Mr. Pike totaled $0.3 million and $0.4 million, respectively.

Effective April 1, 2016, the Company entered into a one-year consulting agreement (the 2016 Consulting Agreement) with Thomas Lynch, the Company’s chairman of the BOD. Pursuant to the 2016 Consulting Agreement, Mr. Lynch provides consulting services with respect to investor relations and business development activities as requested from time to time. Pursuant to the agreement, Mr. Lynch (i) receives compensation of approximately $0.4 million, of which approximately $0.1 million relates to his board service, (ii) received a stock option for the purchase of 150,000 shares of the Company’s common stock with an exercise price of $1.19 per share and (iii) was issued a restricted stock unit for the rights to 100,000 shares of our common stock (RSU), subject to a restricted stock unit agreement dated October 13, 2016. The stock option vests over a one-year period, through March 1, 2017, and an aggregate of 112,500 shares were vested as of December 31, 2016. The restricted units vest the later of March 1, 2017 or the completion of an IPO by the Company. As of December 31, 2016, an aggregate of 75,000 restricted units were vested, subject to the completion of an IPO by the Company. As of December 31, 2016, accrued compensation, excluding board fees, owed to Mr. Lynch under his 2016 Consulting Agreement totaled approximately $0.3 million. See Restricted Stock Units discussion in Note 11 — Equity Incentive Plan for the accounting treatment for Mr. Lynch’s RSU.

 

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Founder Transactions

The Company’s October 2015 Reorganization created tax liabilities of approximately $0.4 million on an aggregate basis for two of the Company’s founders, Mr. Pike and Thomas Darden. In March 2016, the Company’s BOD authorized the Company to issue a one-time bonus to each of the founders to cover their tax liabilities. As described under Consulting Agreements , above, Mr. Pike, received approximately $0.3 million, which was included as part of his $0.4 million termination fee associated with the 2013 Consulting Agreement. As of December 31, 2016, Mr. Darden’s fee of approximately $0.1 million had not been paid and is included in accrued expenses in the consolidated balance sheets.

Affiliate Transactions

Prior to the Company’s October 2015 Reorganization, Evofem and Cosmederm were wholly-owned subsidiaries of EvoMed. Subsequent to the October 2015 Reorganization and until the completion of the Company’s Series D preferred stock financing, the Company and Cosmederm remained entities under common control due to significant common ownership interests. As of July 18, 2016, the Company and Cosmederm are no longer affiliated.

Cosmederm Lease

As more fully described in Operating Leases in Note 7 — Commitments and Contingencies, although the Company and Cosmederm were no longer considered entities under common control the Company remained legally responsible under the UTC Lease in the event of default by Cosmederm. See Cosmederm Lease Termination discussion in Note 14 — Subsequent Events for information regarding the termination of the UTC Lease. In February 2015, the Company transferred certain property and equipment associated with the UTC Lease to Cosmederm. The estimated fair value of the property and equipment transferred to Cosmederm was approximately $0.1 million at the time of the transfer. In each of the years ended December 31, 2015 and 2016, Evofem contributed approximately $0.1 million towards the UTC Lease. These amounts are recognized in general and administrative expenses and are included in rent expense in the consolidated statements of operations.

Cosmederm Note

During 2015, the Company and Cosmederm entered into a promissory note in favor of Cosmederm (the Cosmederm Note) for an aggregate principal amount of $15.0 million, as amended. The interest rate on the Cosmederm Note was at the applicable federal rate as published by the Internal Revenue Service (AFR). Principal and accrued interest were due in a single lump sum payment upon maturity, August 28, 2016; however, the note allowed for early repayment. During the years ended December 31, 2015 and 2016, Evofem made principal and accrued interest payments of approximately $0.3 million and $4.8 million, respectively.

In July 2016 and in conjunction with the Company’s Series D financing, (i) the Company and Cosmederm amended the Cosmederm Note which (a) reduced the principal amount of the Cosmederm Note to the then outstanding principal balance of $10.0 million and (b) extended the maturity date to August 28, 2018 (the Amended Cosmederm Note) and (ii) Cosmederm assigned the Amended Cosmederm Note to WIM, a stockholder in both companies, prior to the assignment. As a condition to closing the Company’s Series D, WIM immediately converted $5.0 million of the Amended Cosmederm Note into 10 shares of the Company’s Series D and cancelled the remaining $5.0 million (the Debt Cancellation).

The Company evaluated both the Amended Cosmederm Note and the Debt Cancellation in accordance with the authoritative guidance for troubled debt restructurings and debt extinguishments. The Company concluded that while the reduction in the principal borrowing capacity and the extension of the maturity date are indicators of a troubled debt restructuring (TDR), the Amended Cosmederm Note did not result in a TDR. Rather, the

 

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amended terms were a modification, since (i) Cosmederm did not grant the Company any concessions, (ii) the Company did not provide any equity interest or transfer any assets to Cosmederm in anticipation of the Amended Cosmederm Note, (iii) Evofem had paid down the principal balance from $15.0 million to $10.0 million, and repaid all of the accrued interest through the effective date of the Amended Cosmederm Note and (iv) the extension of the maturity date was provided in anticipation of the assignment to WIM.

The Company determined that the Debt Cancellation was the result of a TDR as (i) the Company had limited cash resources and (ii) the original terms of the Cosmederm Note did not provide for conversion to equity. Since the Debt Cancellation was between related parties, the $5.0 million gain was determined to be a capital contribution and was recorded as additional paid-in capital in the Company’s consolidated balance sheets.

As of December 31, 2015 and 2016, the Company had no receivables from Cosmederm. The following table summarizes payables, payments and expenses related to the Company’s transactions with Cosmederm as of and for the years ended December 31, (in thousands):

 

     2015      2016  

Related-party payables

   $ 37      $ —    

Related-party note payable (1)

   $ 14,750      $ —    

Payments (including principal and interest on the Cosmederm Note)

   $ 250      $ 4,976  

UTC Lease expenses

   $ 77      $ 109  

 

(1) Includes $10.0 million which was assigned to WIM during 2016, see Cosmederm Note discussion above for additional information.

EvoMed Debt

Through October 30, 2015, EvoMed had been funding Evofem’s operations through intercompany debt (the EvoMed Debt). The EvoMed Debt was not formalized in a promissory note; however, EvoMed had no expectation of being repaid in cash and the EvoMed Debt accrued interest at the AFR. As of October 30, 2015, the EvoMed Debt balance was approximately $34.4 million, including accrued interest. During 2015, Evofem made no principal or accrued interest payments to EvoMed.

As part of the October 2015 Reorganization, Evofem and EvoMed entered into a stock purchase agreement for the issuance of 8,660,572 shares of Evofem’s Series C-1 convertible preferred stock (Evofem Series C-1) at $3.97 per share (see Series C-1 Convertible Preferred Stock in Note 9 — Convertible Preferred Stock for the terms of the Evofem Series C-1). As consideration for the Evofem Series C-1 shares, EvoMed agreed to cancel the EvoMed Debt. The Company evaluated the cancellation of the EvoMed Debt in accordance with the authoritative guidance for TDRs and debt extinguishments and concluded that due to the related party relationship and the October 2015 Reorganization, the cancellation of the EvoMed Debt was a debt extinguishment. The Company determined the reacquisition price of the EvoMed Debt equaled the EvoMed Debt balance of $34.4 million, which was also the approximate fair value of the Evofem Series C-1 shares.

Transactions with WomanCare Global International and Related Entities (WCG entities)

Overview

In 2009, Saundra Pelletier founded WomanCare Global International, a non-profit organization registered in England and Wales (WCGI) and became WCGIs chief executive officer. In February 2013, the Company and WCGI formed an alliance (the WCGI Alliance) and Ms. Pelletier also became the Company’s CEO. Concurrent with the forming of the WCGI Alliance, the Company and WCGI entered into (i) a service agreement to which the companies shared resources and employees and (ii) a three-year grant agreement under which the Company provided funding of $4.0 million per year to WCGI.

 

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As more fully described in Note 7 — Commitments and Contingencies , (i) effective in February 2015, the Company and WCGT, a WCGI subsidiary, entered into a sublease for office space and (ii) in October 2015, (a) the Company through its wholly-owned subsidiaries entered into two sublicense agreements, whereby the Company was responsible for paying $5.0 million in annual sublicense fees, net of amounts paid under the grant agreement during 2015, to WCGCIC, also a WCGI affiliate, and (b) the service and grant agreements were cancelled.

In early 2015, the Company became the corporate sponsor of WCGIs, Then Who Will campaign. During the years ended December 31, 2015 and 2016, corporate support payments totaled $0.4 million and $0.3 million, respectively.

Effective January 2016, the Company and WCGI entered into a shared-services agreement (the SSA); which replaced the prior service agreement. Under the terms of the SSA, the Company and WCGI cross charge the other company’s services provided by each entity on behalf of the other. The SSA also allows for netting of due to and due from shared-services fees. As of December 31, 2016, net shared-services due to the Company totaled approximately $26,000. Through December 31, 2016, Ms. Pelletier was being paid directly by each WCGI and the Company.

The following table summarizes receivables, payables, payments and expenses related to the Company’s transactions with WCGI related entities as of and for the years ended December 31, (in thousands):

 

     2015      2016  

Receivables

   $ 70      $ 30  

Payables

   $ 46      $ 3,012  

Payments

   $ 5,042      $ 3,230  

Expenses

   $ 4,088      $ 6,198  

Variable Interest Entity Considerations

Due to a shared CEO and numerous agreements between the Company and WCGI, management reviewed its relationship with WCGI and its affiliates in accordance with the authoritative guidance for variable interest entities within Accounting Standards Codification (ASC) 810 — Consolidation . The Company concluded that due to WCGI’s status as a not-for-profit entity, the scope exception from qualifying as a variable interest entity was met and, therefore, the Company is not required to consolidate WCGI.

 

9. Convertible Preferred Stock

The designated, issued and outstanding shares of convertible preferred stock, by series, as of December 31, 2015 are as follows (aggregate liquidation amount and proceeds, net of issuance costs, in thousands):

 

     Shares
Designated
     Original
Issue Price
     Shares
Issued and
Outstanding
     Common
Stock
Equivalents
     Aggregate
Liquidation
Amount
     Proceeds,
Net of
Issuance
Costs
 

Series A

     12,768,492      $ 1.9579445        12,768,492        12,768,492      $ 25,000      $ 23,848  

Series B

     31,034,696      $ 3.2222        13,965,612        13,965,612        45,000        43,616  

Series C-1

     8,660,572      $ 3.97        8,660,572        8,660,572        34,382        34,382  

Series C

     5,037,784      $ 3.97        5,037,784        5,037,784        20,000        19,469  
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 

Total

     57,501,544           40,432,460        40,432,460      $ 124,382      $ 121,315  
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 

 

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The designated, issued and outstanding shares of convertible preferred stock, by series, as of December 31, 2016 are as follows (aggregate liquidation amount and proceeds, net of issuance costs, in thousands):

 

     Shares
Designated
     Original
Issue Price
     Shares
Issued and
Outstanding
     Common
Stock
Equivalents (1)
     Aggregate
Liquidation
Amount
     Proceeds,
Net of
Issuance
Costs
 

Series A

     12,768,492      $ 1.9579445        12,618,279        12,618,279    $ 24,706      $ 23,848  

Series B

     31,034,696      $ 3.2222        13,801,318        13,801,318      44,471        43,616  

Series C-1

     8,660,572      $ 3.97        8,558,686        8,558,686      33,978        34,382  

Series C

     5,037,784      $ 3.97        5,037,784        5,037,784      20,000        19,469  

Series D (2)(3)

     60      $ 500,000        60           61,144        29,814  
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 

Total

     57,501,604           40,016,127         $ 184,299      $ 151,129  
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The Series D shares are convertible into shares in the next equity financing (either preferred or common) at a 50% discount to the fair value price per share of the shares to be issued in the next financing, therefore, the Series D common stock equivalents and the totals for common stock equivalents have been left blank.
(2) Aggregate liquidation amount includes accrued and unpaid dividends of $1.1 million as of December 31, 2016.
(3) Proceeds, net of issuance costs, include $25.0 million in cash, $5.0 million from the conversion of the Amended Cosmederm Note less issuance costs of approximately $0.2 million. Excludes the Series D 2X Liquidation Preference net issuance price of $7.5 million, the loss on the issuance of Series D redeemable convertible preferred stock of $26.6 million, loss on extinguishment of related-party note payable of $6.7 million and accrued Series D dividends of $1.1 million.

Series C-1 Convertible Preferred Stock

Immediately prior to the October 2015 Reorganization, Evofem and EvoMed entered into a stock purchase agreement for the purchase of 8,660,572 shares of Evofem Series C-1 at $3.97 per share. In exchange for the issuance of the Evofem Series C-1 shares, EvoMed agreed to cancel the EvoMed Debt (see EvoMed Debt discussion in Note 8 — Related Party Transactions , for details associated with the issuance and subsequent settlement of the EvoMed Debt), of approximately $34.4 million. In the October 2015 Reorganization, the Evofem Series C-1 shares were exchanged for shares having the same rights, preferences and privileges in the Company.

Series C Convertible Preferred Stock

In November 2015, the Company entered into a Series C preferred stock purchase agreement with certain existing investors in which the Company authorized the issuance of an aggregate of 5,037,784 shares of its Series C convertible preferred stock (Series C), at an issuance price of $3.97 per share. Net proceeds from the issuance of the Series C was approximately $19.5 million. The holders of Series C have preference over Series A, Series B, Series C-1 and common stock in the event of a liquidation.

Series D Redeemable Convertible Preferred Stock

As noted in the Series D 2X Liquidation Preference discussion in Note 2 — Summary of Significant Accounting Policies , the Company entered into a Series D SPA with WIM. The Series D SPA authorized the issuance and sale of an aggregate of 60 shares of Series D redeemable convertible preferred stock, which was sold in two closings at an issuance price per share of $500,000. WIM also received the right to receive warrant shares to be determined in the next equity financing (Warrant Rights). See Warrant Rights discussion below.

In July 2016, the Company completed the initial closing of the Series D and issued 31 shares for gross proceeds of $15.5 million and 10 shares upon conversion of $5.0 million in related-party debt from the Amended

 

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Cosmederm Note (see Cosmederm Note in Note 8 — Related-party Transactions for discussion regarding the conversion of the Amended Cosmederm Note). Due to the existence of the (i) Series D 2X Liquidation Preference, (ii) the Company’s financial position at the time of the initial closing and (iii) the existence of the Warrant Rights, the Company determined the Series D financing was not the result of an arms-length transaction. The Company had an external valuation completed as of July 18, 2016; which resulted in a concluded fair value per share, inclusive of the Warrant Rights and the Series D 2X Liquidation Preference, of approximately $1.2 million, or an aggregate fair value for the 41 Series D shares of $47.8 million. As described in Series D 2X Liquidation Preference discussion in Note 6 — Fair Value of Financial Instruments, the Company estimated the fair value of the Series D 2X Liquidation Preference to be $7.6 million upon issuance; which was allocated to the Series D 2X Liquidation Preference liability. The Company recorded the remaining estimated fair value of the Series D or approximately $40.2 million, less issuance costs, to the Series D redeemable convertible preferred stock within temporary equity in the consolidated balance sheets. As the Company did not identify any unstated rights and/or privileges associated with the Series D, the aggregate loss on issuance of $27.3 million was recognized within the consolidated statements of operations and was allocated between the loss on extinguishment of related-party note payable from the EvoMed Debt extinguishment and loss on the issuance of Series D redeemable convertible preferred stock within other income (expense) in the consolidated statements of operations. The loss on extinguishment of related-party note payable recognized was $6.7 million and the net loss on the issuance of Series D redeemable convertible preferred stock was $20.6 million.

In December 2016, the Company completed the final closing of its Series D and issued 19 shares for net proceeds of $9.5 million. The Company had an external valuation completed as of December 31, 2016; which resulted in a concluded fair value per share, inclusive of the Warrant Rights and the Series D 2X Liquidation Preference, of approximately $0.8 million, or an aggregate fair value for the 19 Series D shares of $15.5 million. As described in Series D 2X Liquidation Preference in Note 6 — Fair Value of Financial Instruments , the Company determined the issuance of the 19 shares had a favorable impact on the overall fair value of the Series D 2X Liquidation Preference at issuance of approximately $0.1 million. The Company recorded the estimated fair value of the Series D of approximately $15.6 million, less issuance costs, to the Series D shares within temporary equity in the consolidated balance sheets. The Company recognized the difference of $6.0 million between the fair value and the issuance price of the Series D redeemable convertible preferred stock as a loss on the issuance of Series D redeemable convertible preferred stock within other income (expense) in the consolidated statements of operations.

The holders of the Series D redeemable convertible preferred stock are paid prior and in preference to the holders of the other series of convertible preferred stock, with the holders of the Series C convertible preferred stock participating next. The holders of the Series C-1, Series B and Series A participate, pro rata and prior and in preference to the holders of common stock.

The following table summarizes the preferred stock preferences in connection with the issuance of the Series D redeemable convertible preferred stock as of December 31, 2016:

 

     Dividend
Rate (1)
    Conversion
Rate
    Liquidation
Preference
Per Share
 

Series D

     12.0     1:2 (2)   $ 1,000,000 (3)  

Series C

     *       1:1   $ 3.97  

Series C-1

     *       1:1   $ 3.97  

Series B

     *       1:1   $ 3.2222  

Series A

     *       1:1   $ 1.9579445  

 

(1) Series D dividends accrue whether or not declared and are payable upon (i) conversion, (ii) redemption or (iii) liquidation. Dividends on all other series of convertible preferred stock are payable when and as declared by the Company’s BOD and are subordinate to the Series D dividends. As of December 31, 2015 and 2016, no dividends have been paid or declared.

 

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(2) Represents the rate at which the Series D redeemable convertible preferred stock convert in the next equity financing, rather than the conversion rate into common stock.
(3) The Series D Liquidation Preference per share is equal to the sum of two times the issuance price per share of $500,000, plus accrued and unpaid dividends

Dividends

Dividends on the Series D are payable (i) upon conversion, (ii) redemption or (iii) liquidation. As such, although the Company’s BOD has not declared dividends, the Company accrues dividends on the Series D stock. As of December 31, 2016, the Company’s accrued and unpaid Series D dividends total $1.1 million. Through December 31, 2016, the Company’s BOD has not declared dividends on the other series of preferred stock or common stock and, therefore, the Company has not recorded an accrual for dividends payable related to the Series A, Series B, Series C-1, Series C stock or common stock.

Voting Rights

The preferred stockholders have voting rights equal to the number of common stock shares they would own upon conversion of their convertible preferred stock; provided, however, if at any one time either Woodford Equity Income Fund (WEIF), a WIM affiliate, or Invesco Perpetual UK Investment Series Investment Company with Variable Capital (IPUK) individually own stock constituting more than nineteen and one-half percent (19.5%) of the total voting capital, then the stock held by each WEIF and IPUK shall be limited, in the aggregate, to 19.5% of the total votes each on an as converted basis. As of December 31, 2016, both WEIF and IPUK individually owned more than 19.5% of the Company’s voting stock in the aggregate and, therefore, each of their voting percentages is limited to 19.5% of the total voting capital.

Redemption

At any time on or after July 18, 2018, the holders of at least a majority of the then outstanding Series D redeemable convertible preferred stock may deliver to the Company a written instrument requesting redemption of the Series D redeemable convertible preferred stock. The Series D is redeemable in a lump sum at the original issuance price of $500,000 per share plus accrued and unpaid dividends. As of December 31, 2016, the total aggregate redemption amount was $31.1 million.

Warrant Rights

The Warrant Rights will convert into a warrant to purchase up to that number of equity securities to be issued in the next equity financing equal to (i) seventy-five percent (75.0%) of the purchase price paid for the Series D (or $22.5 million), divided by (ii) the per share price of the equity securities issued to the new investors in such next equity financing. The exercise price of the warrants will equal the per share price of the equity securities to be issued in the next equity financing and the warrants will expire seven years from the closing of such next equity financing. The Warrant Rights are inseparable from the Series D. As of December 31, 2016, the Company has not completed a next equity financing and, therefore, the Warrant Rights remain outstanding.

The Company determined that since the exercise price of the warrants to be received by WIM is equal to the fair value of the shares for which it will become exercisable at issuance there was de minimis value associated with the Warrant Rights and, therefore, the Company has not recorded a warrant liability for the Warrant Rights as of December 31, 2016. At each reporting period, the Company continues to evaluate the fair value of the Warrant Rights and at such time as the Warrant Rights are settled or are determined to have value to WIM, the Company will record the fair value in its consolidated financial statements.

 

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10. Stockholder’s Deficit

Common Stock

As of December 31, 2015, and 2016, the Company has 157,836,540 shares of common stock authorized, of which 76,610,860 shares and 81,119,014 shares, respectively, were issued and outstanding. The holder of each share of common stock shall have one vote for each share held.

Phantom Appreciation Rights Agreement and Retired Shares

In February 2013, EvoMed and Ms. Pelletier entered into a phantom appreciation rights agreement (PARA), under the terms of which upon certain triggering events Ms. Pelletier had the right to receive cash, equity securities or other property (the PARA Award). Subsequent to the October 2015 Reorganization, EvoMed began to dissolve its operations and distributed the majority of its stock held in Evofem Biosciences. EvoMed held back certain shares expected to be distributed under the PARA with Ms. Pelletier (the Phantom Shares).

In August 2016, EvoMed assigned its rights in the PARA and transferred the Phantom Shares to the Company. In October 2016, the Company and Ms. Pelletier entered into a phantom rights termination agreement (PRTA) under which her rights to the PARA Award were cancelled and the Company immediately retired the Phantom Shares. The retired Phantom Shares consisted of: 150,213 shares of Series A convertible preferred stock; 164,294 shares of Series B convertible preferred stock; 101,886 shares of Series C-1 convertible preferred stock and 250,937 shares of common stock. The cancelled Phantom Shares (i) are not held in treasury, (ii) are considered unissued and (iii) reduced the number of shares outstanding, however, did not result in the reduction of the number of authorized shares.

As consideration for entering into the PRTA, Ms. Pelletier received a restricted stock award for 1,459,091 shares of the Company’s common stock (the Replacement RSA). Vesting of this Replacement RSA is contingent upon the completion of an IPO by the Company. Since both the PARA Award and the Replacement RSA are subject to the completion of an IPO by the Company and completion of an IPO is not considered probable until it has occurred, no expense was recognized as of the modification date. Upon completion of an IPO by the Company, the Company expects to recognize stock-based compensation expense of $1.8 million, which is included in the $5.9 million unrecognized stock-based compensation expense for restricted stock awards, noted below under the Restricted Stock Awards discussion.

Restricted Stock Awards

In September 2016, under its 2012 Equity Incentive Plan, the Company issued an aggregate of 4,759,091 shares of restricted stock to members of management (the RSAs), including the Replacement RSA. RSAs for 3,300,000 shares of the Company’s common stock, which vest the later of (i) the second anniversary of the award date or (ii) the successful completion of an IPO by the Company. If the Company completes its IPO prior to the second anniversary of the award date, one-third of the shares subject to the RSAs will vest upon closing of such IPO by the Company. Recipients of RSAs have no rights as a stockholder including the right to dividends until vesting has occurred. The fair value per share of the Company’s common stock on the date of issuance was $1.25 per share. The members of management received the shares outright with no cost per share. As noted in Note 2 — Summary of Significant Accounting Policies and the discussion in Phantom Appreciation Rights Agreements and Retired Shares above, since the vesting of the RSAs is tied to an IPO of the Company, the Company will not recognize stock-based compensation expense until completion of an IPO by the Company. As such, as of December 31, 2016, unrecognized stock-based compensation expense for the restricted stock awards was approximately $5.9 million.

 

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No restricted shares were cancelled during the year ended December 31, 2016. The following table summarizes restricted stock activity as of and for the year ended December 31, 2016:

 

     Unvested      Vested —
Contingent
Upon Completion of
an IPO by the
Company
     Total  

Balance at December 31, 2015

     —          —         —    

Restricted shares vested upon issuance

     —          1,459,091        1,459,091  

Restricted shares subject to vesting

     3,300,000        —          3,300,000  
  

 

 

    

 

 

    

 

 

 

Total

     3,300,000        1,459,091        4,759,091  
  

 

 

    

 

 

    

 

 

 

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance is as follows in common equivalent shares as of December 31, 2016:

 

Conversion of Series A, Series B, Series C-1 and Series C convertible preferred stock

     40,016,067  

Rights to common stock subject to completion of an IPO by the Company

     100,000  

Common stock options issued and outstanding

     6,341,939  

Common stock options available for future grant

     2,798,970  
  

 

 

 

Total common stock reserved for future issuance (1)

     49,256,976  
  

 

 

 

 

(1) Excludes (i) shares issuable upon conversion of Series D redeemable convertible preferred stock in the next equity financing at a 50% discount to the issuance price and (ii) shares issuable upon exercise of the Warrant Rights.

 

11. Equity Incentive Plan

In September 2012, the Company adopted the 2012 Equity Incentive Plan (the 2012 Plan) which provides for the issuance of restricted common stock, restricted common units, or nonqualified and incentive common stock options to its employees, members of the BOD and consultants, from its authorized shares. In general, the options expire ten years from the date of grant and generally vest either (i) over a four-year period, with 25% exercisable at the end of one year from the employee’s hire date and the balance vesting rateably thereafter or (ii) over a three-year period, with 25% exercisable at the grant date and the balance vesting rateably thereafter. The total number of shares reserved for issuance under the 2012 Plan is 14,000,000 shares and as of December 31, 2016, 2,798,970 shares remain available for future grant.

 

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The following table summarizes share option activity for the year ended December 31, 2016:

 

     Options     Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term (In Years)
     Aggregate
Intrinsic
Value (1)
 

Outstanding as of December 31, 2015

     2,678,392     $      2.05        

Granted

     4,296,387     $ 1.19        

Exercised

     —       $ —          

Forfeited

     (632,840   $ 1.98        
  

 

 

         

Outstanding as of December 31, 2016

     6,341,939     $ 1.47        8.4      $     —    
  

 

 

         

Options exercisable as of December 31, 2016

     3,525,166     $ 1.70        7.3      $ —    
  

 

 

         

Options vested and expected to vest as of December 31, 2016

     6,341,939     $ 1.47        8.4      $ —    
  

 

 

         

 

(1) As of December 31, 2016, the fair value of the Company’s common shares as determined by its BOD was $1.12 per share.

The following table summarizes certain information regarding stock options for the years ended December 31, (in thousands, except per share data):

 

     2015      2016  

Weighted-average grant date fair value per share of options granted during the period

   $ —        $ 0.92  

Cash received from options exercised during the period

   $ —        $ —    

Intrinsic value of options exercised during the period

   $ —        $ —    

Summary of Assumptions

The fair value of stock-based payments for stock options granted to employees, nonemployee directors and consultants was estimated on the date of grant using the BSM based on the following weighted-average assumptions for the years ended December 31:

 

     2015     2016  

Expected volatility

     —       89.8 %

Risk-free interest rate

     —       1.3 %

Expected dividend yield

     —       0.0 %

Expected term (years)

     —         5.8  

Expected volatility. The expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry.

Risk-free interest rate. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the stock option grants.

Expected dividend yield. The expected dividend yield assumption is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The Series D accrued dividends are anticipated to be converted to preferred stock or common stock in the next equity financing and therefore are not expected to be paid in cash.

Expected term  The expected term represents the period options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected term assumption using the

 

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practical expedient as provided for under ASC 718 — Compensation — Stock Compensation , which is the midpoint between the requisite service period and the contractual term of the option.

The following table summarizes stock-based compensation expense related to stock options for the years ended December 31, included in the consolidated statements of operations as follows (in thousands):

 

     2015      2016  

Research and development

   $ 5      $ 218  

General and administrative

     1,367        1,213  
  

 

 

    

 

 

 

Total

   $ 1,372      $ 1,431  
  

 

 

    

 

 

 

As of December 31, 2016, unrecognized stock-based compensation expense for employee stock options was approximately $2.4 million; which the Company expects to recognize over a weighted-average remaining period of 3.0 years, assuming all unvested options become fully vested.

Stock Option Modification

In September 2015, for certain options the Company’s BOD modified the cancellation date of unexercised fully vested shares from sixty-days (60) post the termination date to the awards contractual termination date of June 3, 2023; as long as the termination was for a reason other than cause. The Company calculated the incremental expense associated with the modification and recognized $1.2 million in stock-based compensation expense within general and administrative expense in the consolidated statements of operations for the year ended December 31, 2015.

Stock Option Exchange and Cancellation

As noted in Note 1 — Description of Business and Basis of Presentation and as part of the October 2015 Reorganization, the Company’s option holders (i) exchanged one stock option for the purchase of Evofem common stock for two stock options for the purchase of the Company’s common stock (the Stock Option Exchange) and (ii) subsequently surrendered approximately 52.0% of their outstanding options (the Cancelled Options) voluntarily. The Cancelled Options were fully vested and all related stock-based compensation expense had been recognized in the Company’s consolidated financial statements prior to their surrender. The option holders did not receive a replacement grant or an offer to receive a grant in the future in exchange for the Cancelled Options, nor did they receive cash compensation in lieu of the Cancelled Options. Management concluded the Stock Option Exchange and subsequent surrender of options met the criteria for occurring as part of an equity restructuring and therefore were not considered a modification under the authoritative guidance in ASC 718.

Restricted Stock Units

In October 2016, as previously described in Note 8 — Related-party Transactions , the Company issued a RSU for the right to 100,000 shares of the Company’s common stock. The RSU is subject to both a time-based vesting restriction and a performance criterion (successful completion of an IPO by the Company) and becomes fully vested the later of March 1, 2017 or the completion of an IPO by the Company. The fair value per share of the Company’s common stock on the date of issuance was $1.25 per share. The RSU was issued outright at no cost to the holder to exercise his right. As of December 31, 2016, (i) no rights were cancelled, (ii) 25,000 RSUs were unvested and (iii) 75,000 RSUs were vested, contingent upon the completion of an IPO by the Company. The Company will continue to re-value the RSU until completion of an IPO by the Company. As of December 31, 2016, the fair value of the RSU was approximately $0.1 million.

Recipients of RSUs have no rights as a stockholder including the right to dividend equivalent units until vesting has occurred.

 

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12. Employee Benefits

The Company has a defined contribution 401(k) plan for all qualifying employees. Employees are eligible to participate in the plan beginning on the first day of the month following their three-month anniversary of employment. Under the terms of the plan, employees may make voluntary contributions as a percent of their compensation. The Company makes a safe-harbor contribution of three-percent (3.0%) of each employee’s gross earnings, subject to Internal Revenue Service limitations. In each of the years ended December 31, 2015 and 2016, the Company made safe-harbor contributions of approximately $0.1 million.

 

13. Income Taxes

The Company is subject to taxation in the US, United Kingdom and various states jurisdictions. Tax years since the Company’s inception remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company’s consolidated pretax loss for the years ended December 31, were generated by domestic and foreign operations as follows (in thousands):

 

     2015      2016  

United States

   $ (27,847    $ (65,863

Foreign

     (4,515      (2,494
  

 

 

    

 

 

 

Total

   $ (32,362    $ (68,357
  

 

 

    

 

 

 

Income tax (provision) benefit from continuing operations for the years ended December 31, consists of the following (in thousands):

 

     2015      2016  

United States

   $ —        $ —    

State

     (1      554  

Foreign

     —          59  
  

 

 

    

 

 

 

Total current tax (provision) benefit

     (1      613  
  

 

 

    

 

 

 

Total deferred tax (provision) benefit

     —          —    
  

 

 

    

 

 

 

Total

   $ (1    $ 613  
  

 

 

    

 

 

 

The reconciliation between our effective tax rate on loss from continuing operations and the statutory tax rate for the years ended December 31, is as follows:

 

     2015      2016  

Statutory rate

     34.00%        34.00%  

State income tax, net of federal benefit

     2.30%        1.19%  

Nondeductible expenses

     (0.56)%        (0.01)%  

Equity-based expenses

     —  %        (17.34)%  

Return to provision

     (0.03)%        —  %  

Tax credits

     1.17%        1.52%  

Uncertain tax positions

     (0.29)%        (0.38)%  

Foreign rate differential

     (4.74)%        (1.24)%  

Rate adjustment

     (0.59)%        0.12%  

Change in valuation allowance

     (31.26)%        (16.96)%  
  

 

 

    

 

 

 

Provision (benefit) for income taxes

     —  %        0.90%  
  

 

 

    

 

 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The

 

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Company’s deferred tax assets and liabilities arising from its taxable subsidiaries consist of the following components as of December 31 (in thousands):

 

     2015      2016  

Deferred tax assets:

     

Net loss carryforwards

   $ 40,689      $ 49,905  

Fixed assets and intangibles

     2,782        3,964  

Research and development credits

     1,883        2,661  

Stock-based compensation

     2,115        2,294  

Other

     493        728  
  

 

 

    

 

 

 

Total deferred tax assets

     47,962        59,552  
  

 

 

    

 

 

 

Less: valuation allowance

     (47,962      (59,552
  

 

 

    

 

 

 

Net deferred tax assets

   $ —        $ —    
  

 

 

    

 

 

 

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes , which requires all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The new accounting guidance is effective for annual reporting periods beginning after December 15, 2016 and interim periods therein. Early adoption is permitted as of the beginning of interim or annual reporting periods. The Company elected to early adopt this guidance prospectively beginning in the year ended December 31, 2015 and prior periods were not retrospectively adjusted. There was no material impact on the consolidated financial statements upon adoption.

As previously noted in Note 2 — Summary of Significant Accounting Policies , the Company early adopted ASU No. 2016-09 which in addition to the simplification of recording forfeitures also simplified several aspects of how share-based payments are accounted for and presented for tax purposes. The Company’s adoption of ASU No. 2016-09 was applied prospectively as of January 1, 2013. The adoption of ASU No. 2016-09 had no impact on the Company’s taxes and, therefore, prior periods tax provisions have not been retroactively adjusted.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. Generally, the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on historical performance and future expectations, management has determined a valuation allowance is needed in respect to its ending deferred tax assets. As of December 31, 2015 and 2016, the valuation allowances against deferred tax assets totaled $48.0 million and $59.6 million, respectively.

As of December 31, 2016, the Company had net operating loss (NOL) carryforwards for federal income tax purposes of approximately $132.2 million, which, will begin to expire in 2029, if not utilized. As of December 31, 2016, the Company had NOL carryforwards in various states of approximately $100.4 million. The state carryforwards have varying expiration dates beginning in 2029. The Company has foreign NOLs of $0.6 million that do not expire.

As of December 31, 2015, the Company has federal and state R&D tax credit carryforwards of approximately $2.2 million and $0.4 million, respectively. As of December 31, 2016, the Company has federal and state R&D tax credit carryforwards of approximately $2.9 million and $1.0 million, respectively. The federal R&D tax credits begin to expire in 2031, unless utilized and the state credits do not expire.

 

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The following table summarized the activity related to our gross unrecognized tax benefits as of December 31, (in thousands):

 

     2015      2016  

Balance at the beginning of the year

   $ 554      $ 663  

Adjustments related to prior year tax positions

     —          —    

Increases related to current year tax positions

     109        307  

Decreases due to statute of limitation expiration

     —          —    
  

 

 

    

 

 

 

Balance at end of year

   $ 663      $ 970  
  

 

 

    

 

 

 

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits, income tax positions must meet a more likely than not recognition threshold to be recognized. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the consolidated statements of operations. There were no accrued interest and penalties associated with unrecognized tax benefits of December 31, 2016. The Company does not anticipate a significant change in its uncertain tax benefits over the next 12 months.

Management believes it is more likely than not that all significant tax positions recorded in the consolidated financial statements would be sustained by the relevant taxing authorities. Furthermore, the Company has not recognized any tax benefits to date because the Company has established a full valuation allowance for its deferred tax assets due to uncertainties as to their ultimate realization.

Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, annual use of the Company’s NOLs and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50.0% occurs within a three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of NOLs and R&D credit carryforwards; due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. The Company does not expect this analysis to be completed within the next 12 months and as a result, the Company does not expect the unrecognized tax benefits will change within 12 months of this reporting date. Due to the existence of the valuation allowances, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate. If the Company has experienced an ownership change at any time since its’s formation, utilization of the NOLs or R&D tax credit carryforwards would be subject to an annual limitation under Section 382 of the IRC, which is determined by first multiplying the value of the Company’s stock at the time of the 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 NOLs or R&D tax credit carryforwards before utilization.

 

14. Subsequent Events

The Company has evaluated the effects of subsequent events in its consolidated financial statements through September 8, 2017, which is the date the consolidated financial statements were available to be issued.

Cosmederm Lease Termination

Effective February 27, 2017, Evofem entered into a lease termination agreement (the UTC Lease Termination), with Cosmederm and the landlord for the UTC Lease. In exchange for being relieved of all further obligations under the UTC Lease, Cosmederm agreed to (i) pay an early termination fee of approximately $0.1 million (the Early Termination Fee) and (ii) surrender the security deposit of $17,000. In March 2017, Evofem paid $55,000 of the Early Termination Fee directly to Cosmederm and derecognized the security deposit

 

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receivable from the landlord and payable to Cosmederm. Upon execution of the UTC Lease Termination, the Company was relieved of all obligations under the UTC Lease.

Additional Series D Financing

In July 2017, the Company amended its certificate of incorporation to increase the number of preferred stock authorized for issuance, specifically its Series D shares from 60 shares to 80 shares. In addition, the Company and WIM amended the Series D SPA to allow for (i) an increase in the number of shares of Series D to purchase capital stock of the Company issuable from an aggregate of $30.0 million to $40.0 million and (ii) provide for the Company to have the right to request additional investment from the existing holders of Series D. In August 2017, the Company issued additional Warrant Rights and 15 shares of Series D for net proceeds of $7.4 million. The Warrant Rights were issued with the same terms, rights and privileges as the original Warrant Rights. The Company retains the right to request an additional $2.5 million in a single tranche, prior to December 31, 2017.

Related-party Consulting Agreement

In August 2017, the Company and Mr. Lynch entered into a two-year consulting agreement (the 2017 Consulting Agreement), which was effective as of April 1, 2017. This agreement provides for (i) annual compensation of $0.4 million, including $0.1 million related to his board services and (ii) a stock option for the purchase of 250,000 shares of the Company’s common stock; which vests quarterly through March 31, 2018. The exercise price of the stock option will be determined by the Company’s BOD upon completion of a 409(a) valuation of the Company’s common stock as of August 2, 2017.

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

In thousands (except par value and shares)

(Unaudited)

 

     September 30,
2017
    December 31,
2016
 

Assets

    

Current assets:

    

Cash

   $ 3,660     $ 10,937  

Restricted cash

     505       550  

Prepaid and other current assets

     660       781  
  

 

 

   

 

 

 

Total current assets

     4,825       12,268  

Property and equipment, net

     913       1,086  

Other noncurrent assets

     750       1,017  
  

 

 

   

 

 

 

Total assets

   $ 6,488     $ 14,371  
  

 

 

   

 

 

 

Liabilities, convertible preferred stock and stockholders’ deficit

    

Current liabilities:

    

Accounts payable

   $ 5,089     $ 2,015  

Accrued expenses

     6,215       5,337  

Accrued compensation

     2,052       1,617  

Series D 2X liquidation preference

     70,610       8,030  
  

 

 

   

 

 

 

Total current liabilities

     83,966       16,999  

Deferred rent

     131       172  

Other noncurrent liabilities

     173       213  
  

 

 

   

 

 

 

Total liabilities

     84,270       17,384  

Commitments and contingencies (Note 6)

    

Convertible preferred stock, $0.001 par value; 57,501,624 shares authorized at September 30, 2017; 57,501,604 shares authorized at December 31, 2016:

    

Convertible preferred stock

     121,315       121,315  

Redeemable convertible preferred stock

     69,992       56,757  

Stockholders’ deficit:

    

Common stock, $0.001 par value; 157,836,540 shares authorized at September 30, 2017 and 2016; 81,119,014 shares issued and outstanding at September 30, 2017 and December 31, 2016

     81       81  

Additional paid-in capital

     18,614       20,806  

Accumulated deficit

     (287,784     (201,972
  

 

 

   

 

 

 

Total stockholders’ deficit

     (269,089     (181,085
  

 

 

   

 

 

 

Total liabilities, convertible preferred stock and stockholders’ deficit

   $ 6,488     $ 14,371  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

In thousands

(Unaudited)

 

     Nine months Ended September 30,  
     2017     2016  

Operating expenses:

    

Research and development

   $         12,323     $         10,302  

Abandoned initial public offering costs

     —         4,705  

General and administrative

     8,018       12,314  
  

 

 

   

 

 

 

Total operating expenses

     20,341       27,321  
  

 

 

   

 

 

 

Loss from operations

     (20,341     (27,321

Other (expense) income:

    

Other (expense) income, net

     83       79  

Loss on issuance of Series D redeemable convertible preferred stock

     (5,740     (20,619

Loss on extinguishment of related-party note payable

     —         (6,651

Change in fair value of Series D 2X liquidation preference

     (59,811 )     (260 )
  

 

 

   

 

 

 

Loss from continuing operations before benefit from (provision for) income taxes

     (85,809 )     (54,772 )

Benefit from (provision for) income taxes

     (3 )     607  
  

 

 

   

 

 

 

Loss from continuing operations

     (85,812 )     (54,165 )

Gain from discontinued operations, net of tax

     —         1,085  
  

 

 

   

 

 

 

Net loss

     (85,812 )     (53,080 )

Accretion of Series D redeemable convertible preferred stock dividends

     (2,839 )     (499 )
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (88,651 )   $ (53,579 )
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

 

In thousands (except share data)

(Unaudited)

 

    Series A
Convertible
Preferred Stock
    Series B
Convertible
Preferred Stock
    Series C-1
Convertible
Preferred Stock
    Series C
Convertible
Preferred Stock
    Series D
Redeemable
Convertible
Preferred Stock
    Common Stock     Additional
Paid-in
Capital
    Accumulated
Deficit
    Total
Stockholders’
Deficit
 
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount        

Balance at December 31, 2016

    12,618,279     $ 23,848       13,801,318     $ 43,616       8,558,686     $ 34,382       5,037,784     $ 19,469       60     $ 56,757       81,119,014     $ 81     $ 20,806     $ (201,972   $ (181,085

Issuance of Series D redeemable convertible preferred stock at fair value for cash, net of issuance costs of $75

    —         —         —         —         —         —         —         —         15       10,396       —         —         —         —         —    

Accretion of Series D redeemable convertible preferred stock dividend

    —         —         —         —         —         —         —         —         —         2,839       —         —         (2,839     —         (2,839

Stock-based compensation

    —         —         —         —         —         —         —         —         —         —         —         —         647       —         647  

Net loss

    —         —         —         —         —         —         —         —         —         —         —         —         —         (85,812     (85,812
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017

    12,618,279     $ 23,848       13,801,318     $ 43,616       8,558,686     $ 34,382       5,037,784     $ 19,469       75     $ 69,992       81,119,014     $ 81     $ 18,614     $ (287,784   $ (269,089
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

In thousands

(Unaudited)

 

     Nine months Ended
September 30,
 
     2017     2016  

Cash flows from operating activities from continuing operations:

    

Net loss

   $ (85,812   $ (53,080

Gain on sale of discontinued operations

     —         (1,085
  

 

 

   

 

 

 

Net loss from continuing operations

     (85,812     (54,165

Adjustments to reconcile net loss from continuing operations to net cash and restricted cash used in operating activities from continuing operations:

    

Abandoned initial public offering costs

     —         4,705  

Tax benefit

     —         (607

Loss on issuance of Series D 2 redeemable convertible preferred stock

     5,740       20,619  

Loss on extinguishment of related-party note payable

     —         6,651  

Change in fair value of Series D 2X liquidation preference

     59,811       260  

Stock-based compensation

     647       979  

Depreciation and amortization

     179       59  

Deferred rent

     (20     (7

Changes in operating assets and liabilities from continuing operations:

    

Prepaid and other assets

     138       (1,004

Accounts payable

     3,142       (83

Accrued expenses and other liabilities

     1,447       2,255  

Accrued compensation

     435       739  
  

 

 

   

 

 

 

Net cash and restricted cash used in operating activities from continuing operations

     (14,293     (19,599
  

 

 

   

 

 

 

Cash flows from investing activities from continuing operations:

    

Purchases of property and equipment

     (6     (497

Proceeds from sale of Softcup line of business

     250       —    
  

 

 

   

 

 

 

Net cash and restricted cash provided by (used in) investing activities from continuing operations

     244       (497
  

 

 

   

 

 

 

Cash flows from financing activities from continuing operations:

    

Payments on advances from related parties, including note payable

     —         (4,787

Proceeds from issuance of Series D redeemable convertible preferred stock, net of issuance costs

     7,425       15,315  

Cash paid for deferred initial public offering costs and other financing issuances costs

     (698     (1,867
  

 

 

   

 

 

 

Net cash and restricted cash provided by financing activities from continuing operations

     6,727       8,661  
  

 

 

   

 

 

 

Net cash and restricted cash used in continuing operations

     (7,322     (11,435

Net cash and restricted cash provided by discontinued operating activities

     —         1,219  
  

 

 

   

 

 

 

Net change in cash and restricted cash

     (7,322     (10,216

Cash and restricted cash, beginning of period

     11,487       17,122  
  

 

 

   

 

 

 

Cash and restricted cash, end of period

   $ 4,165     $ 6,906  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 15     $ 73  
  

 

 

   

 

 

 

Cash paid for taxes

   $ 2     $ 3  
  

 

 

   

 

 

 

Supplemental disclosure of noncash investing and financing activities:

    

Purchases of property and equipment in accounts payable

   $ —       $ 1  
  

 

 

   

 

 

 

Tenant improvement allowances paid by landlord

   $ —       $ 162  
  

 

 

   

 

 

 

Issuance of Series D 2X liquidation preference

   $ 2,769     $ 7,630  
  

 

 

   

 

 

 

Deferred initial public offering and other financing issuance costs included in accounts payable and accrued expenses

   $ 152     $ 950  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1. Basis of Presentation

Description of Business

Evofem Biosciences, Inc., formerly Evofem Holdings, Inc. (Evofem Biosciences) is a San Diego-based clinical-stage specialty biopharmaceutical company committed to improving the health and well-being of women throughout the world by addressing women’s unmet medical needs through the discovery, development and commercialization of innovative, next generation women’s healthcare products. Evofem Biosciences’ primary goal is to provide women in every global market with access to effective products that are well suited to their lifestyle and consistent with their core values. Evofem Biosciences’ multipurpose prevention technology (MPT) vaginal gel and lead product candidate, Amphora ® , is a non-hormonal vaginal gel believed to have multipurpose prevention technology properties, including contraception, prevention of reoccurring bacterial vaginosis and prevention of the transmission of chlamydia and gonorrhea.

Evofem Biosciences was incorporated in the state of Delaware in July 2015. Evofem Biosciences operations include those of its wholly-owned subsidiaries, Evofem Inc. (Evofem), a Delaware corporation, Evofem North America, Inc., a Delaware corporation (ENA) and Evofem Limited, LLC a Delaware limited liability company and Evofem Ltd., a limited company registered in England and Wales and those of its partially owned subsidiary Evolution Pharma, a Dutch limited partnership (EP) with 99% of the outstanding partnership interests held by Evofem Biosciences and 1% of the outstanding partnership interest held by Evofem Limited, LLC (collectively, the Company or Management). Evofem Limited, LLC and Evofem Ltd. are currently inactive.

Unaudited Interim Financial Information

The information as of September 30, 2017 for the nine months ended September 30, 2017 and September 30, 2016 is unaudited. The condensed consolidated balance sheet as of December 31, 2016 was derived from the Company’s audited consolidated financial statements at that date. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results have been prepared in accordance with Article 10 of Regulation S-X and do not necessarily include all information and footnotes necessary for presentation in accordance with accounting principles generally accepted in the U.S. (GAAP). These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s audited consolidated financial statements for the year ended December 31, 2016, included in this proxy statement/prospectus/information statement. Interim operating results are not necessarily indicative of operating results expected in subsequent periods or for the year as a whole.

Functional Currency

The functional currency of the Company’s wholly-owned subsidiaries, EP and Evofem Ltd, is the United States Dollar. Accordingly, historical exchange rates are used to revalue nonmonetary assets and liabilities and current exchange rates are used to revalue monetary assets and liabilities at each reporting date. For transactions not denominated in the United States Dollar, costs and expenses are recorded at exchange rates that approximate the rates in effect on the transaction date. Transaction gains and losses generated from the revaluation of monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary are included in other income (expense), net in the condensed consolidated statements of operations.

Consolidation

The Company’s condensed consolidated financial statements have been prepared in conformity with GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

 

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Risks, Uncertainties and Going Concern

The Company’s principal operations have been related to development of our MPT vaginal gel and our lead product candidate Amphora, raising capital, research and development, recruiting management and building a corporate infrastructure. The Company has incurred operating losses and negative cash flows from operating activities since inception. As of September 30, 2017, the Company had cash (unrestricted) of $3.7 million, a working capital deficit of $79.1 million and an accumulated deficit of $287.8 million. The Company anticipates it will continue to incur net losses into the foreseeable future.

The Company is subject to risks common to other life science companies in the development stage including, but not limited to, uncertainty of product development and commercialization, lack of marketing and sales history, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection of proprietary technology, ability to raise additional financing, and compliance with FDA and other government regulations. If the Company does not successfully commercialize any product candidates, it will be unable to generate recurring product revenue or achieve profitability. Management’s plans in order to meet its short and long term operating cash flow requirements include obtaining additional funding.

The uncertainties associated with the Company’s ability to (i) obtain additional equity financing on terms that are favorable to the Company, (ii) enter into collaborative agreements with strategic partners and (iii) succeed in its future operations, raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the Company be unable to continue its operations. If the Company is not able to obtain the required funding in the near future, through its private equity financings or other means, or is not able to obtain funding on terms that are favorable to the Company, it will have a material adverse effect on its operations and strategic development plan for future growth. If the Company cannot successfully raise additional funding and implement its strategic development plan, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail its clinical programs. Any of these could materially and adversely affect the Company’s liquidity, financial condition and business prospects and the Company may have to cease operations.

 

2. Summary of Significant Accounting Policies

Use of Estimates

There have been no significant changes in the Company’s accounting estimates for the nine months ended September 30, 2017 as compared to the accounting estimates described in Evofem’s and subsidiaries notes to consolidated financial statements appearing elsewhere in this proxy statement/prospectus/information statement.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

 

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Cash and Restricted Cash

The following table provides a reconciliation of cash and restricted cash, reported within the condensed consolidated statements of cash flows as of September 30 (in thousands):

 

     2017      2016  

Cash

   $ 3,660        6,341  

Restricted cash

     505        565  
  

 

 

    

 

 

 

Total cash and restricted cash presented in the condensed consolidated statements of cash flows

   $ 4,165      $ 6,906  
  

 

 

    

 

 

 

Deferred Initial Public Offering Costs

During 2015, the Company initiated an initial public offering of its common stock (IPO) on the alternative investment market of the London Stock Exchange and recorded deferred IPO offering costs of $3.4 million as of December 31, 2015. Prior to March 2016, the Company recorded an additional $1.3 million in deferred IPO offering costs. In March 2016, the Company abandoned its efforts to raise capital through an IPO on the alternative investment market and recognized expense of $4.7 million in aggregate initial public offering costs. These costs included direct costs related to the abandoned transaction and are separately disclosed in the condensed consolidated statements of operations during the nine months ended September 30, 2016.

Clinical Trial Expense Accruals

As part of the process of preparing the Company’s condensed consolidated financial statements, the Company is required to estimate expenses resulting from the Company’s obligations under contracts with vendors, clinical research organizations, consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

The Company’s objective is to reflect the appropriate clinical trial expenses in its consolidated financial statements by recording those expenses in the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. The Company determines accrual estimates through financial models based upon discussion with applicable personnel and outside service providers as to the progress or state of its trials. Clinical expense is adjusted throughout the clinical trial if actual results differ from our estimates.

Series D 2X Liquidation Preference

In July 2016, the Company entered into a Series D redeemable convertible preferred stock (Series D) purchase agreement (Series D SPA) with Woodford Investment Management LLP (WIM), one of the Company’s existing investors, as amended. The terms of the Series D financing are described under the Series D Redeemable Convertible Preferred Stock discussion in Note 8 — Convertible Preferred Stock appearing later in these condensed consolidated financial statements. Under the terms of the Series D SPA, as amended, in a liquidation transaction the Company’s Series D redeemable convertible preferred stock participates, prior and in preference to the other series of convertible preferred stock and common stock, at a rate of two times its initial investment plus accrued and unpaid dividends (the Series D 2X Liquidation Preference). The Company determined the Series D 2X Liquidation Preference represented an embedded derivative which required bifurcation and separate liability accounting and was initially recorded at fair value. The Company’s accounting for the Series D 2X Liquidation Preference is described in Note 5 — Fair Value of Financial Instruments appearing later in these condensed consolidated financial statements. Changes in the fair value of the Series D 2X Liquidation Preference

 

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are recognized as increases in or decreases to the change in fair value of Series D 2X Liquidation Preference, a component of other (expense) income in the condensed consolidated statements of operations.

The Series D 2X Liquidation Preference will be marked-to-market until the earlier of (i) the automatic conversion into either preferred stock or common stock in a financing in which gross proceeds to the Company are greater than or equal to $45.0 million, (ii) the optional conversion into either preferred stock or common stock in a financing in which gross proceeds to the Company are less than $45.0 million, (iii) its redemption or (iv) upon a change in control event; at which time the Company will estimate the final fair value of the Series D 2X Liquidation Preference. Upon the occurrence of one of these events, the final change in fair value of the Series D 2X Liquidation Preference will be recognized within change in fair value of Series D 2X Liquidation Preference in the condensed consolidated statements of operations and the Series D 2X Liquidation Preference liability will be reclassified to additional paid-in capital in the condensed consolidated balance sheets.

Stock-based Compensation

Stock-based compensation expense for equity instruments issued to employees and nonemployee members of the Company’s board of directors (BOD) is measured based on estimating the fair value of each stock option on the date of grant using the Black-Scholes-Merton option-pricing model (the BSM). Equity instruments issued to nonemployees are valued using the BSM and are subject to revaluation as the underlying equity instruments vest.

Comprehensive Loss

Comprehensive loss includes all changes in equity during a period from non-owner sources. For each of the periods presented, comprehensive loss is composed of net loss as the Company had no transactions from nonowner sources.

Recently Adopted Accounting Pronouncements —

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU No. 2017-01), to 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. As permitted under ASU No. 2017-01, the Company early adopted ASU No 2017-01 effective January 1, 2017. The adoption of ASU No. 2017-01 did not have a material impact on the Company’s financial position or results of operations.

Recently Issued Accounting Pronouncements — Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU No. 2014-09), which amends the existing accounting standards for revenue recognition. ASU No. 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU No. 2014-09 will be effective for the Company beginning January 1, 2018. Although early adoption is permitted, the Company does not plan to early adopt ASU No. 2014-09. The Company plans to adopt ASU No. 2014-09 using the modified retrospective approach, which will not have an impact on the Company’s financial position or results of operations; as the Company is pre-revenue and does not anticipate generating revenue prior to the Company’s required adoption date.

In February 2016, the FASB issued ASU No. 2016-02,  Leases (Topic 842 ) (ASU No. 2016-02), which changes the presentation of assets and liabilities relating to leases. The core principle of ASU No. 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6,  Elements of Financial Statements , and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP,

 

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which did not require lease assets and lease liabilities to be recognized for most leases. ASU No. 2016-02 will be effective for the Company beginning January 1, 2019. The Company’s 2015 Lease (See Note 7 to our audited consolidated financial statements appearing elsewhere in this proxy statement/prospectus/information statement — Commitments and Contingencies for details of the 2015 Lease) is due to expire in 2020 and will be subject to the provisions of ASU No. 2016-02, however, the Company has not yet assessed the impact of this new standard on its condensed consolidated financial statements.

 

3. Discontinued Operations

In June 2016, the Company’s BOD committed to a plan to sell its Softcup line of business (Softcup) and re-direct its available cash resources to further develop Amphora. In July 2016, the Company entered into an Asset Purchase Agreement with The Flex Company (Flex), whereby Flex would acquire certain assets and assume certain liabilities associated with Softcup. Total consideration for the Softcup sale was $1.9 million, with $0.6 million being received in cash at closing and the remaining $1.3 million due and payable under a note in favor of the Company (the Flex Note) through January 1, 2021 (the Maturity Date). The Flex Note bears simple interest at a rate of 5.0% per annum on the remaining principal amount outstanding and is payable each January 1 including accrued and unpaid interest beginning in 2017 through the Maturity Date.

The Flex Note is secured by the Softcup assets and has been recorded at present value, or approximately $1.3 million, as of the effective date. The Company’s incremental borrowing rate and the stated interest rate of the Flex Note are materially consistent.

The Softcup sale constitutes the sale of a business in accordance with the authoritative guidance and, therefore, a discontinued operation. As the sale of Softcup was completed as of September 30, 2016, the Company does not have assets or liabilities held for discontinued options as of September 30, 2016. After a short transition period (less than 30 days), the Company no longer had any continuing involvement with Softcup, as such the Company’s condensed consolidated statements of operations and condensed consolidated statements of cash flows exclude from continuing operations, Softcup revenues, related costs and the gain on the Softcup sale.

The following table presents major classes of line items constituting gain on sale of discontinued operations for the nine months ended September 30, 2016 (in thousands):

 

Revenue

   $ 1,183  

Cost of goods sold

     (906 )

Sales and marketing expenses

     (150
  

 

 

 

Pretax gain on discontinued operations related to major classes of pretax gain

     127  

Pretax gain on sale of discontinued operations

     1,565  
  

 

 

 

Total pretax gain on sale of discontinued operations

     1,692  

Income tax expense

     (607
  

 

 

 

Net gain on sale of discontinued operations

   $ 1,085  
  

 

 

 

 

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4. Balance Sheet Components

Prepaid and Other Current Assets

Prepaid and other current assets consist of the following (in thousands):

 

     September 30,
2017
     December 31,
2016
 

Flex note receivable

   $ 250      $ 250  

Clinical supplies

               124                  178  

Insurance

     69        101  

Rent

     61        61  

Research and development costs

     27        51  

Other

     129        140  
  

 

 

    

 

 

 

Total

   $ 660      $ 781  
  

 

 

    

 

 

 

Property and Equipment, Net

Property and equipment, net, consists of the following (in thousands):

 

     Useful Life      September 30,
2017
     December 31,
2016
 

Research equipment

     5 years      $ 639      $ 125  

Computer equipment and software

     3 years        6        6  

Office furniture

     5 years                  205                  205  

Leasehold improvements

     5 years or less        340        340  

Construction in-process

     —          —          508  
     

 

 

    

 

 

 
        1,190        1,184  

Less: accumulated depreciation and amortization

        (277      (98
     

 

 

    

 

 

 

Total, net

      $ 913      $ 1,086  
     

 

 

    

 

 

 

Depreciation expense was $0.2 million and $0.1 million for the nine months ended September 30, 2017 and 2016, respectively

Other Noncurrent Assets

Other noncurrent assets consist of the following (in thousands):

 

     September 30,
2017
     December 31,
2016
 

Flex note receivable, net of current portion

   $             750      $         1,000  

Deposits

     —          17  
  

 

 

    

 

 

 

Total

   $ 750      $ 1,017  
  

 

 

    

 

 

 

 

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Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

     September 30,
2017
     December 31,
2016
 

Accrued clinical trial costs

   $ 3,584      $ 604  

Accrued sublicense fees

            2,000               3,010  

Accrued deferred IPO and other financing costs

     150        780  

Accrued board of director’s fees and related expenses

     222        226  

Accrued legal and other professional fees

     119        456  

Accrued other

     140        261  
  

 

 

    

 

 

 

Total

   $ 6,215      $ 5,337  
  

 

 

    

 

 

 

 

5. Fair Value of Financial Instruments

At September 30, 2017 and December 31, 2016, the Company had no financial assets and no Level 1 and Level 2 financial liabilities measured on a recurring basis.

The fair value of the Company’s Level 3 financial liabilities measured on a recurring basis is summarized in the following table (in thousands):

 

     September 30,
2017
     December 31,
2016
 

Series D 2X Liquidation Preference

   $       70,610      $         8,030  

Series D 2X Liquidation Preference is stated at fair value and is considered a Level 3 input because the fair value measurement is based, in part, on significant inputs not observed in the market. The Company determined the fair value of the Series D 2X Liquidation Preference as described below. The following table summarizes the changes in Level 3 financial liabilities measured at fair value on a recurring basis for the year ended December 31, 2016 (in thousands):

 

     Series D 2X
Liquidation
Preference
 

Balance at December 31, 2015

   $ —    

Issuance of Series D 2X Liquidation Preference

     7,487  

Change in fair value of Series D 2X Liquidation Preference

     543  
  

 

 

 

Balance at December 31, 2016

     8,030  

Issuance of Series D 2X Liquidation Preference

     2,769  

Change in fair value of Series D 2X Liquidation Preference

         59,811  
  

 

 

 

Balance at September 30, 2017

   $ 70,610  
  

 

 

 

Series D 2X Liquidation Preference

As described in the Series D 2X Liquidation Preference discussion in Note 2 — Summary of Significant Accounting Policies appearing previously in the notes to these condensed consolidated financial statements, the Company’s issuance of Series D resulted in the identification of an embedded derivative that required bifurcation and liability accounting at fair value. See the Series D Redeemable Convertible Preferred Stock discussion in Note 8 — Convertible Preferred Stock appearing later in these notes to the condensed consolidated financial statements for the terms of the Series D.

 

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To determine the fair value of the Company’s Series D 2X Liquidation Preference, the Company utilized a hybrid valuation model that considers the probability of achieving certain exit scenarios, the entity’s cost of capital, the estimated period the Series D 2X Liquidation Preference will be outstanding, consideration received for the instrument with the Series D 2X Liquidation Preference and at what price and changes, if any, in the fair value of the underlying instrument to the Series D 2X Liquidation Preference. The valuation resulted in a concluded fair value of the Series D 2X Liquidation Preference as of July 18, 2016, the original issuance date, of $7.6 million.

In December 2016 upon the final closing of the Series D, the Company determined the issuance of the new shares of Series D had a favorable impact on the overall fair value of the derivative liability at issuance of $0.1 million due to (i) an increased number of shares outstanding as of December 31, 2016, (ii) changes in the Company’s forecast and (iii) changes in the timing of exit scenarios that resulted in a decreased enterprise value. Management recorded the $0.1 million as a reduction of the overall Series D 2X Liquidation Preference liability. As such, for the year ended December 31, 2016 the issuance of the Series D 2X Liquidation Preference was recorded as $7.5 million.

To determine the fair value of the Company’s Series D 2X Liquidation Preference associated with the August 2017 issuance of 15 shares of Series D in connection with the Series D Amendment, see the Series D Amendment discussion in Note 8 — Convertible Preferred Stock , appearing later in these notes to the condensed consolidated financial statements, for the terms of the Series D Amendment, the Company utilized a hybrid valuation model that considers the probability of achieving certain exit scenarios, the entity’s cost of capital, the estimated period the Series D 2X Liquidation Preference will be outstanding, consideration received for the instrument with the Series D 2X Liquidation Preference and at what price and changes, if any, in the fair value of the underlying instrument to the Series D 2X Liquidation Preference. The valuation resulted in a concluded fair value of the Series D 2X Liquidation Preference at issuance for the 15 shares of Series D of $2.8 million.

The estimated change in fair value of the Series D 2X Liquidation Preference liability for the nine months ended September 30, 2017 resulted in losses of $59.8 million, respectively. The estimated change in fair value of the Series D 2X Liquidation Preference liability for the nine months ended September 30, 2016 was a loss of $0.3 million.

 

6. Commitments and Contingencies

Intellectual Property Rights

In October 2015, ENA and EP, entered into separate sublicense agreements (the Sublicenses) with WomanCare Global Trading CIC (WCGCIC) for a contraceptive vaginal ring. In August 2016, ENA, EP and WCGCIC entered into a side letter to modify the timing of the 2016 and 2017 payments due under the Sublicenses. On an aggregate basis, consideration under the Sublicenses consisted of (i) payments or potential payments to the licensor of (a) an upfront payment of $10.0 million, (b) potential regulatory and commercial milestone payments up to $32.0 million, (c) potential royalty payments on net product sales and (d) potential royalty payments on net sales of an equivalent generic product and (ii) $5.0 million in annual sublicense fees through October 1, 2019 to WCGCIC.

In December 2016, under the terms of the Sublicenses, ENA and EP provided 90-days written notice of termination of the Sublicenses to WCGCIC, which period concluded on March 28, 2017.

During the nine months ended September 30, 2016, the Company recognized sublicense fees of $3.5 million, which are included in research and development expenses in the condensed consolidated statements of operations. Due to the cancellation of the Sublicenses, no such sublicense fees were recognized during the nine months ended September 30, 2017. As of September 30, 2017 and December 31, 2016, the Company had accrued sublicense fees of approximately $2.0 million and $3.0 million, respectively, which are included in accrued expenses in the condensed consolidated balance sheets.

 

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Contingencies

From time to time the Company may be involved in various lawsuits, legal proceedings or claims that arise in the ordinary course of business. There were no claims or actions pending against the Company as of September 30, 2017 and December 31, 2016, which would have, individually or in the aggregate, a material adverse effect on its business, liquidity, financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.

 

7. Related-party Transaction

Consulting Agreement

In August 2017, the Company and Tom Lynch, the Company’s chairman of the board of directors, entered into a two-year consulting agreement (the 2017 Consulting Agreement), which was effective as of April 1, 2017. This 2017 Consulting Agreement provides for (i) annual compensation of $0.4 million, including $0.1 million related to his board services and (ii) a stock option for the purchase of 250,000 shares of the Company’s common stock; which vests quarterly through March 31, 2018. As of September 30, 2017, the BOD has not determined the exercise price of Mr. Lynch’s option, as such the option remains unissued as of September 30, 2017.

Transactions with WCG Cares, WCG

In August 2017, the Company agreed to provide WCG with $0.1 million in funding, which was paid to WCG in October 2017, to support WCG’s Women Deliver Young Leaders program. Saundra Pelletier, the Company’s CEO, is the chair of the Women Deliver board of directors.

Transactions with WomanCare Global International

The following table summarizes receivables, payables, payments and expenses related to the Company’s transactions; as fully described in Evofem’s audited consolidated financial statements appearing elsewhere within this proxy statement/prospectus/information statement, with WCGI related entities as of and for the nine months ended September 30, (in thousands):

 

     2017      2016  

Receivables

   $ 73      $ 627  

Payables

   $ 2,047      $ 2,572  

Payments

   $ 1,022      $ 1,045  

Expenses

   $ 55      $ 3,663  

 

8. Convertible Preferred Stock

The designated, issued and outstanding shares of convertible preferred stock, by series, as of September 30, 2017 are as follows (aggregate liquidation amount and proceeds, net of issuance costs, in thousands):

 

     Shares
Designated
     Original
Issue Price
     Shares
Issued and
Outstanding
     Common
Stock
Equivalents (1)
     Aggregate
Liquidation
Amount
     Proceeds,
Net of
Issuance
Costs
 

Series A

     12,768,492      $ 1.9579445        12,618,279        12,618,279    $ 24,706      $ 23,848  

Series B

     31,034,696      $ 3.2222        13,801,318        13,801,318      44,471        43,616  

Series C-1

     8,660,572      $ 3.97        8,558,686        8,558,686      33,978        34,382  

Series C

     5,037,784      $ 3.97        5,037,784        5,037,784      20,000        19,469  

Series D (2)(3)

     80      $ 500,000        75           78,982        37,240  
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 

Total

     57,501,624           40,016,142         $ 202,137      $ 158,555  
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 

 

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(1) The Series D shares are convertible into shares in the next equity financing (either preferred or common) at a 50% discount to the fair value price per share of the shares to be issued in the next financing, therefore, the Series D common stock equivalents and the totals for common stock equivalents have been left blank.
(2) Aggregate liquidation amount includes accrued and unpaid dividends of $4.0 million as of September 30, 2017.
(3) Proceeds, net of issuance costs, include $32.5 million in cash, $5.0 million from the conversion of the Amended Cosmederm Note less issuance costs of $0.3 million. Excludes the Series D 2X Liquidation Preference net issuance price of $10.3 million, the loss on the issuance of Series D redeemable convertible preferred stock of $32.4 million, loss on extinguishment of related-party note payable of $6.7 million and accrued Series D dividends of $4.0 million.

The designated, issued and outstanding shares of convertible preferred stock, by series, as of December 31, 2016 are as follows (aggregate liquidation amount and proceeds, net of issuance costs, in thousands):

 

     Shares
Designated
     Original
Issue Price
     Shares
Issued and
Outstanding
     Common
Stock
Equivalents (1)
     Aggregate
Liquidation
Amount
     Proceeds,
Net of
Issuance
Costs
 

Series A

     12,768,492      $ 1.9579445        12,618,279        12,618,279    $ 24,706      $ 23,848  

Series B

     31,034,696      $ 3.2222        13,801,318        13,801,318      44,471        43,616  

Series C-1

     8,660,572      $ 3.97        8,558,686        8,558,686      33,978        34,382  

Series C

     5,037,784      $ 3.97        5,037,784        5,037,784      20,000        19,469  

Series D (2)(3)

     60      $ 500,000        60           61,144        29,814  
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 

Total

     57,501,604           40,016,127         $ 184,299      $ 151,129  
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The Series D shares are convertible into shares in the next equity financing (either preferred or common) at a 50% discount to the fair value price per share of the shares to be issued in the next financing, therefore, the Series D common stock equivalents and the totals for common stock equivalents have been left blank.
(2) Aggregate liquidation amount includes accrued and unpaid dividends of $1.1 million as of December 31, 2016.
(3) Proceeds, net of issuance costs, include $25.0 million in cash, $5.0 million from the conversion of the Amended Cosmederm Note less issuance costs of $0.2 million. Excludes the Series D 2X Liquidation Preference net issuance price of $7.5 million, the loss on the issuance of Series D redeemable convertible preferred stock of $26.6 million, loss on extinguishment of related-party note payable of $6.7 million and accrued Series D dividends of $1.1 million.

Series D Redeemable Convertible Preferred Stock

As noted in the Series D 2X Liquidation Preference discussion in Note 2 — Summary of Significant Accounting Policies , the Company entered into a Series D SPA with WIM. The Series D SPA authorized the issuance and sale of an aggregate of 60 shares of Series D redeemable convertible preferred stock, which was sold in two closings at an issuance price per share of $500,000. WIM also received the right to receive warrant shares to be determined in the next equity financing (Warrant Rights), see Warrant Rights discussion below. In July 2017, the Company and WIM entered into an amendment to the Series D SPA to provide for the issuance of up to an additional 20 shares of Series D and related Warrant Rights, see Series D Amendment discussion below for details of the amendment to the Series D SPA.

In July 2016, the Company completed the initial closing of the Series D and issued 31 shares for gross proceeds of $15.5 million and 10 shares upon conversion of $5.0 million in related-party debt from the Amended Cosmederm Note (see Cosmederm Note in Note 8 — Related-party Transactions to our audited financial statements appearing elsewhere in this proxy statement/prospectus/information statement regarding the conversion of the Amended Cosmederm Note). Due to the existence of the (i) Series D 2X Liquidation

 

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Preference, (ii) the Company’s financial position at the time of the initial closing and (iii) the existence of the Warrant Rights, the Company determined the Series D financing was not the result of an arms-length transaction. The Company had an external valuation completed as of July 18, 2016; which resulted in a concluded fair value per share, inclusive of the Warrant Rights and the Series D 2X Liquidation Preference, of approximately $1.2 million, or an aggregate fair value for the 41 Series D shares of $47.8 million. As described in Series D 2X Liquidation Preference discussion in Note 5 — Fair Value of Financial Instruments , the Company estimated the fair value of the Series D 2X Liquidation Preference to be $7.6 million upon issuance; which was allocated to the Series D 2X Liquidation Preference liability. The Company recorded the remaining estimated fair value of the Series D or approximately $40.2 million, less issuance costs, to the Series D redeemable convertible preferred stock within temporary equity in the condensed consolidated balance sheets. As the Company did not identify any unstated rights and/or privileges associated with the Series D, the aggregate loss on issuance of $27.3 million was recognized within the condensed consolidated statements of operations and was allocated between the loss on extinguishment of related-party note payable from the EvoMed Debt, see the EvoMed Debt discussion in Note 8 — Related-Party Transactions to our audited consolidated financial statements appearing elsewhere in this proxy statement/prospectus/information statement for a description of the EvoMed Debt, extinguishment and loss on the issuance of Series D redeemable convertible preferred stock within other (expense) income in the condensed consolidated statements of operations. The loss on extinguishment of related-party note payable recognized was $6.7 million and the net loss on the issuance of Series D redeemable convertible preferred stock was $20.6 million.

In December 2016, the Company completed the final closing of its Series D and issued 19 shares for net proceeds of $9.5 million. The Company had an external valuation completed as of December 31, 2016; which resulted in a concluded fair value per share, inclusive of the Warrant Rights and the Series D 2X Liquidation Preference, of approximately $0.8 million, or an aggregate fair value for the 19 Series D shares of $15.5 million. As described in Series D 2X Liquidation Preference in Note 5 — Fair Value of Financial Instruments , the Company determined the issuance of the 19 shares had a favorable impact on the overall fair value of the Series D 2X Liquidation Preference of approximately $0.1 million. The Company recorded the estimated fair value of the Series D of approximately $15.6 million, less issuance costs, to the Series D shares within temporary equity in the condensed consolidated balance sheets. The Company recognized the difference of $6.0 million between the fair value and the issuance price of the Series D redeemable convertible preferred stock as a loss on the issuance of Series D redeemable convertible preferred stock within other (expense) income in the condensed consolidated statements of operations.

Series D Amendment

In July 2017, the Company amended its certificate of incorporation to increase the number of preferred stock authorized for issuance, related to its Series D shares from 60 shares to 80 shares. In addition, the Company and WIM amended the Series D SPA to allow for (i) an increase in the number of shares of Series D to purchase capital stock of the Company issuable from an aggregate of $30.0 million to $40.0 million and (ii) provide for the Company to have the right to request additional investment from the existing holders of Series D. In August 2017, the Company issued additional Warrant Rights and 15 shares of Series D for net proceeds of $7.4 million. The Warrant Rights were issued with the same terms, rights and privileges as the previous Warrant Rights. The Company retains the right to request an additional $2.5 million in a single tranche, prior to December 31, 2017.

The Company had an external valuation completed as of August 2, 2017; which resulted in a concluded fair value per share, inclusive of the Warrant Rights and the Series D 2X Liquidation Preference, of approximately $0.9 million, or an aggregate fair value for the 15 Series D shares of $13.2 million. As described in Series D 2X Liquidation Preference discussion in Note 5 — Fair Value of Financial Instruments , the Company estimated the fair value of the Series D 2X Liquidation Preference associated with the August 2, 2017 issuance of Series D shares to be $2.8 million upon issuance; which was allocated to the Series D 2X Liquidation Preference liability. The Company recorded the remaining estimated fair value of the Series D or approximately $10.4 million, less issuance costs, to Series D within temporary equity in the condensed consolidated balance sheets. As the

 

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Company did not identify any unstated rights and/or privileges associated with the Series D, the aggregate loss on issuance of $5.7 million was recognized within the condensed consolidated statements of operations loss on the issuance of the Series D within other (expense) income in the condensed consolidated statements of operations.

Redemption

At any time on or after July 18, 2018, the holders of at least a majority of the then outstanding Series D may deliver to the Company a written instrument requesting redemption of the Series D redeemable convertible preferred stock. The Series D is redeemable in a lump sum at the original issuance price of $500,000 per share plus accrued and unpaid dividends. As of September 30, 2017, the total aggregate redemption amount was $41.5 million.

Warrant Rights

The Warrant Rights will convert into a warrant to purchase up to that number of equity securities to be issued in the next equity financing equal to (i) seventy-five percent (75.0%) of the purchase price paid for the Series D (or $28.1 million as of September 30, 2017), divided by (ii) the per share price of the equity securities issued to the new investors in such next equity financing. The exercise price of the warrants will equal the per share price of the equity securities to be issued in the next equity financing and the warrants will expire seven years from the closing of such next equity financing. The Warrant Rights are inseparable from the Series D. As of September 30, 2017, the Company has not completed a next equity financing and, therefore, the Warrant Rights remain outstanding.

The Company determined that since the exercise price of the warrants to be received by WIM is equal to the fair value of the shares for which it will become exercisable at issuance there was de minimis value associated with the Warrant Rights and, therefore, as of September 30, 2017 and December 31, 2016, the Company has not recorded a warrant liability for the Warrant Rights. At each reporting period, the Company will continue to evaluate the fair value of the Warrant Rights and at such time as the Warrant Rights are settled or are determined to have value to WIM, the Company will record the fair value in its condensed consolidated financial statements.

 

9. Stock-based Compensation Expense

The following table summarizes stock-based compensation expense recognized (in thousands):

 

     Nine months
Ended
September 30,
 
     2017      2016  

Research and development

   $ 136      $ 118  

General and administrative

     511        861  
  

 

 

    

 

 

 

Total stock-based compensation

   $ 647      $ 979  
  

 

 

    

 

 

 

 

10. Subsequent Events

The Company has evaluated the effects of subsequent events in its condensed consolidated financial statements through November 15, 2017, which is the date the condensed consolidated financial statements were available to be issued.

Merger Agreement and Related Transactions

On October 17, 2017, Neothetics, Inc., a Delaware corporation (Neothetics), Evofem Biosciences and Nobelli Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Neothetics (Merger Sub),

 

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entered into an agreement and plan of merger (as may be amended from time to time, the Merger Agreement) that provides for, among other things, the merger of Merger Sub with and into Evofem Biosciences, with Evofem Biosciences continuing as the surviving entity and becoming a wholly owned subsidiary of Neothetics, on the terms and conditions set forth in the Merger Agreement (the Merger). Neothetics’ common stock is currently quoted on the NASDAQ Capital Market.

Subject to the terms and conditions of the Merger Agreement, if the Merger is completed, each share of Evofem Biosciences common stock (and each share of Evofem Bio Series A preferred stock, Evofem Bio Series B preferred stock, Evofem Bio Series C preferred stock and Evofem Bio Series C-1 preferred stock on an as converted basis) will be converted in to 0.1515 shares of Neothetics common stock (subject to the adjustments set forth in the Merger Agreement, the Exchange Ratio), or an aggregate of 41,644,439 shares of Neothetics common stock at closing and each share of Evofem Biosciences Series D preferred stock will be converted into 515,616.2625 shares of Neothetics common stock (subject to the adjustments set forth in the Merger Agreement, the Series D Exchange Ratio), or an aggregate of 41,249,301 shares of Neothetics common stock.

Securities Purchase Agreement

In October 2017, Neothetics, Evofem Biosciences and Invesco entered a Securities Purchase Agreement (the SPA) pursuant to which Invesco will purchase 9,672,550 shares of Neothetics common stock for gross proceeds of $20.0 million, immediately following the closing of the Merger and (ii) as an inducement to and consideration for Invesco’s willingness to enter the SPA and for the $20.0 million, Evofem Biosciences will issue Invesco a warrant for the purchase of up to 158,999,371 shares of Evofem common stock with an exercise price of $0.001 per share (the Invesco Warrants). The Invesco Warrants contains a net exercise provision. The Invesco Warrant shall be fully exercised on a cashless basis immediately prior to and contingent upon the completion of the Merger.

The foregoing assumes that, immediately prior to the closing of the Merger, the Invesco Warrants will be net exercised on a cashless basis resulting in 158,490,892 shares of Evofem Biosciences common stock being issued. Immediately following the effective time of the Merger (the Effective Time), pre-merger Evofem Biosciences stockholders are expected to own approximately 87% of the outstanding common stock of Neothetics on a fully diluted basis (excluding shares of common stock issuable upon exercise of the WIM Warrants), while pre-merger Neothetics stockholders are expected to own the remaining approximate 13%. At the Effective Time, pre-merger Neothetics stockholders will continue to own and hold their existing shares of Neothetics common stock.

As contemplated in the Merger Agreement, Neothetics plans to call a special meeting of its stockholders to, among other things, request its stockholders authorize Neothetics to change the name of Neothetics, Inc. to Evofem Biosciences, Inc. (the Name Change).

Completion of the Merger is conditioned upon the satisfaction or waiver, as applicable, of all closing conditions under the Merger Agreement.

If the Merger will be consummated based on the above terms and conditions, it is expected that it will be accounted for as a reverse recapitalization which is outside the scope ASC 805 — Business Combinations (ASC 805), as Neothetics, the legal acquirer, is not considered a business as defined in ASC 805 or ASU 2017-01 — Business Combinations (Topic 805) — Clarifying the Definition of a Business . Under reverse recapitalization accounting, the Company will be considered the acquirer for accounting and financial reporting purposes. The Merger will be accounted for in a manner that is substantially the same as a reverse recapitalization under ASC 805, except that any excess fair value of the consideration transferred over the net fair value of the monetary assets of Neothetics will be recognized as a reduction of equity.

 

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Cancellation of Restricted Stock Awards and Restricted Stock Unit

In October 2017, subject to the closing of the Merger discussed above, the Company and the holders of the Company’s restricted stock awards and restricted stock units (collectively, the Restricted Stock Awards) have agreed to cancel all outstanding and unvested Restricted Stock Awards, immediately prior to the Effective Time of the Merger. The Restricted Stock Awards were previously subject to vesting upon successful completion of an IPO by the Company.

Modification of Series D Warrant Rights

In October 2017, subject to the closing of the Merger discussed above, the Company and WIM have agreed to modify WIM’s Warrant Rights, whereby the Warrant Rights will be amended and restated such that WIM will receive a warrant to purchase up to 12,000,000 shares (subject to adjustment for the Reverse Stock Split) of the combined entities common stock, which will become exercisable on the date that is one year after the Effective Time and shall remain exercisable until the date that is four years after the Effective Time (the WIM Warrant). The WIM Warrant will have an exercise price per share equal to the average closing sale prices of Neothetics’ common stock as quoted on the NASDAQ Capital Market for the 30 consecutive trading days commencing with the first trading day immediately following the effective time.

Additional Series D Financing

In November 2017, the Company issued five shares of Series D convertible preferred stock in the remaining tranche available under its Series D Amendment for net proceeds of $2.5 million and issued additional Warrant Rights with the same terms, rights and privileges as the original Warrant Rights.

 

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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

BY AND AMONG

NEOTHETICS, INC.,

NOBELLI MERGER SUB, INC.

AND

EVOFEM BIOSCIENCES, INC.

Dated as of October 17, 2017

 

 

 


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TABLE OF CONTENTS

 

         Page  

ARTICLE 1

  THE MERGER      2  

1.1

  The Merger      2  

1.2

  Closing; Effective Time      2  

1.3

  Effect of the Merger      3  

1.4

  Certificate of Incorporation; Bylaws; Reverse Split; Parent Name Change      3  

1.5

  Directors and Officers of the Surviving Corporation      3  

1.6

  Conversion of Company Securities      4  

1.7

  Dissenting Shares      5  

1.8

  Exchange Of Certificates      6  

1.9

  Stock Transfer Books      7  

1.10

  No Further Rights      7  

1.11

  Tax Consequences      7  

1.12

  Pro-Forma Capitalization Tables      7  

1.13

  Additional Actions      8  

ARTICLE 2

  REPRESENTATIONS AND WARRANTIES OF COMPANY      8  

2.1

  Organization and Qualification; Charter Documents      8  

2.2

  Capital Structure      9  

2.3

  Authority; Non-Contravention; Approvals      10  

2.4

  Anti-Takeover Statutes Not Applicable      11  

2.5

  Company Financial Statements; No Undisclosed Liabilities      11  

2.6

  Absence Of Certain Changes Or Events      12  

2.7

  Taxes      12  

2.8

  Intellectual Property      13  

2.9

  Compliance with Legal Requirements      15  

2.10

  Legal Proceedings; Orders      17  

2.11

  Brokers’ And Finders’ Fees      17  

2.12

  Employee Benefit Plans      17  

2.13

  Title to Assets; Condition Of Equipment      20  

2.14

  Environmental Matters      20  

2.15

  Labor Matters      21  

2.16

  Company Contracts      21  

2.17

  Books And Records      23  

2.18

  Insurance      23  

2.19

  RESERVED      23  

2.20

  Suppliers; Effect Of Transaction      23  

2.21

  Government Contracts      23  

2.22

  Interested Party Transactions      23  

2.23

  Disclosure; Company Information      24  

ARTICLE 3

  REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB      24  

3.1

  Organization and Qualification      24  

3.2

  Capital Structure      25  

3.3

  Authority; Non-Contravention; Approvals      25  

3.4

  Anti-Takeover Statutes Not Applicable      26  

3.5

  SEC Filings; Parent Financial Statements; No Undisclosed Liabilities      26  

3.6

  Taxes      27  

3.7

  Compliance with Legal Requirements      28  

 

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3.8

  Legal Proceedings; Orders      29  

3.9

  Brokers’ And Finders’ Fees      29  

3.10

  Employee Benefit Plans      29  

3.11

  Real Property      32  

3.12

  Parent Contracts      32  

3.13

  Insurance      33  

3.14

  Interested Party Transactions      34  

3.15

  Disclosure      34  

3.16

  Opinion of Financial Advisor      34  

3.17

  Shell Company Status      34  

3.18

  Disclosure; Parent Information      34  

ARTICLE 4

  CONDUCT OF BUSINESS PENDING THE MERGER      34  

4.1

  Conduct of Company Business      34  

4.2

  Conduct of Parent Business      36  

ARTICLE 5

  ADDITIONAL AGREEMENTS      38  

5.1

  Registration Statement; Proxy Statement/Prospectus/Information Statement      38  

5.2

  Information Statement; Company Written Consent      39  

5.3

  Parent Stockholder Meeting      40  

5.4

  Access to Information; Confidentiality      41  

5.5

  Regulatory Approvals and Related Matters      41  

5.6

  Director Indemnification and Insurance      42  

5.7

  Notification of Certain Matters      42  

5.8

  Interim Financial Statements      43  

5.9

  Public Announcements      43  

5.10

  Conveyance Taxes      43  

5.11

  Board of Directors and Officers of Parent      43  

5.12

  Non-Solicitation by Company      43  

5.13

  Non-Solicitation by Parent      44  

5.14

  Financing Agreement      45  

5.15

  Section 16 Matters      45  

5.16

  Parent Certificate of Amendment      46  

5.17

  Termination of Company Stockholder and Other Related Agreements      46  

5.18

  Company Options      46  

5.19

  Allocation Certificate      47  

5.20

  Employee Benefit Matters      47  

5.21

  Stockholder Litigation      47  

5.22

  Company and Parent Disclosure Schedules      48  

5.23

  Tax Matters      48  

5.24

  Post-Merger Voting Agreements      48  

5.25

  Reverse Split      48  

5.26

  Listing      48  

ARTICLE 6

  CONDITIONS TO THE MERGER      49  

6.1

  Conditions To Obligation Of Each Party To Effect The Merger      49  

6.2

  Additional Conditions to Obligations Of Parent      49  

6.3

  Additional Conditions to Obligations Of Company      50  

ARTICLE 7

  TERMINATION      51  

7.1

  Termination      51  

7.2

  Effect Of Termination      52  

7.3

  Expenses; Termination Fees      53  

 

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ARTICLE 8

  GENERAL PROVISIONS      54  

8.1

  Notices      54  

8.2

  Amendment      54  

8.3

  Headings      54  

8.4

  Severability      55  

8.5

  Entire Agreement      55  

8.6

  Successors and Assigns      55  

8.7

  Parties In Interest      55  

8.8

  Waiver      55  

8.9

  Remedies Cumulative; Specific Performance      55  

8.10

  Governing Law; Venue; Waiver of Jury Trial      55  

8.11

  Counterparts and Exchanges by Electronic Transmission or Facsimile      56  

8.12

  Attorney Fees      56  

8.13

  Cooperation      56  

8.14

  Construction      56  

8.15

  Non-Survival of Representations and Warranties      57  

 

Exhibits   
Exhibit A    Certain Definitions
Exhibit B-1    Forms of Company Support Agreements
Exhibit B-2    Form of Financing Agreement
Exhibit C-1    Form of Certificate of Merger
Exhibit C-2    Form of Certificate of Incorporation
Exhibit D    Parent Certificate of Amendment
Exhibit E    Form of FIRPTA Notice
Exhibit F    Form of Company Lock-Up Agreement
Exhibit G    Form of Registration Rights Agreement

 

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Annex A

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION , is made and entered into as of October 17, 2017 (this “ Agreement ”), by and among NEOTHETICS, INC. a Delaware corporation (“ Parent ”), NOBELLI MERGER SUB, INC. , a Delaware corporation (“ Merger Sub ”) and EVOFEM BIOSCIENCES, INC. , a Delaware corporation (“ Company ”). Parent, Merger Sub and Company are each a “ Party ” and referred to collectively herein as the “ Parties .” Certain capitalized terms used in this Agreement are defined in Exhibit A attached hereto.

RECITALS:

WHEREAS , this Agreement contemplates a merger of the Merger Sub with and into Company, with Company remaining as the surviving entity after the merger (the “ Merger ”), whereby the Company Stockholders will receive Parent Common Stock in exchange for their Company Capital Stock;

WHEREAS , the Parties intend, by approving resolutions authorizing this Agreement, to adopt this Agreement as a plan of reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the regulations thereunder, and to cause the Merger to qualify as a reorganization under the provisions of Section 368(a) of the Code;

WHEREAS , pursuant to the terms and conditions of this Agreement, the holders of the outstanding equity of Company immediately prior to the Effective Time will own approximately 85.7% of the outstanding equity of Parent immediately following the Effective Time and the holders of the outstanding equity of Parent immediately prior to the Merger will own approximately 14.3% of the outstanding equity of Parent immediately following the Effective Time, subject to adjustment as provided herein;

WHEREAS , the board of directors of Parent (i) has determined that the Merger is fair to, and in the best interests of, Parent and its stockholders, (ii) has approved this Agreement, the Merger, the issuance of shares of Parent Common Stock to the Company Stockholders pursuant to the terms of this Agreement, the change of control of Parent, and the other actions contemplated by this Agreement, (iii) has approved the Certificate of Amendment and Reverse Split and (iv) has determined to recommend that the stockholders of Parent vote to approve the Parent Stockholder Approval Matters, the Reverse Split and such other actions as contemplated by this Agreement;

WHEREAS , the board of directors of Merger Sub (i) has determined that the Merger is fair to, and in the best interests of, Merger Sub and its sole stockholder, (ii) has approved this Agreement, the Merger, and the other actions contemplated by this Agreement and has deemed this Agreement advisable and (iii) has determined to recommend that its sole stockholder vote to adopt this Agreement and thereby approve the Merger and such other actions as contemplated by this Agreement;

WHEREAS , the board of directors of Company (i) has determined that the Merger is advisable and fair to, and in the best interests of, Company and its stockholders, (ii) has approved this Agreement, the Merger and the other transactions contemplated by this Agreement and has deemed this Agreement advisable and (iii) has determined to recommend that the Company Stockholders vote to approve the Company Stockholder Matters;

WHEREAS , as a condition to the willingness of, and an inducement to Parent to enter into this Agreement, contemporaneously with the execution and delivery of this Agreement, each of the Company Support Agreement Signatories is entering into support agreements, in favor of Parent, in substantially the forms set forth in Exhibit B-1 attached hereto (the “ Company Support Agreements ”), under which the Company Support Agreement Signatories will, among other things, agree, with respect to a portion of the shares of Company Capital Stock held thereby, to vote as stockholders in favor of the Company Stockholder Matters pursuant to the terms and conditions of the Company Support Agreements;


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WHEREAS , as a condition to the willingness of, and an inducement to Parent to enter into this Agreement, contemporaneously with the execution and delivery of this Agreement, each of the Financing Agreement Signatories is entering into a Financing Agreement, in substantially the form of Exhibit B-2 attached hereto (the “ Financing Agreement ”), under which the Investor (acting as agent for and on behalf of certain of its discretionary managed clients) will, among other things, agree to purchase, immediately after the Effective Time, 9,672,550 shares of Parent Common Stock (subject to adjustment as provided in Section 1.12(b)) for an aggregate of $20 million (the “ Additional Parent Funding ”), and Company will agree to issue to Investor, immediately prior to the Effective Time, warrants to purchase up to an aggregate of 158,999,371 shares of Company Common Stock (subject to adjustment as provided in Section 1.12(b)) (the “ Investor Pre-Closing Warrant ”) that will be exercised in full immediately prior to the Effective Time such that the shares of Company Common Stock issuable thereunder will be converted into the right to receive shares of Parent Common Stock in accordance with the terms of Section 1.6(a) of this Agreement;

WHEREAS , each issued and outstanding share of Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock and Company Series C-1 Preferred Stock as of immediately prior to the Effective Time will be converted on a 1 to 1 basis into shares of Company Common Stock in connection with the Merger in accordance with the terms of the Company’s certificate of incorporation and such converted shares of Company Preferred Stock will be converted into the right to receive shares of Parent Common Stock in accordance with the terms of Section 1.6(a)(i) of this Agreement;

WHEREAS , each issued and outstanding share of Company Series D Preferred Stock as of the Effective Time will be converted into the right to receive shares of Parent Common Stock in accordance with the terms of Section 1.6(a)(ii) of this Agreement; and

WHEREAS , as a condition to the willingness of, and an inducement to Parent to enter into this Agreement, contemporaneously with the execution and delivery of this Agreement, each of the Company Lock-up Agreement Signatories is entering into a lock-up agreement, in substantially the form of Exhibit F attached hereto (the “ Company Lock-up Agreements ”) with respect to a portion of the shares of Parent Common Stock held thereby from time to time.

AGREEMENT:

NOW, THEREFORE , in consideration of the foregoing and the representations, warranties and covenants herein contained, and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE 1

THE MERGER

1.1      The Merger . Subject to and upon the terms and conditions of this Agreement and Delaware General Corporation Law (“ Delaware Law ”), Merger Sub will be merged with and into Company at the Effective Time. From and after the Effective Time, the separate corporate existence of Merger Sub will cease, and Company will continue as the surviving corporation. Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the “ Surviving Corporation .”

1.2 Closing; Effective Time . Unless this Agreement has been terminated and the transactions herein contemplated have been abandoned pursuant to Section 7.1 of this Agreement, and subject to the satisfaction or waiver of the conditions set forth in Article 6 of this Agreement, the consummation of the Merger (the “ Closing ”) will take place at the offices of DLA Piper LLP, 4365 Executive Drive, Suite 1100, San Diego,

 

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CA 92121, at 10:00 a.m. on a date to be specified by the Parties which will be no later than three Business Days after satisfaction or waiver of the conditions set forth in Article 6 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of each such conditions), or at such other time, date and place as Parent and Company may mutually agree in writing. The date on which the Closing actually takes place is referred to as the “ Closing Date ”. On the Closing Date, the Parties will cause the Merger to be consummated by executing and filing a Certificate of Merger in accordance with the relevant provisions of Delaware Law (the “ Certificate of Merger ”), in substantially the form of Exhibit C-1 attached hereto, together with any required related certificates, with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, Delaware Law. The Merger will become effective at the time of the filing of such Certificate of Merger with the Secretary of State of the State of Delaware or at such later time as may be specified in such Certificate of Merger with the consent of Parent and Company (the time as of which the Merger becomes effective being referred to as the “ Effective Time ”).

1.3 Effect of the Merger . At the Effective Time, the effect of the Merger will be as provided in this Agreement, the Certificate of Merger and the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of Company will vest in the Surviving Corporation, and all debts, liabilities, obligations and duties of Company will become the debts, liabilities, obligations and duties of the Surviving Corporation.

1.4 Certificate of Incorporation; Bylaws; Reverse Split; Parent Name Change . Unless otherwise determined by Parent and Company:

(a) the certificate of incorporation of Company will be amended and restated at the Effective Time to read in its entirety as set forth on Exhibit C-2 attached hereto, and, as so amended and restated, will be the certificate of incorporation of the Surviving Corporation until thereafter amended as provided by Delaware Law and such certificate of incorporation;

(b) the bylaws of Company will be amended and restated to read in the form of the bylaws of Merger Sub, as in effect on the date hereof and, as so amended and restated, will be the bylaws of the Surviving Corporation until thereafter amended as provided by Delaware Law, the certificate of incorporation of the Surviving Corporation and such bylaws; and

(c) immediately prior to the Effective Time, Parent will amend its certificate of incorporation and take all other actions necessary to (i) cause its name to be changed to such name as the Company directs in writing within three (3) Business Days following the date of this Agreement, (ii) effect the Reverse Split to the extent applicable, (iii) opt out of Delaware Law Section 203, and (iv) make such other changes as are mutually agreeable to Parent and Company in substantially the form attached hereto as Exhibit D (the “ Parent Certificate of Amendment ”).

1.5 Directors and Officers of the Surviving Corporation . Unless otherwise determined by Parent and Company, the parties will take all action such that:

(a) the directors of the Surviving Corporation immediately following the Effective Time will be the individual set forth on Schedule 1.5(a);

(b) the officers of Company immediately prior to the Effective Time will be the officers of the Surviving Corporation immediately following the Effective Time until such time as their respective successors are duly elected or appointed; and

(c) the directors and officers of Parent immediately following the Effective Time shall be elected and appointed in accordance with Section 5.11.

 

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1.6 Conversion of Company Securities . At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, Company, any stockholder of the Company or any other Person:

(a) Conversion of Company Capital Stock .

(i) Company Common Stock and Company Common Stock On An As Converted Basis . Each share of Company Common Stock (and each share of Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock and Company Series C-1 Preferred Stock on an as converted to Company Common Stock basis) issued and outstanding immediately prior to, and contingent upon the occurrence of, the Effective Time (excluding any shares to be canceled pursuant to Section 1.6(c)) will be converted, subject to Sections 1.6(g), 1.6(h), 1.6(i) and 1.7, into and represent the right to receive such number of shares of validly issued, fully paid and nonassessable shares of common stock of Parent, $0.0001 par value per share (“ Parent Common Stock ”), as is equal to the Company Common Exchange Ratio, and cash in lieu of any fractional shares of Parent Common Stock to be issued or paid in consideration therefor.

(ii) Company Series D Preferred Stock . Each share of Company Series D Preferred Stock issued and outstanding immediately prior to, and contingent upon the occurrence of, the Effective Time (excluding any shares to be canceled pursuant to Section 1.6(c)) will be converted, subject to Sections 1.6(g), 1.6(h), 1.6(i) and 1.7, into and represent the right to receive such number of shares of validly issued, fully paid and nonassessable shares of Parent Common Stock, as is equal to the Company Series D Exchange Ratio, and cash in lieu of any fractional shares of Parent Common Stock to be issued or paid in consideration therefor. Such shares of Parent Common Stock issued pursuant to this Section 1.6(a)(ii) and Section 1.6(a)(i) referred to as the “ Merger Consideration ”.

(b) Merger Sub Common Stock . Each share of Merger Sub Common Stock then outstanding will be converted into one share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares will, as of the Effective Time, evidence ownership of such shares of common stock of the Surviving Corporation.

(c) Cancellation . Each share of Company Capital Stock held in the treasury of Company and each share of Company Capital Stock owned by Parent or by any direct or indirect wholly owned Subsidiary of Company or Parent immediately prior to the Effective Time will, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, be canceled and extinguished without any conversion thereof and without payment of any consideration therefor and cease to exist.

(d) Company Options . Each Company Option under the Company Option Plan that is outstanding and unexercised as of immediately prior to the Effective Time will be subject to Section 5.18. Prior to the Closing Date, and subject to the review and approval of Parent, Parent and Company will take all actions necessary to effect the transactions contemplated by this Section 1.6(d) under applicable Legal Requirements and all such Company Options, including delivering all notices required thereby and, if required, entering into termination agreements with the holders of such Company Options. In addition, promptly after the date of this Agreement, and in any event within ten (10) Business Days before the Effective Time, and subject to the review and approval of Parent, Company shall deliver notice to all holders of Company Options setting forth such holders’ rights pursuant to this Agreement.

(e) Investor Pre-Closing Warrant . Immediately prior to the Effective Time and immediately following the conversion of the Company Preferred Stock into Company Common Stock in connection with the Merger, the Investor Pre-Closing Warrant shall be net exercised pursuant to its terms and the shares of Company Common Stock issued upon exercise shall be converted into Parent Common Stock in accordance with Section 1.6(a). At the Effective Time, each Company Warrant (other than the Company Series D Warrant) that is outstanding and unexercised shall be cancelled in full.

(f) Company Series D Warrant . At the Effective Time, the Company Series D Warrant, shall be assumed by Parent and amended and restated to be a warrant to purchase up to 12,000,000 shares of Parent Common Stock (as adjusted pursuant to Section 1.6(g)) at a cash exercise price equal to the average of the closing sale prices of Parent Common Stock as quoted on NASDAQ CM for the thirty (30) consecutive trading

 

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days commencing with the first trading day immediately following the Effective Time (as adjusted pursuant to Section 1.6(g))(such warrant to purchase Parent Common Stock, the “ Post-Merger Series D Warrant ”). The Post-Merger Series D Warrant will be exercisable commencing on the first anniversary of the date of the Effective Time and ending on the fourth anniversary of the Effective Time and will be in a form otherwise reasonably acceptable to Parent.

(g) Adjustments to Exchange Ratios . The Company Common Exchange Ratio and the Company Series D Exchange Ratio and the price paid for fractional shares pursuant to Section 1.6(h) below will be appropriately adjusted to reflect fully the effect of any stock split, reverse split (including the Reverse Split contemplated by this Agreement), stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Capital Stock), reorganization, recapitalization or other like change with respect to Parent Common Stock or Company Capital Stock occurring after the date hereof and prior to the Effective Time.

(h) Fractional Shares . No fraction of a share of Parent Common Stock will be issued in connection with the Merger, and no certificates or scrip for any such fractional shares will be issued. Company Stockholders will not be entitled to any voting rights, rights to receive any dividends or distributions or other rights as a stockholder of Parent with respect to any such fraction of a share that would have otherwise been issued to such Company Stockholder. Any Company Stockholder who would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock issuable to such holder) will, in lieu of such fraction of a share and upon surrender of such holders’ Company Stock Certificate(s), be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the average of the closing sale prices of Parent Common Stock as quoted on NASDAQ CM for the ten (10) consecutive trading days ending with the trading day immediately preceding the date of the signing of this Agreement (as adjusted pursuant to Section 1.6(g) above).

(i) Restrictions . If any shares of Company Capital Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other Contract with Company or under which Company has any rights, then the shares of Parent Common Stock issued in exchange for such shares of Company Capital Stock will also be unvested and subject to the same repurchase option, risk of forfeiture or other condition, and the book-entry representing such shares of Parent Common Stock may accordingly be marked with appropriate legends. Company will take all action that may be necessary to ensure that, from and after the Effective Time, Parent is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other Contract.

1.7 Dissenting Shares . For purposes of this Agreement, “ Dissenting Shares ” mean any shares of Company Capital Stock outstanding immediately prior to the Effective Time and held by a person who has not voted such shares in favor of the adoption of this Agreement and the Merger, has properly demanded appraisal for such shares in accordance with Delaware Law and has not effectively withdrawn or forfeited such demand for appraisal. Notwithstanding anything to the contrary contained herein, Dissenting Shares will not be converted into a right to receive the Merger Consideration unless such holder fails to perfect or withdraws or otherwise loses its rights to appraisal or it is determined that such holder does not have appraisal rights in accordance with Delaware Law. If after the Effective Time, such holder fails to perfect or withdraws or loses its right to appraisal, or if it is determined that such holder does not have appraisal rights, such shares will be treated as if they had been converted as of the Effective Time into the right to receive the merger consideration set forth in Section 1.6(a) hereof (if any). Company will give Parent prompt notice of any demands received by Company for appraisal of shares of Company Capital Stock, withdrawals of such demands, and any other instruments that relate to such demands received by Company. Parent and Company shall jointly participate in all negotiations and proceedings with respect to such demands except as limited by applicable Legal Requirements. Neither Parent nor Company will, except with prior written consent of the other, make any payment with respect to, or settle or offer to settle, any such demands, unless and to the extent required to do so under applicable Legal Requirements.

 

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1.8 Exchange Of Certificates .

(a) Exchange Agent . On or prior to the Closing Date, Parent will select Philadelphia Stock Transfer, Inc., Parent’s transfer agent or another reputable bank or trust company reasonably acceptable to Company to act as exchange agent in connection with the Merger (the “ Exchange Agent ”). As soon as practicable after the Effective Time, Parent will issue and cause to be deposited with the Exchange Agent (i) non-certificated shares of Parent Common Stock represented by book-entry issuable pursuant to Section 1.6(a); and (ii) cash sufficient to make payments in lieu of fractional shares in accordance with Section 1.6(h). The shares of Parent Common Stock and cash amounts so deposited with the Exchange Agent, together with any dividends or distributions received by the Exchange Agent with respect to such shares, are referred to collectively as the “ Exchange Fund .”

(b) Exchange Procedures . As soon as reasonably practicable after the Effective Time, Parent will cause the Exchange Agent to mail to the record holders of Company Stock Certificates (i) a letter of transmittal in customary form and containing such provisions as Parent may reasonably specify (including a provision confirming that delivery of Company Stock Certificates will be effected, and risk of loss and title to Company Stock Certificates will pass, only upon delivery of such Company Stock Certificates to the Exchange Agent), and (ii) instructions for use in effecting the surrender of Company Stock Certificates in exchange for non-certificated shares of Parent Common Stock represented by book-entry issuable pursuant to Section 1.6(a). Upon surrender of a Company Stock Certificate to the Exchange Agent for exchange, together with a duly executed letter of transmittal and such other documents as may be reasonably required by the Exchange Agent or Parent, (A) the holder of such Company Stock Certificate will be entitled to receive in exchange therefor non-certificated shares of Parent Common Stock represented by book-entry equal to the number of whole shares of Parent Common Stock that such holder has the right to receive pursuant to the provisions of Section 1.6(a) (and cash in lieu of any fractional share of Parent Common Stock pursuant to Section 1.6(h)), and (B) the Company Stock Certificate so surrendered will be canceled. Until surrendered as contemplated by this Section 1.8(b), each Company Stock Certificate held by a Company Stockholder will be deemed, from and after the Effective Time, to represent only the right to receive the Merger Consideration (and cash in lieu of any fractional share of Parent Common Stock). If any Company Stock Certificate will have been lost, stolen or destroyed, the Exchange Agent will require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an appropriate affidavit and indemnity against any claim that may be made against the Exchange Agent, Parent or the Surviving Corporation with respect to such Company Stock Certificate.

(c) Distributions with Respect to Unexchanged Shares . No dividends or other distributions declared or made with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Company Stock Certificate with respect to the shares of Parent Common Stock that such holder has the right to receive in the Merger until such holder surrenders such Company Stock Certificate in accordance with this Section 1.8 (at which time such holder will be entitled, subject to the effect of applicable escheat or similar laws, to receive all such dividends and distributions, without interest).

(d) Transfers of Ownership . If any shares of Parent Common Stock are to be issued in a name other than that in which the Company Stock Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Company Stock Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the Person requesting such exchange will have paid to Parent or any Person designated by it any transfer or other taxes required by reason of the issuance of the shares of Parent Common Stock in any name other than that of the registered holder of the Company Stock Certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable.

(e) Unclaimed Portion of the Exchange Fund .

(i) Any portion of the Exchange Fund that remains undistributed to holders of Company Stock Certificates as of the date 180 days after the date on which the Merger becomes effective will be delivered to Parent upon demand, and any holders of Company Stock Certificates who have not theretofore surrendered their Company Stock Certificates in accordance with this Section 1.8 will thereafter look only to Parent for

 

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satisfaction of their claims for Parent Common Stock, cash in lieu of fractional shares of Parent Common Stock and any dividends or distributions with respect to Parent Common Stock.

(ii) Neither Parent nor the Surviving Corporation will be liable to any holder or former holder of Company Capital Stock or to any other Person with respect to any shares of Parent Common Stock (or dividends or distributions with respect thereto), or for any cash amounts, delivered to any public official pursuant to any applicable abandoned property law, escheat law or similar Legal Requirement.

(f) Withholding Rights . Each of the Exchange Agent, Parent and the Surviving Corporation will be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of Company Capital Stock such amounts as may be required to be deducted or withheld therefrom under the Code or any provision of state, local or foreign tax law or under any other applicable Legal Requirement. To the extent such amounts are so deducted or withheld, such amounts will be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

1.9 Stock Transfer Books . At the Effective Time: (a) all shares of Company Capital Stock outstanding immediately prior to the Effective Time will automatically be canceled and retired and cease to exist, and all holders of Company Capital Stock that were outstanding immediately prior to the Effective Time will cease to have any rights as stockholders of the Company; and (b) the stock transfer books of Company will be closed with respect to all shares of Company Capital Stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of Company Capital Stock will be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any shares of Company Capital Stock (a “ Company Stock Certificate ”) is presented to the Exchange Agent or to the Surviving Corporation or Parent, such Company Stock Certificate will be canceled and exchanged as provided in Section 1.8.

1.10 No Further Rights . The Merger Consideration delivered upon the surrender for exchange of Company Capital Stock in accordance with the terms of this Agreement will be deemed to have been issued in full satisfaction of all rights pertaining to such shares.

1.11 Tax Consequences . For United States federal income tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Code. The parties to this Agreement hereby adopt this Agreement as a “plan of reorganization” within the meaning of Sections 1.368-2(g) of the Treasury Regulations, and intend to file the statement required by Section 1.368-3(a) of the Treasury Regulations.

1.12 Pro-Forma Capitalization Tables .

(a) The pro-forma capitalization of the Company immediately prior to the Effective Time (assuming the Effective Time occurs on December 31, 2017 and after giving effect to the conversion of the Company Preferred Stock and the exercise of the Investor Pre-Closing Warrant is set forth in Schedule 1.12(a) hereof. The pro-forma capitalization of Parent immediately following the Effective Time (assuming the Effective Time occurs on December 31, 2017, but excluding the effect of the financing contemplated by the Financing Agreement and the Post-Closing Series D Warrant) is set forth in Schedule 1.12(b) hereof. The pro-forma capitalization of Parent following the Effective Time (assuming the Effective Time occurs on December 31, 2017 and after giving effect to the financing contemplated by the Financing Agreement, but excluding the effect of the Post-Closing Series D Warrant) is set forth on Schedule 1.12(c) hereof. The pro-forma capitalization of Parent following the Effective Time (assuming the Effective Time occurs on December 31, 2017 and after giving effect to the financing contemplated by the Financing Agreement and the Post-Closing Series D Warrant) is set forth in Schedule 1.12(d) hereof.

(b) To the extent any change to any amount set forth on any capitalization table included in Schedule 1.12(a)-(d) takes place prior to the Effective Time appropriate adjustment shall be made to the

 

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Company Series D Preference Amount, Company Common Exchange Ratio Outstanding Shares or Parent Outstanding Shares, as the case may be, together with an appropriate adjustment to the number of Company Merger Shares, or, if applicable, the number of shares underlying the Investor Pre-Closing Warrant, such that the ownership percentages set forth on Schedule 1.12(d) hereof shall be the ownership percentages of the outstanding Parent Common Stock immediately after the Effective Time after giving effect to (i) the Merger, (ii) the financing contemplated by the Financing Agreement, and (iii) the issuance of the Post-Closing Series D Warrant.

(c) All share numbers and prices set forth in this Section 1.12 or any schedule contemplated by this Section 1.12 shall be subject to Section 1.6(g). The share amounts and prices set forth in this Section 1.12 or any schedule contemplated by this Section 1.12 do not reflect the effect of any stock split, reverse stock split (including the Reverse Split) or the like that may take place after the Effective Time.

1.13 Additional Actions . If, at any time after the Effective Time, any further action is necessary, desirable or proper to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of Company and Merger Sub, the Surviving Corporation and its proper officers and directors or their designees are fully authorized (to the fullest extent allowed under applicable Legal Requirements) to execute and deliver, in the name and on behalf of either Company or Merger Sub, all deeds, bills of sale, assignments and assurances and do, in the name and on behalf of Company or Merger Sub, all other acts and things necessary, desirable or proper to vest, perfect or confirm its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of Company or Merger Sub, as applicable, and otherwise to carry out the purposes of this Agreement.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF COMPANY

Company represents and warrants to Parent and Merger Sub as follows (it being understood that each representation and warranty contained in this Article 2 is subject to: (a) the exceptions and disclosures set forth in the part or subpart of the Company Disclosure Schedule corresponding to the particular Section or subsection in this Section 2 in which such representation and warranty appears; (b) any exceptions or disclosures explicitly cross-referenced in such part or subpart of the Company Disclosure Schedule by reference to another part or subpart of the Company Disclosure Schedule; and (c) any exception or disclosure set forth in any other part or subpart of the Company Disclosure Schedule to the extent it is reasonably apparent from the wording of such exception or disclosure that such exception or disclosure qualifies such representation and warranty):

2.1 Organization and Qualification; Charter Documents .

(a) Part 2.1(a) of the Company Disclosure Schedule identifies each Subsidiary of Company and indicates its jurisdiction of organization. Neither Company nor any of the Entities identified in Part 2.1(a) of the Company Disclosure Schedule owns any capital stock of, or any equity interest of any nature in, any other Entity, other than the Entities identified in Part 2.1(a) of the Company Disclosure Schedule. None of the Acquired Companies has agreed or is obligated to make, or is bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity.

(b) Each of the Acquired Companies is a corporation duly organized, validly existing and, in jurisdictions that recognize the concept, is in good standing under the laws of the jurisdiction of its incorporation and has all necessary corporate power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound.

(c) Each of the Acquired Companies (in jurisdictions that recognize the following concepts) is qualified to do business as a foreign corporation, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a Company Material Adverse Effect.

 

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(d) Company has made available to Parent accurate and complete copies of: (a) the certificate of incorporation, bylaws and other charter and organizational documents of each Acquired Company, including all amendments thereto; (b) the stock records of each Acquired Company; and (c) the minutes and other records of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting) of the stockholders of each Acquired Company, the board of directors of each Acquired Company and all committees of the board of directors of each Acquired Company. The books of account, stock records, minute books and other records of the Acquired Companies are accurate, up-to-date and complete in all material respects, and have been maintained in accordance with prudent business practices.

2.2 Capital Structure .

(a) The authorized capital stock of Company consists of (i) 157,836,540 shares of Company Common Stock of which 76,359,923 are issued and outstanding as of the date of this Agreement, (ii) 12,768,492 shares of Company Series A Preferred Stock of which 12,618,279 have been issued and are outstanding as of the date of this Agreement, (iii) 31,034,696 shares of Company Series B Preferred Stock of which 13,801,318 shares are issued and outstanding as of the date of this Agreement, (iv) 5,037,784 shares of Company Series C Preferred Stock of which 5,037,784 shares are issued and outstanding as of the date of this Agreement, (v) 8,660,572 shares of Company Series C-1 Preferred Stock of which 8,558,686 shares are issued and outstanding as of the date of this Agreement, (vi) 80 shares of Company Series D Preferred Stock of which 75 are issued and outstanding as of the date of this Agreement. No shares of capital stock are held in Company’s treasury. All outstanding shares of Company Capital Stock are duly authorized, validly issued, fully paid and non-assessable and were issued in compliance with all applicable federal and state securities Legal Requirements.

(b) As of the date of this Agreement, Company had reserved an aggregate of 14,000,000 shares of Company Common Stock, net of exercises, for issuance to employees, consultants and non-employee directors pursuant to the Company Option Plan, under which options were outstanding for an aggregate of 6,248,595 shares of Company Common Stock. All shares of Company Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and non-assessable. Part 2.2(b) of the Company Disclosure Schedule lists each holder of Company Capital Stock and the number and type of shares of Company Capital Stock held by such holder, each outstanding Company Option and Company Warrant, the name of the holder of such Company Option or Company Warrant, the number of shares subject to such Company Option or Company Warrant, the exercise price of such Company Option or Company Warrant, the vesting schedule and termination date of such Company Option or Company Warrant and whether the exercisability of such Company Option or Company Warrant will be accelerated in any way by the transactions contemplated by this Agreement or for any other reason, indicating the extent of acceleration, if any. Part 2.2(b) of the Company Disclosure Schedule also lists for each holder of Company Capital Stock, Company Option or Company Warrant, the state or other jurisdiction in which such holder currently resides, or, if such holder is an Entity, the state where such holder’s principal office is located.

(c) Except as set forth on Part 2.2(c) of the Company Disclosure Schedule: (i) none of the outstanding shares of Company Capital Stock are entitled or subject to any preemptive right, right of repurchase or forfeiture, right of participation, right of maintenance or any similar right; (ii) none of the outstanding shares of Company Capital Stock are subject to any right of first refusal in favor of Company; (iii) there are no outstanding bonds, debentures, notes or other indebtedness of the Acquired Companies having a right to vote on any matters on which the Company Stockholders have a right to vote; (iv) there is no Contract to which the Acquired Companies are a party relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or from granting any option or similar right with respect to), any shares of Company Capital Stock. Except as set forth on Part 2.2(c) of the Company Disclosure Schedule, none of the Acquired Companies is under any obligation, or is bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Company Capital Stock or other securities. Part 2.2(c) of the Company Disclosure Schedule accurately and completely lists all repurchase rights held by Company with respect to shares of Company Capital Stock (including shares issued pursuant to the exercise of

 

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stock options) and specifies each holder of such shares of Company Capital Stock, the date of purchase and number of such shares, the purchase price paid by such holder, the vesting schedule under which such repurchase rights lapse, and whether the holder of such shares filed an election under Section 83(b) of the Code with respect to such shares within thirty (30) days of purchase. Each share of Company Preferred Stock is convertible into shares of Company Common Stock as set forth in the certificate of incorporation of the Company as in effect as of the Closing Date.

2.3 Authority; Non-Contravention; Approvals .

(a) Company has the requisite corporate power and authority to enter into this Agreement and, subject to Company Stockholder Approval, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Company, the performance by Company of its obligations hereunder and the consummation by Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Company, subject only to Company Stockholder Approval and the filing and recordation of the Certificate of Merger pursuant to Delaware Law. The affirmative vote of the holders of (i) a majority of the shares of Company Common Stock, Company Preferred Stock and Company Series D Preferred Stock, voting as a single class, and (ii) the holders of a majority of the shares of each of the Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock, Company Series C-1 Preferred Stock and Company Series D Preferred Stock, each voting as a separate class (“ Company Stockholder Approval ”) is the only vote of the holders of any class or series of Company Capital Stock necessary to adopt this Agreement and approve the Merger and all other transaction contemplated by this Agreement. This Agreement has been duly executed and delivered by Company and, assuming the due authorization, execution and delivery by Parent, Merger Sub constitutes the valid and binding obligation of Company, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.

(b) Company’s board of directors, by resolutions duly adopted by vote at a meeting of all directors of Company duly called and held and, as of the date of this Agreement, not subsequently rescinded or modified in any way, has, as of the date of this Agreement (i) approved this Agreement and the Merger, and determined that this Agreement and the transactions contemplated by this Agreement, including the Merger, are fair to, and in the best interests of the Company Stockholders, and (ii) resolved to recommend that the Company Stockholders adopt this Agreement and approve the Merger and all other transactions contemplated by this Agreement by written consent.

(c) The execution and delivery of this Agreement by Company does not, and the performance of this Agreement by Company will not, (i) conflict with or violate the certificate of incorporation or bylaws of Company or the equivalent organizational documents of any of its Subsidiaries, (ii) subject to obtaining the Company Stockholder Approval and compliance with the requirements set forth in Section 2.3(d) below, conflict with or violate any Legal Requirement applicable to Company or any of its Subsidiaries or by which its or any of their respective properties is bound or affected, except for any such conflicts or violations that would not, individually or in the aggregate, have a Company Material Adverse Effect or would not prevent or materially delay the consummation of the Merger, or (iii) require an Acquired Company to make any filing with or give any notice to a Person, to obtain any Consent from a Person, or result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Company’s rights or alter the rights of obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of Company or any of its Subsidiaries pursuant to, any Contract to which Company or any of its Subsidiaries is a party or by which Company or any of its Subsidiaries or its or any of their respective properties are bound or affected (except, for purposes of this clause (iii), in the case of any Contract that is not a Company Contract, as would not, individually or in the aggregate, have a Company Material Adverse Effect or prevent or materially delay the Merger).

(d) No material consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Body is required by or with respect to Company in connection with the execution and delivery

 

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of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (ii) the filing of the Proxy Statement/Prospectus/Information Statement with the Securities and Exchange Commission (“ SEC ”) in accordance with the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and (iii) the filing of a Form D Notice of Exempt Offering of Securities or other related filings in reliance on an exemption provided in Regulation D of the Securities Act of 1933, as amended (the “ Securities Act” ).

2.4 Anti-Takeover Statutes Not Applicable . The board of directors of Company has taken all actions so that no state takeover statute or similar Legal Requirement applies or purports to apply to the execution, delivery or performance of this Agreement or to the consummation of the Merger or the other transactions contemplated by this Agreement. The board of directors of Company has taken all action necessary to render inapplicable to this Agreement and the transactions contemplated hereby Section 203 of Delaware Law.

2.5 Company Financial Statements; No Undisclosed Liabilities .

(a) The audited consolidated financial statements (including any related notes thereto) representing the financial condition of Company as of December 31, 2015, and December 31, 2016, and the unaudited financial statements (including the notes thereto) representing the financial condition of Company as of August 31, 2017 (collectively, the “ Company Financials ”), including any available quarterly financial statements (including any related notes thereto) (i) were prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act), (ii) fairly presented the consolidated financial position of Company and its Subsidiaries as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not, or are not expected to be, material in amount, and (iii) are consistent with, and have been prepared from, the books and records of Company. Company has not effected any securitization transactions or “off-balance sheet arrangements” (as defined in Item 303(c) of SEC Regulation S-K) since August 31, 2017. The balance sheet of Company as of August 31, 2017 is hereinafter referred to as the “ Company Balance Sheet .” Notwithstanding the foregoing, consolidated unaudited financial statements are subject to normal recurring year-end adjustments (the effect of which will not, individual or in the aggregate, be material) and the absence of footnotes.

(b) Each of Company and its Subsidiaries maintains a system of internal accounting controls comparable to those of similarly situated companies at a similar stage of development designed to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Company and each of its Subsidiaries maintains internal controls over financial reporting that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

(c) Since inception, there have been no formal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer or general counsel of Company, the board of directors of Company or any committee thereof. Since inception, neither Company nor its independent auditors have identified (i) any significant deficiency or material weakness in the system of internal accounting controls utilized by Company, (ii) any fraud, whether or not material, that involves Company’s management or other employees who have a role in the preparation of financial statements or the internal accounting controls utilized by Company, or (iii) any claim or allegation regarding any of the foregoing.

(d) Except as disclosed in the Company Financials, neither Company nor any of its Subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be disclosed on a balance sheet

 

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or in the related notes to the consolidated financial statements prepared in accordance with GAAP which are, individually or in the aggregate, material to the business, results of operations or financial condition of Company and its Subsidiaries taken as a whole, except liabilities (i) provided for in the Company Balance Sheet, (ii) incurred in connection with the transactions contemplated in this Agreement, (iii) described on Part 2.5(e) of the Company Disclosure Schedule, (iv) set forth in any Company Contract or (v) incurred since the date of the Company Balance Sheet in the ordinary course of business consistent with past practices.

2.6 Absence Of Certain Changes Or Events . Since the date of the Company Balance Sheet through the date of this Agreement, each of the Acquired Companies has conducted its business only in the ordinary course of business consistent with past practice, and there has not been: (a) any event that has had a Company Material Adverse Effect, (b) any material change by Company in its accounting methods, principles or practices, except as required by concurrent changes in GAAP or as disclosed in the notes to the Company Financials, (c) any revaluation by Company of any of its assets having a Company Material Adverse Effect, or writing off notes or accounts receivable other than in the ordinary course of business, or (d) any other action, event or occurrence that would have required the consent of Parent pursuant to Section 4.1 of this Agreement had such action, event or occurrence taken place after the execution and delivery of this Agreement.

2.7 Taxes .

(a) Each income and other material Tax Return that any Acquired Company was required to file under applicable Legal Requirements: (i) has been timely filed on or before the applicable due date (including any extensions of such due date) and (ii) is true and complete in all material respects. All material Taxes due and payable by Company or its Subsidiaries have been timely paid, except to the extent such amounts are being contested in good faith by Company or are properly reserved for on the books or records of Company and its Subsidiaries. No extension of time with respect to any date on which a Tax Return was required to be filed by an Acquired Company is in force (except where such Tax Return was filed), and no waiver or agreement by or with respect to an Acquired Company is in force for the extension of time for the payment, collection or assessment of any Taxes, and no request has been made by an Acquired Company in writing for any such extension or waiver (except, in each case, in connection with any request for extension of time for filing Tax Returns). There are no liens for Taxes on any asset of an Acquired Company other than liens for Taxes not yet due and payable, Taxes contested in good faith or that are otherwise not material and reserved against in accordance with GAAP. No deficiency with respect to Taxes has been proposed, asserted or assessed in writing against Company or its Subsidiaries which has not been fully paid or adequately reserved or reflected in the Company Financials.

(b) All material Taxes that an Acquired Company has been required to collect or withhold have been duly collected or withheld and, to the extent required by applicable Legal Requirements when due, have been duly and timely paid to the proper Governmental Body.

(c) The unpaid Taxes of the Acquired Companies (i) did not, as of August 31, 2017, exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax items) set forth on the face of the balance sheet of such date contained in the Company Financials, and (ii) do not exceed the reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Acquired Companies in filing their Tax Returns. Since August 31, 2017, the Acquired Companies have not incurred any liability for Taxes outside of the ordinary course of business or otherwise inconsistent with past custom or practice.

(d) No Acquired Company will be required to include any material item of income in, or exclude any material item of deduction or credit from, the computation of taxable income for any taxable period (or portion thereof) ending after the Closing Date, as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date, (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date, (iii) installment sale or open transaction disposition made on or prior to the Closing Date, (iv) prepaid amount received on or prior to the Closing Date, (v) deferred intercompany gain or excess loss account described in the Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local or foreign Tax law), or (vi) election under Section 108(i) of the Code.

 

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(e) No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into by any Acquired Company with any taxing authority or issued by any taxing authority to an Acquired Company. There are no outstanding rulings of, or request for rulings with, any Governmental Body addressed to an Acquired Company that are, or if issued would be, binding on an Acquired Company.

(f) No Acquired Company is a party to any Contract with any third party relating to allocating or sharing the payment of, or liability for, Taxes or Tax benefits (other than pursuant to customary provisions included in credit agreements, leases, and agreements entered with employees, in each case, not primarily related to Taxes and entered into in the ordinary course of business). No Acquired Company has any liability for the Taxes of any third party under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Legal Requirement) as a transferee or successor or otherwise by operation of Legal Requirements.

(g) No Acquired Company has been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code or of any group that has filed a combined, consolidated or unitary Tax return under state, local or foreign Tax Legal Requirement (other than a group the common parent of which was Company).

(h) Other than the Subsidiaries identified in Part 2.1(a) of the Company Disclosure Schedule, Company does not have any direct or indirect interest in any trust, partnership, corporation, limited liability company, or other “business entity” for United States federal income tax purposes. Each Acquired Company is and always has been a corporation taxable under subchapter C of the Code for United States federal income tax purposes, and has had comparable status under the Legal Requirements of any state, local or non-U.S. jurisdiction in which it was required to file any Tax Return at the time it was required to file such Tax Return. None of the Acquired Companies is a “controlled foreign corporation” within the meaning of Section 957 of the Code or “passive foreign investment company” within the meaning of Section 1297 of the Code.

(i) No Acquired Company has participated in, or is currently participating in, a “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2). Company has disclosed on its respective United States federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of United States federal income Tax within the meaning of Section 6662 of the Code.

(j) Each Acquired Company is not (and has not been for the five-year period ending at the Effective Time) a “United States real property holding corporation” as defined in Section 897(c)(2) of the Code and the applicable Treasury Regulations.

(k) No Acquired Company has a permanent establishment in any country other than the United States, as defined in any applicable Tax treaty between the United States and such other country.

(l) No Acquired Company has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code.

(m) No Acquired Company has taken or agreed to take any action that would prevent the Merger from constituting a reorganization qualifying under Section 368 of the Code. No Acquired Company is aware of any agreement, plan or other circumstance that would prevent the Merger from qualifying as a reorganization under Section 368 of the Code.

2.8 Intellectual Property .

(a) Part 2.8(a)(i) of the Company Disclosure Schedule lists all of the Patent Rights and all Trademark Rights owned solely by any Acquired Company as of the date hereof, setting forth in each case, as applicable, the jurisdictions in which patents have been issued, patent applications have been filed, trademarks have been registered and trademark applications have been filed, along with the respective application, registration or filing number and prosecution history or subsequent registration activity thereof. Part 2.8(a)(ii) of the Company Disclosure Schedule lists, as of the date hereof, all of the Patent Rights and all Trademark Rights in which any

 

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Acquired Company has any co-ownership interest, other than those owned solely by an Acquired Company, setting forth in each case, as applicable, the jurisdictions in which patents have been issued, patent applications have been filed, trademarks have been registered and trademark applications have been filed, along with the respective application, registration or filing number and prosecution history or subsequent registration activity thereof. Part 2.8(a)(iii) of the Company Disclosure Schedule lists all of the third party Patent Rights and Trademark Rights in which an Acquired Company has any exclusive right, title or interest, other than those owned solely or co-owned by an Acquired Company.

(b) Part 2.8(b) of the Company Disclosure Schedule lists all Contracts in effect as of the date of this Agreement under which any third party has licensed, granted or conveyed to any Acquired Company any right, title or interest in or to any Company IP Rights other than “shrink wrap” or “click through” license agreements accompanying widely available computer software that has not been modified or customized for an Acquired Company. To Company’s knowledge, there are no breaches or defaults of, or any disputes or threatened disputes concerning, any of such Contracts.

(c) Part 2.8(c) of the Company Disclosure Schedule lists all Contracts in effect as of the date of this Agreement under which an Acquired Company has licensed, granted or conveyed to any third party any right, title or interest in or to any Company IP Rights (collectively, “ Out Licenses ”). To the Company’s knowledge, there are no breaches or defaults of, or any disputes or threatened disputes concerning, any of such Contracts.

(d) The Acquired Companies own, co-own or otherwise possess legally enforceable rights in and to all Company IP Rights, free and clear of all Encumbrances. The Company IP Rights that are owned or co-owned by an Acquired Company or exclusively licensed to an Acquired Company (collectively, “ Company Owned IP Rights ”) are valid and enforceable. No third party is overtly challenging in writing the right, title or interest of an Acquired Company in, to or under the Company Owned IP Rights, or the validity, enforceability or claim construction of any Patent Rights owned or co-owned or exclusively licensed to an Acquired Company, and there is no opposition, cancellation, proceeding, objection or claim pending with regard to any Company Owned IP Rights and the Company Owned IP Rights are not subject to any outstanding order, judgment, decree or agreement materially and adversely affecting the Acquired Companies’ use thereof or their rights thereto. No valid basis exists for any of the foregoing challenges or claims. No act has been done or omitted to be done by the Acquired Companies, which has, had or could have the effect of dedicating to the public, or entitling any third party to cancel, forfeit, modify or consider abandoned, any Company IP Rights that are owned or co-owned by an Acquired Company, or, except with respect to Contracts listed in Part 2.8(c) of the Company Disclosure Schedule, give any Person any ownership or license rights with respect thereto. All necessary registration, maintenance and renewal fees in respect of the Company Owned IP Rights have been paid and all necessary documents and certificates have been filed with the relevant Governmental Body for the purpose of maintaining such Company Owned IP Rights.

(e) Each Acquired Company has taken all reasonable measures to protect and maintain the confidentiality of the Trade Secrets included in the Company Owned IP Rights. The Acquired Companies have not divulged, furnished to or made accessible any of their Trade Secrets to any Person except pursuant to an enforceable written agreement to maintain the confidentiality of such Trade Secrets or in connection with the filing of an application to obtain patent protection for the embodiment of such Trade Secret, and the Acquired Companies otherwise take and have taken reasonable measures to maintain the confidentiality of their Trade Secrets. All current and former officers and employees of, and consultants and independent contractors to, each Acquired Company who have contributed to the creation or development of any Company IP Rights owned or co-owned by an Acquired Company have assigned all of their respective ownership rights in such IP Rights to such Acquired Company, and have executed and delivered to such Acquired Company an agreement (containing no exceptions or exclusions from the scope of the coverage contained in such Acquired Company’s applicable form agreement) regarding the assignment to such Acquired Company, of any IP Rights arising from services performed for such Acquired Company by such Persons, the current forms of which agreements have been made available in a data room or otherwise for review by Parent or its advisors. To the knowledge of Company, no current or former officers and employees of, or consultants or independent contractors to, any Acquired Company have breached any material term of any such agreements.

 

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(f) With respect to third party Patent Rights and Trademark Rights, none of the Acquired Companies or any of their respective current activities or products violates or otherwise conflicts with, or has infringed, misappropriated or violated any IP Rights of any third party, and no Acquired Company has received any written notice nor are any of them subject to any actual, or to the knowledge of Company, threatened proceedings, claiming or alleging any of the foregoing.

(g) No Company Owned IP Rights are being infringed, misappropriated or unlawfully used by any third party nor has a third party previously infringed, misappropriated or unlawfully used any such Company Owned IP Rights.

(h) Subject to the Company obtaining the required consents pursuant to Section 6.2(c), neither the execution, delivery or performance of this Agreement by Company nor the consummation by Company of the transactions contemplated by this Agreement will contravene, conflict with or result in the imposition of any additional limitation on the Acquired Companies’ right, title or interest in or to any material Company IP Rights.

(i) No funding, facilities, or personnel of any Governmental Body or any public or private university, college or other educational or research institution were used by any Acquired Company to develop or create, in whole or in part, any Company Owned IP Rights.

(j) Each Acquired Company is, and has at all times since January 1, 2015 been, in material compliance with all Legal Requirements regarding the protection, storage, use and disclosure of Personal Data collected by such Acquired Company.

2.9 Compliance with Legal Requirements .

(a) Neither Company nor any of its Subsidiaries has been or is in conflict with, or in default or violation of (i) any Legal Requirement, order, judgment or decree applicable to Company or any of its Subsidiaries or by which its or any of their respective properties is bound or affected, or (ii) any Contract to which Company or any of its Subsidiaries is a party or by which Company or any of its Subsidiaries or its or any of their respective properties is bound or affected, except for any immaterial conflicts, defaults or violations. No investigation or review by any Governmental Body is pending or, to the knowledge of the Company, threatened against Company or its Subsidiaries, nor has any Governmental Body indicated to an Acquired Company in writing an intention to conduct the same.

(b) Company and its Subsidiaries hold all permits, licenses, authorizations, variances, exemptions, orders and approvals from governmental authorities which are necessary to the operation of the business of Company and its Subsidiaries taken as a whole (collectively, the “ Company Permits ”). Company and its Subsidiaries are in compliance in all material respects with the terms of the Company Permits. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the knowledge of Company, threatened, which seeks to revoke or limit any Company Permit. A true, complete and correct list of the Company Permits is set forth in Part 2.9(b) of the Company Disclosure Schedule. The rights and benefits of each Company Permit will be available to the Surviving Corporation immediately after the Effective Time on terms substantially identical to those enjoyed by Company immediately prior to the Effective Time. Company has provided Parent all material Company Permits and material correspondence from the FDA or other comparable Governmental Body.

(c) To the knowledge of Company, the Acquired Companies and Persons acting in concert with and on behalf of Company:

(i) have not used in any capacity the services of any individual or entity debarred, excluded, or disqualified under 21 U.S.C. Section 335a, 42 U.S.C., Section 1320a-7, 21 C.F.R. Section 312.70, or any similar laws, rules or regulations; and

(ii) have not been convicted of any crime or engaged in any conduct that has resulted, or would reasonably be expected to result, in debarment, exclusion, or disqualification under 21 U.S.C. Section 335a, 42 U.S.C. Section 1320a-7, 21 C.F.R. Section 312.70, or any similar laws, rules regulations.

 

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(d) None of the Acquired Companies, and (to the knowledge of Company) no Representative of any of the Acquired Companies with respect to any matter relating to any of the Acquired Companies, has: (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iii) made any other unlawful payment.

(e) No product or product candidate manufactured, tested, distributed, held or marketed by or on behalf of any of the Acquired Companies has been recalled, withdrawn, suspended or discontinued (whether voluntarily or otherwise). At no time has any of the Acquired Companies received written notice that any Governmental Body or institutional review board or comparable body has commenced, or threatened to initiate, any proceeding seeking the recall, market withdrawal, suspension or withdrawal of approval, or seizure of any such product or product candidate; the imposition of material sales, marketing or production restriction on any such product or product candidate; or the suspension, termination or other restriction of preclinical or clinical research with respect to any such product candidate by or on behalf of any of the Acquired Companies, including any action regarding any investigator participating in any such research, nor is any such proceeding pending. The Company has, prior to the execution of this Agreement, provided or made available to Parent all information about serious adverse drug experiences obtained or otherwise received by any of the Acquired Companies from any source, in the United States or outside the United States, including information derived from clinical investigations prior to any market authorization approvals, commercial marketing experience, postmarketing clinical investigations, postmarketing epidemiological/surveillance studies or registries, reports in the scientific literature, and unpublished scientific papers relating to any product or product candidate manufactured, tested, distributed, held or marketed by any of the Acquired Companies or any of their licensees in the possession of any of the Acquired Companies (or to which any of them has access), except for any adverse drug experiences that would not, or would not reasonably be expected to, individually or in the aggregate, have a Company Material Adverse Effect.

(f) None of the Acquired Companies, or to the knowledge of the Company, Persons acting in concert with or on behalf of the Acquired Companies or any officers, employees or agents of the same, has with respect to any product that is manufactured, tested, distributed, held or marketed by or on behalf of any of the Acquired Companies made an untrue statement of a material fact or fraudulent statement to the FDA or any other Governmental Body, failed to disclose a material fact required to be disclosed to the FDA or any other Governmental Body, or committed an act, made a statement, or failed to make a statement that, at the time such disclosure was made, would reasonably be expected to provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any other Governmental Body to invoke any similar policy.

(g) All pre-clinical and clinical studies relating to product or product candidates, conducted by or on behalf of the Acquired Companies have been, or are being, conducted in all material respects in compliance with the applicable requirements of the FDA’s Good Laboratory Practice and Good Clinical Practice requirements, including regulations under 21 C.F.R. Parts 50, 54, 56, 58, 312 and applicable guidance documents, as amended from time to time, the Animal Welfare Act, and all applicable similar requirements in other jurisdictions, including all requirements relating to protection of human subjects participating in any such clinical studies; provided , however , that the foregoing representation and warranty is made only to the Company’s knowledge with respect to clinical and pre-clinical studies conducted by any third party on behalf of the Acquired Companies.

(h) Each of the Acquired Companies has filed with the FDA, any other Governmental Body, and any institutional review board or comparable body, all required notices, supplemental applications, and annual or other reports, including adverse experience reports, with respect to each investigational new drug application or any comparable foreign regulatory application, related to the manufacture, testing, study, or sale of any of its products or product candidates, as applicable.

 

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2.10 Legal Proceedings; Orders .

(a) Except as set forth in Part 2.10(a) of the Company Disclosure Schedule, there is no pending Legal Proceeding, and (to the knowledge of Company) no Person has threatened to commence any Legal Proceeding: (i) that involves any of the Acquired Companies, any business of any of the Acquired Companies or any of the assets owned, leased or used by any of the Acquired Companies; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Merger or any of the other transactions contemplated by this Agreement. None of the Legal Proceedings identified in Part 2.10(a) of the Company Disclosure Schedule has had or, if adversely determined, would reasonably be expected to have or result in a Company Material Adverse Effect. To the knowledge of Company, no event has occurred, and no claim, dispute or other condition or circumstance exists, that would reasonably be expected to give rise to or serve as a basis for the commencement of any Legal Proceeding of the type described in clause “(i)” or clause “(ii)” of the first sentence of this Section 2.10(a).

(b) There is no Order to which any of the Acquired Companies, or any of the assets owned or used by any of the Acquired Companies, is subject. To the knowledge of Company, no officer or other key employee of any of the Acquired Companies is subject to any Order that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to the business of any of the Acquired Companies.

2.11 Brokers And Finders Fees . Except as set forth on Part 2.11 of the Company Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Merger or any of the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of any of the Acquired Companies.

2.12 Employee Benefit Plans .

(a) Part 2.12(a) of the Company Disclosure Schedule sets forth, as of the date of this Agreement, a complete and accurate list of each plan, program, policy, practice, contract, agreement or other arrangement providing for employment, compensation, retirement, pension, deferred compensation, loans, severance, separation, relocation, repatriation, expatriation, visas, work permits, termination pay, performance awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom stock, stock appreciation right, supplemental retirement, profit sharing, fringe benefits, cafeteria benefits, medical benefits, life insurance, disability benefits, accident benefits, salary continuation, accrued leave, vacation, sabbatical, sick pay, sick leave, unemployment benefits or other benefits, whether written or unwritten, including each “voluntary employees’ beneficiary association”, under Section 501(c)(9) of the Code and each “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), in each case, for active, retired or former employees, directors or consultants, which is currently sponsored, maintained, contributed to, or required to be contributed to or with respect to which any potential liability is borne by Company or any trade or business (whether or not incorporated) that is or at any relevant time was treated as a single employer with Company within the meaning of Section 414 of the Code (an “ ERISA Affiliate ”), (collectively, the “ Company Employee Plans ”). Neither Company nor, to the knowledge of Company, any other person or entity, has made any commitment to modify, change or terminate any Company Employee Plan, other than with respect to a modification, change or termination required by Legal Requirements. There are no loans by Company to any of its officers, employees, contractors or directors outstanding on the date hereof, except pursuant to loans under any Company Employee Plan intended to qualify under Section 401(k) of the Code, and there have never been any loans by Company subject to Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

(b) Company has made available to Parent true and complete copies of each of Company Employee Plans and all material related plan documents, including trust documents, group annuity contracts, plan amendments, Insurance Policies or contracts, participant agreements, employee booklets, administrative service agreements, summary plan descriptions, compliance and nondiscrimination tests (including 401(k) and 401(m) tests) for the last three plan years, standard COBRA forms and related notices, registration statements and

 

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prospectuses and, to the extent still in its possession, any material employee communications relating thereto. With respect to each Company Employee Plan that is subject to ERISA reporting requirements, Company has made available in a data room for review by Parent copies of the Form 5500 reports filed for the last three (3) plan years. Company has made available in a data room for review by Parent the most recent Internal Revenue Service determination, advisory, notification or opinion letter (a “ Determination Letter ”) issued with respect to each such Company Employee Plan, as applicable, and to Company’s knowledge, nothing has occurred since the issuance of each such letter that would reasonably be expected to cause the loss of the tax-qualified status of any Company Employee Plan subject to Code Section 401(a). Company has made available in a data room for review by Parent all filings made by Company or any ERISA Affiliate of Company with any Governmental Body with respect to any Company Employee Plan to the extent relevant to any ongoing obligation or liability of Company, including any filings under the IRS’ Employee Plans Compliance Resolution System Program or any of its predecessors or the Department of Labor Delinquent Filer Program.

(c) Each Company Employee Plan is being, and has been, administered substantially in accordance with its terms and in material compliance with the requirements prescribed by any and all Legal Requirements (including ERISA and the Code). Company and each ERISA Affiliate are not in material default under or material violation of, and have no knowledge of any material default or material violation by any other party to, any of Company Employee Plans. Any Company Employee Plan intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service a favorable Determination Letter as to its qualified status under the Code, including all currently effective amendments to the Code, and the corresponding related exemption of its trust from United States federal income taxation under Section 501(a) of the Code, if applicable, or has applied to the Internal Revenue Service for such favorable Determination Letter within the remedial amendment period under Section 401(b) of the Code. None of Company Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person. Company has not engaged in, or participated in, any transaction which would be considered a non-exempt “prohibited transaction,” as such term is defined in Section 406 of ERISA or Section 4975 of the Code, and to Company’s knowledge, no other third-party fiduciary and/or party-in-interest has engaged in any such “prohibited transaction” with respect to any Company Employee Plan. Neither Company nor any ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any Company Employee Plan. All contributions required to be made by Company or any ERISA Affiliate to any Company Employee Plan have been timely paid or accrued on Company Balance Sheet, if required under GAAP. With respect to each Company Employee Plan, no “reportable event” within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) has occurred, nor has any event described in Section 4062, 4063 or 4041 or ERISA occurred. Each Company Employee Plan subject to ERISA has prepared in good faith and timely filed all requisite governmental reports, which were true and correct in all material respects as of the date filed, and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Company Employee Plan. No suit, administrative proceeding or action has been brought, or to the knowledge of Company is overtly threatened in communication with Company, against or with respect to any such Company Employee Plan, including any audit or inquiry by the Internal Revenue Service or the United States Department of Labor (other than routine claims for benefits arising under such plans). There has been no amendment to, or written interpretation or announcement by Company or any ERISA Affiliate regarding any Company Employee Plan that would materially increase the expense of maintaining such Company Employee Plan above the level of expense incurred with respect to that plan for the fiscal year ended December 31, 2014. None of the assets of Company or any ERISA Affiliate is, or may reasonably be expected to become, the subject of any lien arising under Section 302 of ERISA or Section 412(n) of the Code. All contributions and payments to Company Employee Plans are deductible under Section 162 or 404 of the Code. No assets of any Company Employee Plan are subject to a material amount of Tax as unrelated business taxable income under Section 511 of the Code, and no excise Tax could be imposed upon Company under Chapter 43 of the Code. With respect to Company Employee Plans, no event has occurred and, to the knowledge of Company, there exists no condition or set of circumstances in connection with which Company would reasonably expect to be subject to any material liability (other than for liabilities with respect to routine benefit claims) under the

 

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terms of, or with respect to, such Company Employee Plans, ERISA, the Code or any other applicable Legal Requirement.

(d) Neither Company nor any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to, or is obligated to contribute to, or otherwise incurred any obligation or liability (including any contingent liability) under, any “multiemployer plan” (as defined in Section 3(37) of ERISA) or any “pension plan” (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA or Section 412 of the Code. Neither Company nor any ERISA Affiliate has, as of the date of this Agreement, any actual or potential withdrawal liability (including any contingent liability) for any complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any multiemployer plan.

(e) Neither Company nor any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to any self-insured plan that is governed by ERISA and that provides benefits to employees (including any such plan pursuant to which a stop loss policy or contract applies).

(f) With respect to each Company Employee Plan, Company is in material compliance with (i) the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“ COBRA ”) and the regulations thereunder or any state Legal Requirement governing health care coverage extension or continuation; (ii) the applicable requirements of the Family and Medical Leave Act of 1993 and the regulations thereunder; (iii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996 (“ HIPAA ”); and (iv) the applicable requirements of the Cancer Rights Act of 1998. Company has no material unsatisfied obligations to any employees, former employees or qualified beneficiaries pursuant to COBRA, HIPAA or any state Legal Requirement governing health care coverage extension or continuation.

(g) Each Company Employee Plan that is a “nonqualified deferred compensation plan” subject to Section 409A of the Code has been operated in good faith compliance with, or is otherwise exempt from, Section 409A of the Code. No outstanding stock right (as defined in Treasury Regulation 1.409A-1(l)) has been granted to any active, retired or former employees, directors or consultants that (i) has an exercise price that has been or may be less than the fair market value of the underlying equity as of the date such option or right was granted, as determined by the board of directors of Company in good faith, (ii) has any feature for the deferral of compensation other than the deferral of recognition of income until the later of exercise or disposition of such option or rights, or (iii) has been granted after December 31, 2004, with respect to any class of stock that is not “service recipient stock” (within the meaning of applicable regulations under Section 409A of the Code). No compensation payable by any of the Acquired Companies or any of the ERISA Affiliates will be or has been reportable as nonqualified deferred compensation in the gross income of any individual or entity as a result of the operation of Section 409A of the Code that would be subject to the excise and penalty taxes arising thereunder.

(h) Other than as specifically contemplated by this Agreement or as otherwise required under applicable Legal Requirements, consummation of the Merger will not (i) entitle any current or former employee or other service provider of Company or any ERISA Affiliate to severance benefits or any other payment (including unemployment compensation, golden parachute, bonus or benefits under any Company Employee Plan), except as expressly provided in Part 2.12(h) of the Company Disclosure Schedule; (ii) accelerate the time of payment or vesting of any such benefits or increase the amount of compensation due any such employee or service provider; (iii) result in the forgiveness of any indebtedness; (iv) result in any obligation to fund future benefits under any Company Employee Plan; or (v) result in the imposition of any restrictions with respect to the amendment or termination of any of Company Employee Plans. No benefit payable or that may become payable by Company pursuant to any Company Employee Plan in connection with the transactions contemplated by this Agreement or as a result of or arising under this Agreement will constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code) subject to the imposition of an excise Tax under Section 4999 of the Code or the deduction for which would be disallowed by reason of Section 280G of the Code. Each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to Parent or Surviving Corporation other than ordinary administration expenses typically incurred in a termination event.

 

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(i) Company is not a party to any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of Company that, individually or in the aggregate, would reasonably be expected to give rise to the payment of any material amount that would be subject to the deductibility limits of Section 404 of the Code.

(j) Company does not sponsor, contribute to or have any liability with respect to any employee benefit plan, program or arrangement that provides benefits to non–resident aliens with no United States source income outside of the United States.

(k) With respect to each Company Employee Plan that is an “employee welfare benefit plan” within the meaning of Section 3(2) of ERISA, other than any health care reimbursement plan under Section 125 of the Code, all claims incurred (including claims incurred but not reported) by employees, former employees and their dependents thereunder for which Company is, or will become, liable are (i) insured pursuant to a contract of insurance whereby the insurance company bears any risk of loss with respect to such claims, (ii) covered under a contract with a health maintenance organization (an “ HMO ”) pursuant to which the HMO bears the liability for such claims, or (iii) reflected as a liability or accrued for on Company Financials for the fiscal year ended December 31, 2016.

2.13 Title to Assets; Condition Of Equipment .

(a) The Acquired Companies own, and have good, valid and marketable title to, all tangible assets purported to be owned by them, including: (x) all assets reflected on the Company Balance Sheet (except for inventory sold or otherwise disposed of in the ordinary course of business since the date of the Company Balance Sheet); and (y) all other assets reflected in the books and records of the Acquired Companies as being owned by the Acquired Companies. All of said assets are owned by the Acquired Companies free and clear of any Encumbrances, except for (i) any lien for current taxes not yet due and payable, (ii) minor liens that have arisen in the ordinary course of business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of any Acquired Company, and (iii) liens described in Part 2.13 of the Company Disclosure Schedule. The Acquired Companies are the lessees of, and hold valid leasehold interests in, all assets purported to have been leased by them, including: (A) all assets reflected as leased on the Balance Sheet; and (B) all other assets reflected in the books and records of the Acquired Companies as being leased to the Acquired Companies, and the Acquired Companies enjoy undisturbed possession of such leased assets.

(b) All material items of equipment and other tangible assets owned by or leased to the Acquired Companies are adequate for the uses to which they are being put, are in good condition and repair (ordinary wear and tear excepted) and are adequate for the conduct of the business of the Acquired Companies in the manner in which such businesses are currently being conducted immediately prior to the Effective Time. The Acquired Companies do not own and have never owned any real property or any interest in real property. Part 2.13(b) of the Company Disclosure Schedule sets forth a complete and accurate list of all real property leases to which Company is a party.

2.14 Environmental Matters .

(a) No underground storage tanks and no amount of any substance that has been designated by any Governmental Body or by applicable federal, state or local Legal Requirement, to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the United States Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws, (a “ Hazardous Material ”), but excluding office and janitorial supplies, are present, as a result of the deliberate actions of Company or any of its Subsidiaries, or, to Company’s knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that Company or any of its Subsidiaries has at any time owned, operated, occupied or leased.

 

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(b) Neither Company nor any of its Subsidiaries has transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any Legal Requirement in effect on or before the date hereof, nor has Company or any of its Subsidiaries disposed of, transported, sold, or manufactured any product containing a Hazardous Material (collectively, “ Hazardous Material Activities ”) in violation of any Legal Requirement promulgated by any Governmental Body in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity.

(c) Company and its Subsidiaries currently hold all environmental approvals, permits, licenses, clearances and consents (the “ Company Environmental Permits ”) necessary for the conduct of Company’s and its Subsidiaries’ Hazardous Material Activities and other businesses of Company and its Subsidiaries as such activities and businesses are currently being conducted, except where the failure to so hold would not have a Company Material Adverse Effect.

(d) No material action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, threatened concerning any Company Environmental Permit, Hazardous Material or any Hazardous Material Activity of Company or any of its Subsidiaries. Company is not aware of any fact or circumstance which could involve Company or any of its Subsidiaries in any environmental litigation or impose upon Company or any of its Subsidiaries any environmental liability.

2. 15 Labor Matters .

(a) Part 2.15(a) of the Company Disclosure Schedule sets forth a true, complete and correct list of all employees of Company and its Subsidiaries along with their position, hire date, the current and prior year actual compensation and annual rate of compensation (including base salary and the target amount of any bonuses to which such employee may be eligible). To Company’s knowledge, no key employee or group of employees has threatened to terminate employment with Company or has plans to terminate such employment.

(b) Company is not a party to or bound by any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes.

(c) Except as disclosed in Part 2.15(c) of the Company Disclosure Schedule, neither Company nor any of its Subsidiaries is a party to any written or oral: (i) agreement with any current or former employee the benefits of which are contingent upon, or the terms of which will be materially altered by, the consummation of the Merger or other transactions contemplated by this Agreement; (ii) agreement with any current or former employee of Company providing any term of employment or compensation guarantee extending for a period longer than one year from the date hereof or for the payment of compensation in excess of $150,000 per annum; or (iii) agreement or plan the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, upon the consummation of the Merger.

2.16 Company Contracts .

(a) Except as set forth in Part 2.16 of the Company Disclosure Schedule, neither Company nor any of its Subsidiaries is a party to or is bound by:

(i) any management, employment, severance, retention, transaction bonus, change in control, consulting, relocation, repatriation or expatriation agreement or other similar Contract between: (i) any of the Acquired Companies or any of their ERISA Affiliates; and (ii) any active, retired or former employees, directors or consultants of any Acquired Company or any of their ERISA Affiliates, other than any such Contract that is terminable “at will” (or following a notice period imposed by applicable Legal Requirements) without any obligation on the part of any Acquired Company or any of their ERISA Affiliates to make any severance, termination, change in control or similar payment or to provide any benefit, other than severance payments required to be made by any Acquired Company under applicable foreign Legal Requirements;

(ii) any Contracts identified or required to be identified in Part 2.8(b), Part 2.8(c) or Part 2.13(b) of the Company Disclosure Schedule;

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(iv) any Contract with any manufacturer, vendor, or other Person for the supply of materials or performance of services by such third party to Company in relation to the manufacture of the Company’s products or product candidates;

(v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement;

(vi) any Contract incorporating or relating to any guaranty, any warranty, any sharing of liabilities or any indemnity not entered into in the ordinary course of business, including any indemnification agreements between Company or any of its Subsidiaries and any of its officers or directors;

(vii) any Contract imposing any material restriction on the right or ability of any Acquired Company: (A) to compete with any other Person; (B) to acquire any product or other asset or any services from any other Person; (C) to solicit, hire or retain any Person as a director, an officer or other employee, a consultant or an independent contractor; (D) to develop, sell, supply, distribute, offer, support or service any product or any technology or other asset to or for any other Person; (E) to perform services for any other Person; or (F) to transact business with any other Person;

(viii) any agreement, Contract or commitment currently in force relating to the disposition or acquisition of assets not in the ordinary course of business or any ownership interest in any corporation, partnership, joint venture or other business enterprise;

(ix) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit;

(x) any joint marketing or development agreement;

(xi) any Contract that would reasonably be expected to have a material effect on the ability of Parent to perform any of its material obligations under this Agreement, or to consummate any of the transactions contemplated by this Agreement;

(xii) any Contract that provides for: (A) any right of first refusal, right of first negotiation, right of first notification or similar right with respect to any securities or assets of any Acquired Company; or (B) any “no shop” provision or similar exclusivity provision with respect to any securities or assets of any Acquired Company; or

(xiii) any Contract that contemplates or involves the payment or delivery of cash or other consideration in an amount or having a value in excess of $100,000 or more in the aggregate, or contemplates or involves the performance of services having a value in excess of $100,000 in the aggregate other than any arrangement or agreement expressly contemplated or provided for under this Agreement.

(b) Company has made available to Parent an accurate and complete copy of each Contract listed or required to be listed in Part 2.16 of the Company Disclosure Schedule (any such Contract, a “ Company Contract ”). Neither Company nor any of its Subsidiaries, nor to Company’s knowledge any other party to a Company Contract, has breached or violated in any material respect or materially defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any of the Company Contracts. To the knowledge of Company, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) would reasonably be expected to: (i) result in a violation or breach in any material respect of any of the provisions of any Company Contract; (ii) give any Person the right to declare a default in any material respect under any Company Contract; (iii) give any Person the right to receive or require a rebate, chargeback, penalty or change in delivery schedule under any Company Contract; (iv) give any Person the right to accelerate the maturity or performance of any Company Contract; or (v) give any Person the right to cancel, terminate or modify any Company Contract. Each Company Contract is valid, binding, enforceable and in full force and effect, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.

 

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2.17 Books And Records . The minute books of Company and its Subsidiaries made available to Parent or counsel for Parent are the only minute books of Company and contain accurate summaries, in all material respects, of all meetings of directors (or committees thereof) and stockholders or actions by written consent since the time of incorporation of Company or such Subsidiaries, as the case may be. The books and records of Company accurately reflect in all material respects the assets, liabilities, business, financial condition and results of operations of Company and have been maintained in accordance with good business and bookkeeping practices.

2.18 Insurance .

(a) Part 2.18(a) of the Company Disclosure Schedule sets forth each insurance policy (including fire, theft, casualty, general liability, workers compensation, business interruption, environmental, product liability and automobile insurance policies and bond and surety arrangements) (the “ Insurance Policies ”) to which any Acquired Company is a party. To Company’s knowledge, such Insurance Policies are in full force and effect, maintained with reputable companies against loss relating to the business, operations and properties and such other risks as companies engaged in similar business as the Acquired Companies would, in accordance with good business practice, customarily insure. All premiums due and payable under such Insurance Policies have been paid on a timely basis and each Acquired Company is in compliance in all material respects with all other terms thereof. True, complete and correct copies of such Insurance Policies have been made available to Parent.

(b) There are no material claims pending as to which coverage has been questioned, denied or disputed. All material claims thereunder have been filed in a due and timely fashion and no Acquired Company has been refused insurance for which it has applied or had any policy of insurance terminated (other than at its request), nor has any Acquired Company received notice from any insurance carrier that: (i) such insurance will be canceled or that coverage thereunder will be reduced or eliminated; or (ii) premium costs with respect to such insurance will be increased, other than premium increases in the ordinary course of business applicable on their terms to all holders of similar policies.

2.19 RESERVED .

2.20 Suppliers; Effect Of Transaction .

(a) Part 2.20(a) of the Company Disclosure Schedule sets forth a true, complete and correct list of each supplier that supplies any significant product or service to any Acquired Company. Since the Company Balance Sheet Date, there has not been: (i) any materially adverse change in the business relationship of any Acquired Company with any supplier listed or required to be listed in Part 2.20(a) of the Company Disclosure Schedule; or (ii) any change in any material term (including credit terms) of the sales agreements or related agreements with any such supplier.

(b) No creditor, supplier, employee, client, customer or other Person having a business relationship with any Acquired Company has informed any Acquired Company in writing that such Person intends to materially change its relationship with Company because of the transactions contemplated by this Agreement or otherwise.

2.21 Government Contracts . Company has not been suspended or debarred from bidding on contracts with any Governmental Body, and no such suspension or debarment has been initiated or threatened. The consummation of the Merger and other transactions contemplated by this Agreement will not result in any such suspension or debarment of Company or Parent (assuming that no such suspension or debarment will result solely from the identity of Parent).

2.22 Interested Party Transactions . No event has occurred during the past three years that would be required to be reported by Company as a Certain Relationship or Related Transaction pursuant to Item 404 of Regulation S-K, if Company were required to report such information in periodic reports pursuant to the Exchange Act.

 

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2.23 Disclosure; Company Information . The information relating to Company or its Subsidiaries to be supplied by or on behalf of Company for inclusion or incorporation by reference in the Information Statement and/or the Proxy Statement/Prospectus/Information Statement will not, on the date the Information Statement or Proxy Statement/Prospectus/Information Statement, as applicable, is first mailed to the Parent stockholders or at the time of the Parent Stockholders’ Meeting, contain any untrue statement of any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading at the time and in light of the circumstances under which such statement is made. The Information Statement will contain all information material to the matters sought for approval by the Company Stockholders, including all information reasonably required to satisfy all applicable information and disclosure requirements set forth in Rule 502 of Regulation D. Notwithstanding the foregoing, no representation is made by Company with respect to the information that has been or will be supplied by Parent and Merger Sub or any of their Representatives for inclusion in the Proxy Statement/Prospectus/Information Statement.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub, jointly and severally, represent and warrant to Company as follows (it being understood that each representation and warranty contained in this Article 3 is subject to: (a) the exceptions and disclosures set forth in the part or subpart of the Parent Disclosure Schedule corresponding to the particular Section or subsection in this Article 3 in which such representation and warranty appears; (b) any exceptions or disclosures explicitly cross-referenced in such part or subpart of the Parent Disclosure Schedule by reference to another part or subpart of the Parent Disclosure Schedule; and (c) any exception or disclosure set forth in any of the Parent SEC Documents or other part or subpart of the Parent Disclosure Schedule to the extent it is reasonably apparent from the wording of such exception or disclosure that such exception or disclosure qualifies such representation and warranty):

3.1 Organization and Qualification .

(a) Part 3.1(a) of the Parent Disclosure Schedule identifies each Subsidiary of Parent and indicates its jurisdiction of organization. Neither Parent nor any of the Entities identified in Part 3.1(a) of the Parent Disclosure Schedule owns any capital stock of, or any equity interest of any nature in, any other Entity, other than the Entities identified in Part 3.1(a) of the Parent Disclosure Schedule. None of the Acquiring Companies has agreed or is obligated to make, or is bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity.

(b) Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and Parent and Merger Sub have all necessary corporate power and authority: (i) to conduct their businesses in the manner in which their businesses are currently being conducted; (ii) to own and use their assets in the manner in which their assets are currently owned and used; and (iii) to perform their obligations under all Contracts by which they are bound.

(c) Each of Parent and Merger Sub (in jurisdictions that recognize the following concepts) is qualified to do business as a foreign corporation, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification, except as would not have and would not reasonably be expected to have or result in a Parent Material Adverse Effect.

(d) The copies of the certificate of incorporation and bylaws of Parent which are incorporated by reference as exhibits to the Parent’s Annual Report on Form 10-K for the year ended December 31, 2016 are complete and correct copies of such documents and contain all amendments thereto as in effect on the date of this Agreement.

 

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3.2 Capital Structure .

(a) The authorized capital stock of Parent consists of 300,000,000 shares of Parent Common Stock, par value, $0.0001, of which 13,831,747 shares are issued and outstanding as of the close of business on the day prior to the date hereof and 5,000,000 shares of Preferred Stock, par value $0.0001 per share (“ Parent Preferred Stock ”), of which no shares are issued and outstanding as of the close of business on the day prior to the date hereof. No shares of capital stock are held in Parent’s treasury. All outstanding shares of Parent Capital Stock are duly authorized, validly issued, fully paid and non-assessable and were issued in compliance with all applicable federal and state securities laws.

(b) As of the date of this Agreement, Parent had reserved an aggregate of 3,697,171 shares of Parent Common Stock, net of exercises, for issuance to employees, consultants and non-employee directors pursuant to the Parent Stock Option Plans, under which (i) options were outstanding for an aggregate of 1,565,573 shares, and 71,257 shares of Parent Common Stock, net of exercises, were reserved for issuance to holders of warrants to purchase Parent Common Stock upon their exercise. All shares of Parent Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and non-assessable. Part 3.2(b) of the Parent Disclosure Schedule lists each outstanding option to purchase Parent Capital Stock and warrant to purchase Parent Capital Stock as of the date hereof, the name of the holder of such option or warrant, the number of shares subject to such option or warrant, the exercise price of such option or warrant, the vesting schedule and termination date of such option or warrant and whether the exercisability of such option or warrant will be accelerated in any way by the transactions contemplated by this Agreement or for any other reason, indicating the extent of acceleration, if any.

(c) The shares of Parent Common Stock issuable as Merger Consideration, upon issuance on the terms and conditions contemplated in this Agreement, will be duly authorized, validly issued, fully paid and non-assessable.

(d) Except as set forth in Part 3.2(d) of the Parent Disclosure Schedule: (i) none of the outstanding shares of Parent Capital Stock are entitled or subject to any preemptive right, right of repurchase or forfeiture, right of participation, right of maintenance or any similar right; (ii) none of the outstanding shares of Parent Capital Stock are subject to any right of first refusal in favor of Parent; (iii) there are no outstanding bonds, debentures, notes or other indebtedness of the Acquiring Companies having a right to vote on any matters on which the stockholders of Parent have a right to vote; (iv) there is no Contract to which the Acquiring Companies are a party relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or from granting any option or similar right with respect to), any shares of Parent Capital Stock. None of the Acquiring Companies is under any obligation, or is bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Parent Capital Stock or other securities.

3.3 Authority; Non-Contravention; Approvals .

(a) Parent has the requisite corporate power and authority to enter into this Agreement and, subject to Parent Stockholder Approval, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery by Parent of this Agreement, the performance by Parent of its obligations hereunder and the consummation by Parent of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub, subject only to Parent Stockholder Approval, to adoption of this Agreement by Parent as sole stockholder of Merger Sub immediately following the execution hereof, and the filing and recordation of the Certificate of Merger pursuant to Delaware Law. The affirmative vote of the holders of a majority in voting power of the outstanding shares of Parent Common Stock outstanding on the applicable record date (“ Parent Stockholder Approval ”) is the only vote of the holders of any class or series of Parent Capital Stock necessary to adopt or approve the Parent Stockholder Approval Matters. This Agreement has been duly executed and delivered by Parent and Merger Sub and, assuming the due authorization, execution and delivery of this Agreement by Company, this Agreement

 

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constitutes the valid and binding obligation of Parent and Merger Sub, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.

(b) Parent’s board of directors, by resolutions duly adopted by vote at a meeting of all directors of Parent duly called and held and, as of the date of this Agreement, not subsequently rescinded or modified in any way, has, as of the date of this Agreement (i) approved this Agreement and the Merger, and determined that this Agreement and the transactions contemplated by this Agreement, including the Merger, are fair to, and in the best interests of Parent’s stockholders, and (ii) resolved to recommend that Parent’s stockholders approve the Parent Stockholder Approval Matters and directed that such matters be submitted for consideration of the stockholders of Parent at the Parent Stockholders’ Meeting. The board of directors of Merger Sub, at a meeting duly called and held, has approved and declared advisable this Agreement and the Merger and submitted this Agreement to Parent, as its sole stockholder for adoption thereby. Immediately following the execution of this Agreement, Parent in its capacity as the sole stockholder of Merger Sub, shall execute a written consent adopting this Agreement.

(c) The execution and delivery of this Agreement by Parent and Merger Sub does not, and the performance of this Agreement by Parent or Merger Sub will not, (i) conflict with or violate the certificate of incorporation or bylaws of Parent or Merger Sub, (ii) subject to obtaining Parent Stockholder Approval and compliance with the requirements set forth in Section 3.3(d) below, conflict with or violate any Legal Requirement, order, judgment or decree applicable to Parent or Merger Sub or by which their respective properties are bound or affected, except for any such conflicts or violations that would not have a Parent Material Adverse Effect or would not prevent or materially delay the consummation of the Merger, or (iii) require an Acquiring Company to make any filing with or give any notice to or obtain any Consent from a Person pursuant to any Parent Contract, result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Parent’s rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of Parent pursuant to, any Parent Contract.

(d) No consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Body is required by or with respect to Parent in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing with the SEC of any outstanding periodic reports due under the Exchange Act, (ii) the filing of the Registration Statement with the SEC in accordance with the Securities Act, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (iv) the filing of the Proxy Statement/Prospectus/Information Statement with the SEC in accordance with the Exchange Act, (v) the filing of Current Reports on Form 8-K with the SEC within four business days after the execution of this Agreement and the Closing Date, (vi) the filing of the Parent Certificate of Amendment with the Secretary of State of the State of Delaware in accordance with Section 5.16, and (vii) such approvals as may be required under applicable state securities or “blue sky” laws or the rules and regulations of The NASDAQ Stock Market.

3.4 Anti-Takeover Statutes Not Applicable . The board of directors of Parent has taken all actions so that no state takeover statute or similar Legal Requirement applies or purports to apply to the execution, delivery or performance of this Agreement or to the consummation of the Merger or the other transactions contemplated by this Agreement. The board of directors of Parent has taken all action necessary to render inapplicable to this Agreement and the transactions contemplated hereby Section 203 of Delaware Law.

3.5 SEC Filings; Parent Financial Statements; No Undisclosed Liabilities .

(a) All Parent SEC Documents have been timely filed and, as of the time a Parent SEC Document was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i) each of the Parent SEC Documents complied in all material respects with the applicable requirements of the Exchange Act and (ii) none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the

 

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statements therein, in the light of the circumstances under which they were made, not misleading. Each of the certifications and statements relating to Parent SEC Documents required by: (1) the SEC’s Order dated June 27, 2002 pursuant to Section 21(a)(1) of the Exchange Act (File No. 4-460); (2) Rule 13a-14 or 15d-14 under the Exchange Act; or (3) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) is accurate and complete, and complied as to form and content with all applicable Legal Requirements in effect at the time such Parent Certification was filed with or furnished to the SEC. As used in this Section 3.5, the term “file” and variations thereof will be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.

(b) Parent and its Subsidiaries maintain disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act. Such disclosure controls and procedures are designed to ensure that all material information concerning Parent required to be disclosed by Parent in the reports that it is required to file, submit or furnish under the Exchange Act is recorded, processed, summarized and reported on a timely basis to the individuals responsible for the preparation of such reports.

(c) The financial statements (including any related notes) contained or incorporated by reference in the Parent SEC Documents (the “ Parent Financials ”): (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with GAAP (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated; and (iii) fairly present the consolidated financial position of Parent as of the respective dates thereof and the consolidated results of operations and cash flows of Parent for the periods covered thereby.

(d) Except as disclosed in the Parent Financials, neither Parent nor any of its Subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be disclosed on a balance sheet or in the related notes to the consolidated financial statements prepared in accordance with GAAP which are, individually or in the aggregate, material to the business, results of operations or financial condition of Parent and its Subsidiaries taken as a whole, except liabilities (i) provided for in the Parent Financials, (ii) incurred in connection with the transactions contemplated in this Agreement, (iii) disclosed in Part 3.5(e) of the Parent Disclosure Schedule, (iv) set forth in any Parent Contract, or (v) incurred since August 31, 2017 in the ordinary course of business.

3.6 Taxes .

(a) Each of the income and other material Tax Returns that any Parent or any of its Subsidiaries were required to file under applicable Legal Requirements: (i) has been timely filed on or before the applicable due date (including any extensions of such due date) and (ii) is true and complete in all material respects. All material Taxes due and payable by Parent or its Subsidiaries have been timely paid, except to the extent such amounts are being contested in good faith by Parent or are properly reserved for on the books or records of Parent and its Subsidiaries. No extension of time with respect to any date on which a Tax Return was required to be filed by an Parent or any of its Subsidiaries is in force (except where such Tax Return was filed), and no waiver or agreement by or with respect to Parent or any of its Subsidiaries is in force for the extension of time for the payment, collection or assessment of any Taxes, and no request has been made by Parent or any of its Subsidiaries in writing for any such extension or waiver (except, in each case, in connection with any request for extension of time for filing Tax Returns). There are no liens for Taxes on any asset of an Parent or any of its Subsidiaries other than liens for Taxes not yet due and payable, Taxes contested in good faith or that are otherwise not material and reserved against in accordance with GAAP. No deficiency with respect to Taxes has been proposed, asserted or assessed in writing against Parent or its Subsidiaries which has not been fully paid or adequately reserved or reflected in the SEC Documents.

(b) All material Taxes that Parent or any of its Subsidiaries have been required to collect or withhold have been duly collected or withheld and, to the extent required by applicable Legal Requirements when due, have been duly and timely paid to the proper Governmental Body.

 

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(c) The unpaid Taxes of the Parent and its Subsidiaries (i) did not, as of August 31, 2017, exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax items) set forth on the face of the balance sheet of such date contained in the Parent Financials, and (ii) do not exceed the reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Parent and its Subsidiaries in filing their Tax Returns. Since August 31, 2017, Parent and its Subsidiaries have not incurred any liability for Taxes outside of the ordinary course of business or otherwise inconsistent with past custom or practice.

(d) No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into by Parent or any of its Subsidiaries with any taxing authority or issued by any taxing authority to Parent or any of its Subsidiaries. There are no outstanding rulings of, or request for rulings with, any Governmental Body addressed to Parent or any of its Subsidiaries that are, or if issued would be, binding on Parent or any of its Subsidiaries.

(e) Neither Parent nor any of its Subsidiaries is a party to any Contract with any third party relating to allocating or sharing the payment of, or liability for, Taxes or Tax benefits (other than pursuant to customary provisions included in credit agreements, leases, and agreements entered with employees, in each case, not primarily related to Taxes and entered into in the ordinary course of business). Neither Parent nor any of its Subsidiaries has any liability for the Taxes of any third party under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Legal Requirement) as a transferee or successor or otherwise by operation of Legal Requirements.

(f) Other than the Subsidiaries identified in Part 3.1(a) of the Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries has any direct or indirect interest in any trust, partnership, corporation, limited liability company, or other “business entity” for United States federal income tax purposes. Parent and each of its Subsidiaries is and always has been a corporation taxable under subchapter C of the Code for United States federal income tax purposes, and has had comparable status under the Legal Requirements of any state, local or non-U.S. jurisdiction in which it was required to file any Tax Return at the time it was required to file such Tax Return. Neither Parent nor any of its Subsidiaries is a “controlled foreign corporation” within the meaning of Section 957 of the Code or a “passive foreign investment company” within the meaning of Section 1297 of the Code.

(g) Neither Parent nor any of its Subsidiaries has participated in, or is currently participating in, a “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2). Parent and each of its Subsidiaries have disclosed on their respective United States federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of United States federal income Tax within the meaning of Section 6662 of the Code.

(h) Parent and each of its Subsidiaries is not (and has not been for the five-year period ending at the Effective Time) a “United States real property holding corporation” as defined in Section 897(c)(2) of the Code and the applicable Treasury Regulations.

(i) Neither Parent nor any of its Subsidiaries has a permanent establishment, as defined in any applicable Tax treaty, in a country other than the country in which it is organized.

(j) Neither Parent nor any of its Subsidiaries has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code.

(k) Neither Parent nor any of its Subsidiaries has taken or agreed to take any action that would prevent the Merger from constituting a reorganization qualifying under Section 368 of the Code. No Acquiring Company is aware of any agreement, plan or other circumstance that would prevent the Merger from qualifying as a reorganization under Section 368 of the Code.

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Subsidiaries or by which its or any of their respective properties is bound or affected, or (ii) any Contract to which Parent or any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries or its or any of their respective properties is bound or affected, except for any conflicts, defaults or violations which would not have a Parent Material Adverse Effect. No investigation or review by any Governmental Body is pending or threatened against Parent or its Subsidiaries, nor has any governmental or regulatory body or authority indicated an intention to conduct the same.

3.8 Legal Proceedings; Orders .

(a) Except as set forth in Part 3.8(a) of the Parent Disclosure Schedule, there is no pending Legal Proceeding, and (to the knowledge of Parent) no Person has threatened to commence any Legal Proceeding: (i) that involves any of the Acquiring Companies, any business of any of the Acquiring Companies or any of the assets owned, leased or used by any of the Acquiring Companies; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Merger or any of the other transactions contemplated by this Agreement. None of the Legal Proceedings identified in Part 3.9(a) of the Parent Disclosure Schedule has had or, if adversely determined, would reasonably be expected to have or result in a Parent Material Adverse Effect. To the knowledge of Parent, no event has occurred, and no claim, dispute or other condition or circumstance exists, that would reasonably be expected to give rise to or serve as a basis for the commencement of any Legal Proceeding of the type described in clause “(i)” or clause “(ii)” of the first sentence of this Section 3.8(a).

(b) There is no Order to which any of the Acquiring Companies, or any of the assets owned or used by any of the Acquiring Companies, is subject. To the knowledge of Parent, no officer or other key employee of any of the Acquiring Companies is subject to any Order that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to the business of any of the Acquiring Companies.

3.9 Brokers And Finders Fees . Except as set forth in Part 3.9 of the Parent Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Merger or any of the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of any of the Acquiring Companies. Parent has furnished to Company accurate and complete copies of all agreements under which any such fees, commissions or other amounts have been paid or may become payable and all indemnification and other agreements related to the engagement of any Persons listed on Part 3.9 of the Company Disclosure Schedule.

3.10 Employee Benefit Plans .

(a) Part 3.10(a) of the Parent Disclosure Schedule sets forth, as of the date of this Agreement, a complete and accurate list of each plan, program, policy, practice, contract, agreement or other arrangement providing for employment, compensation, retirement, pension, deferred compensation, loans, severance, separation, relocation, repatriation, expatriation, visas, work permits, termination pay, performance awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom stock, stock appreciation right, supplemental retirement, profit sharing, fringe benefits, cafeteria benefits, medical benefits, life insurance, disability benefits, accident benefits, salary continuation, accrued leave, vacation, sabbatical, sick pay, sick leave, unemployment benefits or other benefits, whether written or unwritten, including each “voluntary employees’ beneficiary association” under Section 501(c)(9) of the Code and each “employee benefit plan” within the meaning of Section 3(3) of ERISA, in each case, for active, retired or former employees, directors or consultants, which is currently sponsored, maintained, contributed to, or required to be contributed to or with respect to which any potential liability is borne by Parent or any ERISA Affiliate of Parent (collectively, the “ Parent Employee Plans ”). Neither Parent nor, to the knowledge of Parent, any other person or entity, has made any commitment to modify, change or terminate any Parent Employee Plan, other than with respect to a modification, change or termination required by Legal Requirements. There are no loans by Parent to any of its officers, employees, contractors or directors outstanding on the date hereof, except pursuant to loans under any Parent Employee Plan intended to qualify under Section 401(k) of the Code, and there have never been any loans by Parent subject to

 

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Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

(b) Parent has made available to Company true and complete copies of each of Parent Employee Plans and related plan documents, including trust documents, group annuity contracts, plan amendments, insurance policies or contracts, participant agreements, employee booklets, administrative service agreements, summary plan descriptions, compliance and nondiscrimination tests (including 401(k) and 401(m) tests) for the last three plan years, standard COBRA forms and related notices, registration statements and prospectuses and, to the extent still in its possession, any material employee communications relating thereto. With respect to each Parent Employee Plan that is subject to ERISA reporting requirements, Parent has made available in a data room for review by Company copies of the Form 5500 reports filed for the last three (3) plan years. Parent has made available for review by Company the most recent Determination Letter issued with respect to each such Parent Employee Plan, and to Parent’s knowledge, nothing has occurred since the issuance of each such letter that would reasonably be expected to cause the loss of the tax-qualified status of any Parent Employee Plan subject to Code Section 401(a). Parent has made available in a data room for review by Company all filings made by Parent or any ERISA Affiliate of Parent with any Governmental Body with respect to any Parent Employee Plan to the extent relevant to any ongoing obligation or liability of Parent, including any filings under the IRS’ Employee Plans Compliance Resolution System Program or any of its predecessors or the Department of Labor Delinquent Filer Program.

(c) Each Parent Employee Plan is being, and has been, administered substantially in accordance with its terms and in material compliance with the requirements prescribed by any and all Legal Requirements (including ERISA and the Code). Parent and each ERISA Affiliate are not in material default under or material violation of, and have no knowledge of any material default or material violation by any other party to, any of Parent Employee Plans. Any Parent Employee Plan intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service a favorable Determination Letter as to its qualified status under the Code, including all currently effective amendments to the Code, and the corresponding related exemption of its trust from United States federal income taxation under Section 501(a) of the Code, if applicable, or has applied to the Internal Revenue Service for such favorable Determination Letter within the remedial amendment period under Section 401(b) of the Code. None of Parent Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person. Parent has not engaged in, or participated in, any transaction which would be considered a non-exempt “prohibited transaction,” as such term is defined in Section 406 of ERISA or Section 4975 of the Code, and to Parent’s knowledge, no other third-party fiduciary and/or party-in-interest has engaged in any such “prohibited transaction” with respect to any Parent Employee Plan. Neither Parent nor any ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any Parent Employee Plan. All contributions required to be made by Parent or any ERISA Affiliate to any Parent Employee Plan have been timely paid or accrued on the most recent Parent Financials on file with the SEC, if required under GAAP. With respect to each Parent Employee Plan, no “reportable event” within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) has occurred, nor has any event described in Section 4062, 4063 or 4041 or ERISA occurred. Each Parent Employee Plan subject to ERISA has prepared in good faith and timely filed all requisite governmental reports, which were true and correct in all material respects as of the date filed, and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Parent Employee Plan. No suit, administrative proceeding or action has been brought, or to the knowledge of Parent is overtly threatened in communication with Parent, against or with respect to any such Parent Employee Plan, including any audit or inquiry by the Internal Revenue Service or the United States Department of Labor (other than routine claims for benefits arising under such plans). There has been no amendment to, or written interpretation or announcement by Parent or any ERISA Affiliate regarding any Parent Employee Plan that would materially increase the expense of maintaining such Parent Employee Plan above the level of expense incurred with respect to that plan for the fiscal year ended December 31, 2016. None of the assets of Parent or any ERISA Affiliate is, or may reasonably be expected to become, the subject of any lien arising under Section 302 of ERISA or Section 412(n) of the Code. All contributions and payments to Parent Employee Plans are deductible under Section 162 or 404 of the Code. No assets of any Parent Employee Plan are subject to a material

 

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amount of Tax as unrelated business taxable income under Section 511 of the Code, and no excise Tax could be imposed upon Parent under Chapter 43 of the Code. With respect to Parent Employee Plans, no event has occurred and, to the knowledge of Parent, there exists no condition or set of circumstances in connection with which Parent would reasonably expect to be subject to any material liability (other than for liabilities with respect to routine benefit claims) under the terms of, or with respect to, such Parent Employee Plans, ERISA, the Code or any other applicable Legal Requirement.

(d) Neither Parent nor any ERISA Affiliate of Parent has ever maintained, established, sponsored, participated in or contributed to, or is obligated to contribute to, or otherwise incurred any obligation or liability (including any contingent liability) under, any “multiemployer plan” (as defined in Section 3(37) of ERISA) or any “pension plan” (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA or Section 412 of the Code. Neither Parent nor any ERISA Affiliate has, as of the date of this Agreement, any actual or potential withdrawal liability (including any contingent liability) for any complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any multiemployer plan.

(e) Neither Parent nor any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to any self-insured plan that is governed by ERISA and that provides benefits to employees (including any such plan pursuant to which a stop-loss policy or contract applies).

(f) With respect to each Parent Employee Plan, Parent is in material compliance with (i) the applicable health care continuation and notice provisions of COBRA and the regulations thereunder or any state Legal Requirement governing health care coverage extension or continuation; (ii) the applicable requirements of the Family and Medical Leave Act of 1993 and the regulations thereunder; (iii) the applicable requirements of the HIPAA; and (iv) the applicable requirements of the Cancer Rights Act of 1998. Parent has no material unsatisfied obligations to any employees, former employees or qualified beneficiaries pursuant to COBRA, HIPAA or any state Legal Requirement governing health care coverage extension or continuation.

(g) Each Parent Employee Plan that is a “nonqualified deferred compensation plan” subject to Section 409A of the Code has been operated in good faith compliance with, or is otherwise exempt from, Section 409A of the Code. No outstanding stock right (as defined in Treasury Regulation 1.409A-1(l)) has been granted to any active, retired or former employees, directors or consultants that (i) has an exercise price that has been or may be less than the fair market value of the underlying equity as of the date such option or right was granted, as determined by the board of directors of Parent in good faith, (ii) has any feature for the deferral of compensation other than the deferral of recognition of income until the later of exercise or disposition of such option or rights, or (iii) has been granted after December 31, 2004, with respect to any class of stock that is not “service recipient stock” (within the meaning of applicable regulations under Section 409A of the Code). No compensation payable by any of the Acquired Companies or any of the ERISA Affiliates will be or has been reportable as nonqualified deferred compensation in the gross income of any individual or entity as a result of the operation of Section 409A of the Code that would be subject to the excise and penalty taxes arising thereunder.

(h) Other than as specifically contemplated by this Agreement or as otherwise required under applicable Legal Requirements, the consummation of the Merger will not (i) entitle any current or former employee or other service provider of Parent or any ERISA Affiliate to severance benefits or any other payment (including unemployment compensation, golden parachute, bonus or benefits under any Parent Employee Plan), except as expressly provided in Part 3.12(h) of the Parent Disclosure Schedule; (ii) accelerate the time of payment or vesting of any such benefits or increase the amount of compensation due any such employee or service provider; (iii) result in the forgiveness of any indebtedness; (iv) result in any obligation to fund future benefits under any Parent Employee Plan; or (v) result in the imposition of any restrictions with respect to the amendment or termination of any of Parent Employee Plans. No benefit payable or that may become payable by Parent pursuant to any Parent Employee Plan in connection with the transactions contemplated by this Agreement or as a result of or arising under this Agreement will constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code) subject to the imposition of an excise Tax under Section 4999 of the Code or the deduction for which would be disallowed by reason of Section 280G of the Code. Each Parent Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance

 

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with its terms, without material liability to Parent other than ordinary administration expenses typically incurred in a termination event.

(i) Parent is not a party to any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of Parent that, individually or in the aggregate, would reasonably be expected to give rise to the payment of any material amount that would be subject to the deductibility limits of Section 404 of the Code.

(j) Parent does not sponsor, contribute to or have any liability with respect to any employee benefit plan, program or arrangement that provides benefits to non–resident aliens with no United States source income outside of the United States.

(k) With respect to each Parent Employee Plan that is an “employee welfare benefit plan” within the meaning of Section 3(2) of ERISA, other than any health care reimbursement plan under Section 125 of the Code, all claims incurred (including claims incurred but not reported) by employees, former employees and their dependents thereunder for which Parent is, or will become, liable are (i) insured pursuant to a contract of insurance whereby the insurance company bears any risk of loss with respect to such claims, (ii) covered under a contract with an HMO pursuant to which the HMO bears the liability for such claims, or (iii) reflected as a liability or accrued for on the most recent Parent Financials on file with the SEC.

3.11 Real Property . The Acquiring Companies do not own and have never owned any real property or any interest in real property, except for the leaseholds created under the real property leases identified in Part 3.12 of the Parent Disclosure Schedule.

3.12 Parent Contracts .

(a) Except as set forth in the most recent exhibit list on Parent’s Form 10-K for the year ended December 31, 2016 or Part 3.12 of the Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a party to or is bound by:

(i) any management, employment, severance, retention, transaction bonus, change in control, consulting, relocation, repatriation or expatriation agreement or other similar Contract between: (i) any of the Acquiring Companies or any of their ERISA Affiliates; and (ii) any active, retired or former employees, directors or consultants of any Acquiring Company or any of their ERISA Affiliates, other than any such Contract that is terminable “at will” (or following a notice period imposed by applicable Legal Requirements) without any obligation on the part of any Acquiring Company or any of their ERISA Affiliates to make any severance, termination, change in control or similar payment or to provide any benefit, other than severance payments required to be made by any Acquiring Company under applicable foreign Legal Requirements;

(ii) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement;

(iii) any Contract incorporating or relating to any guaranty, any warranty, any sharing of liabilities or any indemnity not entered into in the ordinary course of business, including any indemnification agreements between Company or any of its Subsidiaries and any of its officers or directors;

(iv) any Contract imposing any restriction on the right or ability of any Acquiring Company: (i) to compete with any other Person; (ii) to acquire any product or other asset or any services from any other Person; (iii) to solicit, hire or retain any Person as a director, an officer or other employee, a consultant or an independent contractor; (iv) to develop, sell, supply, distribute, offer, support or service any product or any technology or other asset to or for any other Person; (v) to perform services for any other Person; or (vi) to transact business with any other Person;

 

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(v) any Contract currently in force relating to the disposition or acquisition of assets not in the ordinary course of business or any ownership interest in any corporation, partnership, joint venture or other business enterprise;

(vi) any Contract relating to the borrowing of money or extension of credit;

(vii) any Contract that would reasonably be expected to have a material effect on the ability of Company to perform any of its obligations under this Agreement, or to consummate any of the transactions contemplated by this Agreement;

(viii) any Contract that provides for: (A) any right of first refusal, right of first negotiation, right of first notification or similar right with respect to any securities or assets of any Acquiring Company; or (B) any “no shop” provision or similar exclusivity provision with respect to any securities or assets of any Acquiring Company;

(ix) any Contract that contemplates or involves the payment or delivery of cash or other consideration in an amount or having a value in excess of $100,000 in the aggregate, or contemplates or involves the performance of services having a value in excess of $100,000 in the aggregate; or

(x) any Contract that does not allow Parent or Subsidiary to terminate the Contract for convenience with no more than thirty (30) days prior notice to the other party and without the payment of any rebate, chargeback, penalty or other amount to such third party in connection with any such termination.

(b) Parent has delivered to Company an accurate and complete copy of each Contract listed or required to be listed in Part 3.12 of the Parent Disclosure Schedule (any such Contract, including any Contract that would be listed in Part 3.12 but for its inclusion in the most recent exhibit list of Parent’s Form 10-K for the year ended December 31, 2016, a “ Parent Contract ”). Neither Parent nor any of its Subsidiaries, nor to Parent’s knowledge any other party to a Parent Contract, has breached or violated in any material respect or materially defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any of the Parent Contracts. To the knowledge of Parent, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) would reasonably be expected to: (i) result in a violation or breach in any material respect of any of the provisions of any Parent Contract; (ii) give any Person the right to declare a default in any material respect under any Parent Contract; (iii) give any Person the right to receive or require a rebate, chargeback, penalty or change in delivery schedule under any Parent Contract; (iv) give any Person the right to accelerate the maturity or performance of any Parent Contract; or (v) give any Person the right to cancel, terminate or modify any Parent Contract. Each Parent Contract is valid, binding, enforceable and in full force and effect, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.

3.13 Insurance .

(a) Part 3.13(a) of the Parent Disclosure Schedule sets forth each Insurance Policy to which any Acquiring Company is a party. Such Insurance Policies are in full force and effect, maintained with reputable companies against loss relating to the business, operations and properties and such other risks as companies engaged in similar business as the Acquiring Companies would, in accordance with good business practice, customarily insure. All premiums due and payable under such Insurance Policies have been paid on a timely basis and each Acquiring Company is in compliance in all material respects with all other terms thereof. True, complete and correct copies of such Insurance Policies have been made available to Company.

(b) There are no material claims pending as to which coverage has been questioned, denied or disputed. All material claims thereunder have been filed in a due and timely fashion and no Acquiring Company has been refused insurance for which it has applied or had any policy of insurance terminated (other than at its request), nor has any Acquiring Company received notice from any insurance carrier that: (i) such insurance will be canceled or that coverage thereunder will be reduced or eliminated; or (ii) premium costs with respect to such insurance will be increased, other than premium increases in the ordinary course of business applicable on their terms to all holders of similar policies.

 

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3.14 Interested Party Transactions . Except as set forth in the SEC Documents, no event has occurred during the past three years that would be required to be reported by Parent as a Certain Relationship or Related Transaction pursuant to Item 404 of Regulation S-K.

3.15 Disclosure . None of the representations or warranties of Parent contained herein, none of the information contained in the Parent Disclosure Schedule and none of the other information or documents furnished or to be furnished to Company by Parent or pursuant to the terms of this Agreement is false or misleading in any material respect or omits to state a fact herein or therein necessary to make the statements herein or therein, in light of the circumstance in which they were made, not misleading in any material respect.

3.16 Opinion of Financial Advisor . The board of directors of Parent has received an opinion of Oppenheimer & Co. Inc., financial advisor to Parent, dated the date of this Agreement, to the effect that the Merger Consideration is fair to Parent from a financial point of view. Parent will furnish an accurate and complete copy of said opinion to Company for informational purposes only promptly after the date hereof.

3.17 Shell Company Status . Parent is not an issuer identified in Rule 144(i)(1) of the Securities Act.

3.18 Disclosure; Parent Information . The information relating to Parent or its Subsidiaries to be supplied by or on behalf of Parent for inclusion or incorporation by reference in the Information Statement and/or the Proxy Statement/Prospectus/Information Statement will not, on the date the Information Statement or Proxy Statement/Prospectus/Information Statement, as applicable, is first mailed to Parent stockholders or at the time of the Parent Stockholders’ Meeting, contain any untrue statement of any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading at the time and in light of the circumstances under which such statement is made. The Proxy Statement/Prospectus/Information Statement will comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, no representation is made by Parent or Merger Sub with respect to the information that has been or will be supplied by the Company or any of it Representatives for inclusion in the Proxy Statement/Prospectus/Information Statement.

ARTICLE 4

CONDUCT OF BUSINESS PENDING THE MERGER

4.1 Conduct of Company Business . During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time (the “ Pre-Closing Period ”), Company agrees, except to the extent (i) that Parent consents in writing, (ii) as necessary to effect the transactions contemplated by the Company Stockholder Matters or the Financing Agreement and/or (iii) as necessary to sell and issue any remaining authorized shares of Company Series D Preferred Stock pursuant to the Company Series D Purchase Agreement, to carry on its business in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due subject to good faith disputes over such debts or Taxes, to pay or perform other material obligations when due, and use its commercially reasonable efforts consistent with past practices and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with key customers, suppliers, distributors, licensors, licensees, and others with which it has business dealings. In addition, without limiting the foregoing, other than as expressly contemplated by this Agreement or the Financing Agreement, without obtaining the written consent of Parent, Company will not, and will not permit its Subsidiaries to, do any of the following:

(a) except for an amendment of the Company’s certificate of incorporation solely to the extent necessary to accommodate the shares of Company Common Stock issuable in connection with the Investor

 

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Pre-Closing Warrant, amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise;

(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest) (except for the issuance of shares of common stock issuable pursuant to employee stock options under currently existing employee stock option plans or pursuant to currently outstanding warrants, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date hereof;

(c) redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Company Capital Stock (other than pursuant a repurchase right in favor of the Company with respect to unvested shares at no more than cost);

(d) without the consent of Parent, which will not be unreasonably withheld, conditioned or delayed, incur any indebtedness or guarantee any indebtedness for borrowed money or issue or sell any debt securities or guarantee any debt securities or other obligations of others or sell, pledge, dispose of or create an Encumbrance over any assets (except for (i) sales of assets in the ordinary course of business and in a manner consistent with past practice and (ii) dispositions of obsolete or worthless assets);

(e) accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any options, except as may be required under any Company Option Plan, Contract or this Agreement or as may be required by applicable Legal Requirements;

(f) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except as required by the certificate of incorporation of the Company as in effect as of the date of this Agreement and except that a wholly owned Subsidiary may declare and pay a dividend to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries, or propose to do any of the foregoing;

(g) sell, assign, transfer, license, sublicense or otherwise dispose of any Company IP Rights (other than non-exclusive licenses in the ordinary course of business consistent with past practice);

(h) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets; (ii) without the consent of Parent, which will not be unreasonably withheld, conditioned or delayed, enter into or amend any material terms of any Company Contract or grant any release or relinquishment of any material rights under any Company Contract; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $100,000, taken as a whole not reflected or accounted for in the Company Budget; or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 4.1(h);

(i) forgive any loans to any Person, including its employees, officers, directors or Affiliates;

(j) except as reflected or accounted for in the Company Budget, increase the compensation payable or to become payable to its directors, officers, employees or consultants or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer (except for officers who are terminated on an involuntary basis), employee or consultant, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any such director, officer, consultant or employee, except for bonus

 

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awards in the ordinary course of business consistent with past practice or bonus awards contingent upon the completion of the transactions contemplated by this Agreement;

(k) take any action, other than as required by applicable Legal Requirements or GAAP, to change accounting policies or procedures;

(l) make or change any material tax election inconsistent with past practices, adopt or change any Tax accounting method, or settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations for any assessment of any tax;

(m) except as reflected in the Company Budget, pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in the financial statements of Company, or incurred in the ordinary course of business and consistent with past practice;

(n) enter into any material partnership arrangements, joint development agreements or strategic alliances;

(o) initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration (except in connection with this Agreement);

(p) make any material expenditure that is inconsistent with those expenditures contemplated by the Company Budget (provided that nothing herein shall prevent the Company from making payments on expenses incurred prior to the date of this Agreement and, provided further, that nothing herein shall be deemed to permit any Acquired Company to make any expenditures relating to the consummation of a public offering of the Company’s Capital Stock);

(q) amend, modify, waive or otherwise alter the Company Support Agreements in any material respect or consent to the transfer of any Company Capital Stock held or managed by Company Support Agreement Signatories; and

(r) take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(a) through (q) above, or any action which would make any of the representations or warranties of such party contained in this Agreement untrue or incorrect or prevent such party from performing or cause such party not to perform its covenants hereunder or result in any of the conditions to the Merger set forth herein not being satisfied.

The parties acknowledge and agree that (i) nothing contained in this Agreement shall give Parent, directly or indirectly, the right to control or direct the Company or its Subsidiaries’ operations prior to the Effective Time, (ii) prior to the Effective Time, the Company shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries’ respective operations and (iii) notwithstanding anything contrary set forth in this Agreement, no consent of Parent will be required with respect to any matter set forth in the Agreement to the extent the requirement of such consent would violate any applicable Legal Requirements.

4.2 Conduct of Parent Business . During the Pre-Closing Period, Parent agrees, except to the extent that Company consents in writing, to carry on its business in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, in substantially the same manner as conducted in the last three (3) months, to pay its debts and Taxes when due subject to good faith disputes over such debts or Taxes, and to pay or perform other material obligations when due. In addition, without limiting the foregoing, other than as expressly contemplated by this Agreement or the Financing Agreement, without obtaining the written consent of Company, Parent will not, and will not permit its Subsidiaries to, do any of the following:

(a) except for the Parent Certificate of Amendment, amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise;

 

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(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest), other than the issuance of shares of common stock issuable pursuant to employee stock options under currently existing employee stock option plans or pursuant to currently outstanding warrants, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date hereof;

(c) redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Parent Capital Stock;

(d) incur any indebtedness or guarantee any indebtedness for borrowed money or issue or sell any debt securities or guarantee any debt securities or other obligations of others or sell, pledge, dispose of or create an Encumbrance over any assets (except for (i) sales of assets in the ordinary course of business and in a manner consistent with past practice and (ii) dispositions of obsolete or worthless assets);

(e) accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any options;

(f) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except that a wholly owned Subsidiary may declare and pay a dividend to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries, or propose to do any of the foregoing;

(g) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets; (ii) without the consent of Parent, which will not be unreasonably withheld, conditioned or delayed, enter into or amend any material terms of a Parent Contract or grant any release or relinquishment of any material rights under any Parent Contract; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $100,000, taken as a whole; or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 4.2(g);

(h) forgive any loans to any Person, including its employees, officers, directors or Affiliates;

(i) increase the compensation payable or to become payable to its directors, officers, employees or consultants or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer (except for officers who are terminated on an involuntary basis), employee or consultant, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any such director, officer, consultant or employee (other than securing a liability “tail” policy for the directors’ and officers’);

(j) take any action, other than as required by applicable Legal Requirements or GAAP, to change accounting policies or procedures;

(k) make or change any material tax election inconsistent with past practices, adopt or change any Tax accounting method, or settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations for any assessment of any tax;

(l) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the publicly filed financial statements of Parent, or incurred in the ordinary course of business and consistent with past practice;

 

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(m) enter into any material partnership arrangements, joint development agreements or strategic alliances;

(n) initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration (except in connection with this Agreement);

(o) take, or agree in writing or otherwise to take, any of the actions described in Sections 4.2(a) through (n) above, or any action which would make any of the representations or warranties of such party contained in this Agreement untrue or incorrect or prevent such party from performing or cause such party not to perform its covenants hereunder or result in any of the conditions to the Merger set forth herein not being satisfied; or

(p) take any action that would cause the representation in Section 3.17 to become in accurate.

ARTICLE 5

ADDITIONAL AGREEMENTS

5.1 Registration Statement; Proxy Statement/Prospectus/Information Statement .

(a) As promptly as practicable after the date of this Agreement the Parties shall prepare and cause to be filed with the SEC the Proxy Statement/Prospectus/Information Statement and Parent shall prepare and cause to be filed with the SEC the Form S-4 Registration Statement, in which the Proxy Statement/Prospectus/Information Statement will be included as a prospectus.

(b) Parent covenants and agrees that the Proxy Statement/Prospectus/Information Statement, including any pro forma financial statements included therein (and the letter to stockholders, notice of meeting and form of proxy included therewith), will not, at the time that the Proxy Statement/Prospectus/Information Statement or any amendment or supplement thereto is filed with the SEC or is first mailed to the stockholders of Parent, at the time of the Parent Stockholders’ Meeting and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, Parent makes no covenant, representation or warranty with respect to statements made in the Proxy Statement/Prospectus/Information Statement (and the letter to stockholders, notice of meeting and form of proxy included therewith), if any, based on information furnished in writing by Company specifically for inclusion therein. Each of the Parties shall use commercially reasonable efforts to cause the Form S-4 Registration Statement and the Proxy Statement/Prospectus/Information Statement to comply with the applicable rules and regulations promulgated by the SEC, to respond promptly to any comments of the SEC or its staff and to have the Form S-4 Registration Statement declared effective under the Securities Act as promptly as practicable after it is filed with the SEC. Each of the Parties shall use commercially reasonable efforts to cause the Proxy Statement/Prospectus/Information Statement to be mailed to Parent’s stockholders as promptly as practicable after the Form S-4 Registration Statement is declared effective under the Securities Act. Each Party shall promptly furnish to the other Party all information concerning such Party and such Party’s subsidiaries and such Party’s stockholders that may be required or reasonably requested in connection with any action contemplated by this Section 5.1. If any event relating to Parent or the Company occurs, or if Parent or the Company becomes aware of any information, that should be disclosed in an amendment or supplement to the Form S-4 Registration Statement or the Proxy Statement/Prospectus/Information Statement, then Parent or the Company, as applicable, shall promptly inform the other party thereof and shall cooperate with one another in filing such amendment or supplement with the SEC and, if appropriate, in mailing such amendment or supplement to Parent’s stockholders. No filing of, or amendment or supplement to, the Form S-4 Registration Statement will be made by Parent, and no filing of, or amendment or supplement to, the Proxy Statement/Prospectus/Information Statement will be made by Parent, in each case, without the prior written consent of the Company, which shall not be unreasonably withheld, conditioned or delayed. The Proxy Statement/Prospectus/Information Statement shall constitute a disclosure document for the offer and issuance of the shares of Parent Common Stock pursuant to this

 

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Agreement. Company and Parent shall each use commercially reasonable efforts to cause the Proxy Statement/Prospectus/Information Statement to comply with applicable federal and state securities laws requirements.

(c) Company shall reasonably cooperate with Parent and provide, and require its Representatives, advisors, accountants and attorneys to provide, Parent and its Representatives, advisors, accountants and attorneys, with all true, correct and complete information regarding Company that is required by law to be included in the Form S-4 Registration Statement or reasonably requested from Company to be included in the Form S-4 Registration Statement. Without limiting the foregoing, Company will use commercially reasonable efforts to cause to be delivered to Parent a letter of Company’s independent accounting firm, dated no more than two (2) Business Days before the date on which the Form S-4 Registration Statement becomes effective (and reasonably satisfactory in form and substance to Parent), that is customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the S-4 Registration Statement.

5.2 Information Statement; Company Written Consent .

(a) Promptly after the S-4 Registration Statement shall have been declared effective under the Securities Act, and in any event no later than two (2) Business Days thereafter (the “ Company Vote Deadline ”), Company shall obtain the approval by written consent of its stockholders in lieu of a meeting pursuant to Section 228 of Delaware Law (the “ Company Written Consent ”) for purposes of (i) adopting this Agreement and approving the Merger, and all other transactions contemplated by this Agreement, including, but not limited to, the transactions contemplated by the Financing Agreement, (ii) acknowledging that the approval given thereby is irrevocable and that such Company Stockholder is aware of its rights to demand appraisal for its shares pursuant to Section 262 of Delaware Law, a copy of which was attached thereto, and that such Company Stockholder has received and read a copy of Section 262 of Delaware Law, (iii) acknowledging that by its approval of the Merger it is not entitled to appraisal rights with respect to its shares in connection with the Merger and thereby waives any rights to receive payment of the fair value of its Company Capital Stock under Delaware Law, (iv) if necessary, provide for the conversion of all Company Capital Stock (other than the Company Series D Preferred Stock) into Company Common Stock immediately prior to, and contingent upon the occurrence of, the Effective Time and (v) provide sufficient approval to treat the Company Series D Warrant as provided in Section 1.6(f) (collectively, the “ Company Stockholder Matters ”). Without the prior written approval of Parent (not to be unreasonably withheld, conditioned or delayed), the Company Written Consent shall not include any other approval or consent other than with respect to the Company Stockholder Matters and other any ancillary or related approvals customary or required in connection therewith. Subject to the terms of a Company Support Agreement applicable to any Company Stockholder signatory thereto, the Company Stockholder Written Consent shall provide that such consent may be revoked by any signatory thereto until the Company Vote Deadline. In connection with the solicitation of the Company Stockholder Written Consent, the Company shall mail to Company Stockholders as of the record date established for the approval of the Company Stockholder Matters, the Proxy Statement/Prospectus/Information Statement, such mailing to occur substantially contemporaneous with Parent’s mailing of the Proxy Statement/Prospectus/Information Statement to the Parent Stockholders in accordance with Section  5.3(a) .

(b) Subject to Section 5.2(c): (i) the board of directors of Company will recommend that its stockholders vote to approve the Company Stockholder Matters (such recommendation the “ Company Board Recommendation ”); (ii) the Information Statement will include the Company Board Recommendation; and (iii) the Company Board Recommendation will not be withdrawn or modified in a manner adverse to Parent, and no resolution by the board of directors of Company or any committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to Parent will be adopted or proposed.

(c) Notwithstanding anything to the contrary contained in Section 5.2(b), at any time prior to the approval of the Company Stockholder Matters by the Company Written Consent, the Company Board Recommendation may be withdrawn or modified (a “ Company Change in Recommendation ”) if the board of directors of Company concludes in good faith, after having taken into account the advice of Company’s outside legal counsel and financial advisors, that (x) as a result of Company’s receipt of an Acquisition Proposal that was

 

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not made in violation of Section 5.12 and that the board of directors of Company has determined in good faith, after consultation with Company’s legal and financial advisors, constitutes a Superior Offer, or (y) as a result of a material development or change in circumstances (other than an Acquisition Proposal) that affects the business, assets or operations of Company that occurs or arises after the date of this Agreement and that was neither known to Company or its board of directors nor reasonably foreseeable as of the date of this Agreement (a “ Company Intervening Event ”), the withdrawal or modification of the Company Board Recommendation is required in order for the board of directors of Company to comply with its fiduciary obligations to Company’s stockholders under applicable Legal Requirements; provided , however , that prior to Company taking any action permitted under this Section 5.2(c), Company shall provide Parent with four (4) Business Days’ prior written notice advising the Parent that it intends to effect such withdrawal or modification to the Company Board Recommendation and specifying, in reasonable detail, the reasons therefor (including, in the case of a Company Acquisition Proposal, the information required by Section 5.12(b) and, in the case of a Company Intervening Event, the material facts and circumstances related to the applicable Company Intervening Event), and during such four (4) business day period, (i) Company shall negotiate, and cause its Representatives to negotiate, with Parent in good faith (to the extent the Parent wishes to negotiate) to enable Parent to determine whether to propose revisions to the terms of this Agreement such that it would obviate the need for Company’s board of directors to effect such withdrawal or modification, and (ii) Company shall consider in good faith any proposal by Parent to amend the terms and conditions of this Agreement in a manner that would obviate the need to effect such withdrawal or change of the Company Board Recommendation.

5.3 Parent Stockholder Meeting .

(a) Parent will take all action necessary under applicable Legal Requirements to call, give notice of and hold a meeting of the holders of Parent Common Stock (the “ Parent Stockholders’ Meeting ”) to vote on (i) the issuance of shares of Parent Common Stock in the Merger, (ii) the transactions contemplated by the Financing Agreement, including the issuance of the Investor Pre-Closing Warrant to Investor and the issuance of the shares of Parent Common Stock to Investor, in each case pursuant to the Financing Agreement, and (iii) the Parent Certificate of Amendment (collectively, the “ Parent Stockholder Approval Matters ”). The Parent Stockholders’ Meeting will be held as promptly as practicable following the date on which the Proxy Statement/Prospectus/Information Statement is declared effective under the Securities Act; provided , however , notwithstanding anything to the contrary contained herein, Parent will have the absolute discretion to adjourn the Parent Stockholders’ Meeting without any consent requirement of Company for a period of sixty (60) days after the initial Parent Stockholders’ Meeting is held if necessary to obtain Parent Stockholder Approval. Parent will ensure that all proxies solicited in connection with the Parent Stockholders’ Meeting are solicited in compliance with all applicable Legal Requirements.

(b) Subject to Section 5.3(c): (i) the board of directors of Parent will recommend that its stockholders vote to approve the Parent Stockholder Approval Matters (such recommendation, the “ Parent Board Recommendation ”); (ii) the Proxy Statement/Prospectus/Information Statement will include the Parent Board Recommendation; and (iii) the Parent Board Recommendation will not be withdrawn or modified in a manner adverse to Company, and no resolution by the board of directors of Parent or any committee thereof to withdraw or modify the Parent Board Recommendation in a manner adverse to Company will be adopted or proposed.

(c) Notwithstanding anything to the contrary contained in Section 5.3(b), at any time prior to the approval of the Parent Stockholder Approval Matters by the Parent Stockholder Approval, the Parent Board Recommendation may be withdrawn or modified (a “ Parent Change in Recommendation ”) if the board of directors of Parent concludes in good faith, after having taken into account the advice of Parent’s outside legal counsel and financial advisors, that (x) as a result of Parent’s receipt of an Acquisition Proposal that was not made in violation of Section 5.13 and that the board of directors of Parent has determined in good faith, after consultation with Parent’s legal and financial advisors, constitutes a Superior Offer, or (y) as a result of a material development or change in circumstances (other than an Acquisition Proposal) that affects the business, assets or operations of Parent that occurs or arises after the date of this Agreement and that was neither known to Parent or its board of directors nor reasonably foreseeable as of the date of this Agreement (a “ Parent

 

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Intervening Event ”), the withdrawal or modification of the Parent Board Recommendation is required in order for the board of directors of Parent to comply with its fiduciary obligations to Parent’s stockholders under applicable Legal Requirements; provided , however , that prior to Parent taking any action permitted under this Section 5.3(c), Parent shall provide Company with four (4) Business Days’ prior written notice advising the Company that it intends to effect such withdrawal or modification to the Parent Board Recommendation and specifying, in reasonable detail, the reasons therefor (including, in the case of a Parent Acquisition Proposal, the information required by Section 5.13(b) and, in the case of a Parent Intervening Event, the material facts and circumstances related to the applicable Parent Intervening Event), and during such four (4) business day period, (i) Parent shall negotiate, and cause its Representatives to negotiate, with Company in good faith (to the extent the Company wishes to negotiate) to enable Company to determine whether to propose revisions to the terms of this Agreement such that it would obviate the need for Parent’s board of directors to effect such withdrawal or modification, and (ii) Parent shall consider in good faith any proposal by Company to amend the terms and conditions of this Agreement in a manner that would obviate the need to effect such withdrawal or change of the Parent Board Recommendation.

(d) Nothing contained in this Agreement will prohibit Parent or its board of directors from complying with Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act; provided , however , that any disclosure made by Parent or its board of directors pursuant to Rules 14d-9 and 14e-2(a) will be limited to a statement that Parent is unable to take a position with respect to the bidder’s tender offer unless the board of directors of Parent determines in good faith, after consultation with its outside legal counsel, that such statement would result in a breach of its fiduciary duties under applicable Legal Requirements.

5.4 Access to Information; Confidentiality . From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement in accordance with Article 7, and upon reasonable notice and subject to restrictions contained in confidentiality agreements to which such party is subject, Company and Parent will each afford to the officers, employees, accountants, counsel and other Representatives of the other party, reasonable access, during the Pre-Closing Period, to all its properties, books, contracts, commitments and records (including, without limitation, Tax records) and, during such period, Company and Parent each will furnish promptly to the other all information concerning its business, properties and personnel as such other party may reasonably request, and each will make available to the other the appropriate individuals (including attorneys, accountants and other professionals) for discussion of the other’s business, properties and personnel as either party may reasonably request; provided, that each of Company and Parent reserves the right to withhold any information if access to such information could adversely affect the attorney-client privilege between it and its counsel. Without limiting the generality of the foregoing, during the Pre-Closing Period, the Company and Parent will promptly provide the other party with copies of: (a) all material operating and financial reports prepared by Company or Parent (or their respective Representatives), as applicable, for such party’s senior management, including copies of any sales forecasts, marketing plans, development plans, discount reports, write-off reports, hiring reports and capital expenditure reports; (b) any written materials or communications sent by or on behalf of such party to its stockholders; (c) any material notice, document or other communication sent by or on behalf of any of such party to any third party to any Company Contract or Parent Contract, as applicable, or sent to Company or Parent by any third party to any Company Contract or Parent Contract, as applicable, (other than any communication that relates solely to routine commercial transactions and that is of the type sent in the ordinary course of business and consistent with past practices); (d) any notice, report or other document filed with or sent to any Governmental Body in connection with the Merger or any of the other transactions contemplated by this Agreement; and (e) any material notice, report or other document received from any Governmental Body. Each party will keep such information confidential in accordance with the terms of the currently effective confidentiality agreement (the “ Confidentiality Agreement ”) between Parent and Company.

5.5 Regulatory Approvals and Related Matters . Each Party shall use commercially reasonable efforts to file or otherwise submit, as soon as practicable after the date of this Agreement, all applications, notices, reports and other documents reasonably required to be filed by such Party with or otherwise submitted by such Party to

 

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any Governmental Body with respect to the Merger and the other transactions contemplated by this Agreement, and to submit promptly any additional information requested by any such Governmental Body. Without limiting the generality of the foregoing, the Parties shall, promptly after the date of this Agreement, prepare and file, if any, (a) the notification and report forms required to be filed under the HSR Act and (b) any notification or other document required to be filed in connection with the Merger under any applicable foreign Legal Requirement relating to antitrust or competition matters. Parent and Company shall respond as promptly as is practicable to respond in compliance with: (i) any inquiries or requests received from the Federal Trade Commission or the Department of Justice for additional information or documentation; and (ii) any inquiries or requests received from any state attorney general, foreign antitrust or competition authority or other Governmental Body in connection with antitrust or competition matters.

5.6 Director Indemnification and Insurance .

(a) From and after the Effective Time, Parent will fulfill and honor in all respects the obligations of Company and Parent which exist prior to the date hereof to indemnify Company’s and Parent’s present and former directors and officers and their heirs, executors and assigns; provided , however , that the Company directors and officers which become directors and officers of the Surviving Corporation will enter into the Surviving Corporation’s standard indemnification agreement which will supersede any other contractual rights to indemnification. The certificate of incorporation and bylaws of the Surviving Corporation will contain provisions at least as favorable as the provisions relating to the indemnification and elimination of liability for monetary damages set forth in the certificate of incorporation and bylaws of Company, and the provisions relating to the indemnification and elimination of liability for monetary damages set forth in the certificate of incorporation and bylaws of Company and Parent will not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who, at the Effective Time, were directors, officers, employees or agents of Company or Parent, unless such modification is required by Legal Requirements.

(b) Effective as of the Effective Time, Company will maintain the effectiveness of a “tail” policy on Company’s existing directors and officers’ liability insurance policy for a period of six (6) years.

(c) Effective as of the Effective Time, Parent will secure a “tail” policy on Parent’s existing directors for a period of six (6) years.

(d) This Section 5.6 will survive any termination of this Agreement and the consummation of the Merger at the Effective Time, is intended to benefit Company, the Surviving Corporation and the parties indemnified hereby, and will be binding on all successors and assigns of the Surviving Corporation.

5.7 Notification of Certain Matters .

(a) Company will give prompt notice to Parent, and Parent will give prompt notice to Company, of (i) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate, and (ii) any failure of Company or Parent, as the case may be, materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided , however , that the delivery of any notice pursuant to this Section 5.7 will not limit or otherwise affect the remedies available hereunder to the party receiving such notice; and provided, further, that failure to give such notice will not be treated as a breach of covenant for the purposes of Sections 6.2(a) and 6.3(a) unless the failure to give such notice results in material prejudice to the other party.

(b) Each of Company and Parent will give prompt notice to the other of: (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the Merger or other transactions contemplated by this Agreement; (ii) any notice or other communication from any Governmental Body in connection with the Merger or other transactions contemplated by this Agreement; (iii) any litigation relating to or involving or otherwise affecting Company or Parent that relates to the Merger or other transactions contemplated by this Agreement; (iv) the occurrence of a default or event that,

 

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with notice or lapse of time or both, will become a default under a Company Contract; and (v) any change that would be considered reasonably likely to result in a Company Material Adverse Effect or Parent Material Adverse Effect.

5.8 Interim Financial Statements . As promptly as possible following the last day of each fiscal month end after the date hereof until the Effective Time, and in any event within thirty (30) days after the end of each such fiscal month end, Company will deliver to Parent the consolidated balance sheet of Company and the related consolidated statements of income, changes in stockholders’ equity and cash flows of Company for the one-month period then ended and for the period then ended since the date of the Company Balance Sheet (collectively, the “ Interim Financial Statements ”). The Interim Financial Statements will be prepared so as to present fairly, in all material respects, the consolidated financial condition, retained earnings, assets and liabilities of Company as of the date thereof.

5.9 Public Announcements . Parent and Company will consult with each other before issuing any press release or otherwise making any public statements with respect to the Merger or this Agreement and will not issue any such press release or make any such public statement without the prior consent of the other party, which will not be unreasonably withheld or delayed; provided , however , that, on the advice of legal counsel, Parent may comply with any SEC requirements under the Securities Act or Exchange Act which requires any public disclosure, without the consent or review of Company.

5.10 Conveyance Taxes . Parent and Company will cooperate in the preparation, execution and filing of all returns, questionnaires, applications or other documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes which become payable in connection with the transactions contemplated hereby that are required or permitted to be filed on or before the Effective Time.

5.11 Board of Directors and Officers of Parent . Parent will take all actions necessary, in consultation with Company, to cause the board of directors of Parent, immediately after the Effective Time, to consist of one individual designated by Parent (the “ Parent Appointee ”) and six individuals designated by Company (the “ Company Appointees ”) in the classes set forth on Schedule 5.11 to be provided prior to the date of the Proxy Statement/Prospectus/Information Statement and will, prior to the Company sending the Information Statement, provide executed resignation letters (effective as of the Effective Time) for all members of the board of directors who will no longer be members of the board of directors of Parent effective immediately after the Effective Time; provided , however , the parties acknowledge that so long as Parent remains a public reporting company, the board of directors of Parent will continue to satisfy applicable securities laws, including, without limitation, maintaining an independent audit committee, and the nominations by Company and Parent hereunder will allow Parent to comply with such applicable Legal Requirements. Each new member of the board of directors of Parent that was not a member of the board of directors of Parent immediately before the Effective Time shall enter into an indemnification agreement with Parent, on Parent’s standard form, within fifteen (15) days of their appointment. The executive officers of Parent immediately after the Effective Time will be those set forth in Schedule 5.11 (and such individuals will be identified prior to the Company sending the Information Statement).

5.12 Non-Solicitation by Company .

(a) During the Pre-Closing Period, Company will not and will not authorize or permit any of its Subsidiaries or any Representative of Company or its Subsidiaries, directly or indirectly, to, (i) solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any Acquisition Proposal or take any action that would reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any nonpublic information regarding Company or its Subsidiaries to any Person in connection with or in response to an Acquisition Proposal or an inquiry or indication of interest that could lead to an Acquisition Proposal, (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any

 

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agreement contemplating or otherwise relating to any Acquisition Transaction (other than an Acceptable Company Confidentiality Agreement); provided , however , that prior to the adoption of this Agreement by the Company Stockholder Approval, this Section 5.12(a) will not prohibit Company from furnishing nonpublic information regarding Company and its Subsidiaries to, or entering into discussions with, any Person in response to an Acquisition Proposal that, after consultation with a financial advisor of nationally recognized reputation and outside legal counsel and financial advisor, Company’s board of directors determines in good faith is, or would reasonably be expected to result in, a Superior Offer (and is not withdrawn) if (1) neither Company nor any Representative of Company (or its Subsidiaries) will have breached this Section 5.12(a), (2) the board of directors of Company concludes in good faith, after having taken into account the advice of its outside legal counsel, that such action is required in order for the board of directors of Company to comply with its fiduciary obligations to the Company’s stockholders under applicable Legal Requirements, (3) at least two (2) business days prior to furnishing any such information to, or entering into discussions with, such Person, Company gives Parent written notice of the identity of such Person and of Company’s intention to furnish information to, or enter into discussions with, such Person, and Company receives from such Person an executed confidentiality agreement on terms no more favorable to Company than the confidentiality agreement between Parent and Company and containing customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such Person by or on behalf of Company (an “ Acceptable Company Confidentiality Agreement ”), and (4) at least two (2) business days prior to furnishing any such information to such Person, Company furnishes such nonpublic information to Parent (to the extent such nonpublic information has not been previously furnished by Company to Parent). Without limiting the generality of the foregoing, Company acknowledges and agrees that in the event any Representative of Company (or its Subsidiaries), whether or not such Representative is purporting to act on behalf of Company (or its Subsidiaries), takes any action that, if taken by Company (or its Subsidiaries), would constitute a breach of this Section 5.12, the taking of such action by such Representative will be deemed to constitute a breach of this Section 5.12 by Company for purposes of this Agreement.

(b) Company will promptly (and in no event later than twenty-four (24) hours after receipt of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information) advise Parent orally and in writing of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information relating to Company or its Subsidiaries (including the identity of the Person making or submitting such Acquisition Proposal, inquiry, indication of interest or request, and the material terms thereof) that is made or submitted by any Person during the Pre-Closing Period. Company will keep Parent informed on a prompt basis in all material respects with respect to the status of any such Acquisition Proposal, inquiry, indication of interest or request and any modification or proposed modification thereto.

(c) Company will immediately cease and cause to be terminated any existing discussions with any Person that relate to any Acquisition Proposal.

5.13 Non-Solicitation by Parent .

(a) During the Pre-Closing Period, Parent will not and will not authorize or permit any of its Subsidiaries or any Representative of Parent or its Subsidiaries, directly or indirectly, to, (i) solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any Acquisition Proposal or take any action that would reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any nonpublic information regarding Parent or its Subsidiaries to any Person in connection with or in response to an Acquisition Proposal or an inquiry or indication of interest that could lead to an Acquisition Proposal, (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to any Acquisition Transaction (other than an Acceptable Parent Confidentiality Agreement); provided , however , that prior to the adoption of this Agreement by the Parent Stockholder Approval, this Section 5.13(a) will not prohibit Parent from furnishing nonpublic information regarding Parent and its Subsidiaries to, or entering into discussions with, any Person in response to an

 

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Acquisition Proposal that, after consultation with a financial advisor of nationally recognized reputation and outside legal counsel and financial advisor, Parent’s board of directors determines in good faith is, or would reasonably be expected to result in, a Superior Offer (and is not withdrawn) if (1) neither Parent nor any Representative of Parent (or its Subsidiaries) will have breached this Section 5.13(a), (2) the board of directors of Parent concludes in good faith, after having taken into account the advice of its outside legal counsel, that such action is required in order for the board of directors of Parent to comply with its fiduciary obligations to the Parent’s stockholders under applicable Legal Requirements, (3) at least two (2) business days prior to furnishing any such information to, or entering into discussions with, such Person, Parent gives Company written notice of the identity of such Person and of Parent’s intention to furnish information to, or enter into discussions with, such Person, and Parent receives from such Person an executed confidentiality agreement on terms no more favorable to Parent than the confidentiality agreement between Parent and Company and containing customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such Person by or on behalf of Parent as well as customary “standstill” provisions (an, “ Acceptable Parent Confidentiality Agreement ”) (4) at least two (2) business days prior to furnishing any such information to such Person, Parent furnishes such nonpublic information to Company (to the extent such nonpublic information has not been previously furnished by Parent to Company). Without limiting the generality of the foregoing, Parent acknowledges and agrees that in the event any Representative of Parent (or its Subsidiaries), whether or not such Representative is purporting to act on behalf of Parent (or its Subsidiaries), takes any action that, if taken by Parent (or its Subsidiaries), would constitute a breach of this Section 5.13, the taking of such action by such Representative will be deemed to constitute a breach of this Section 5.13 by Parent for purposes of this Agreement.

(b) Parent will promptly (and in no event later than 24 hours after receipt of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information) advise Company orally and in writing of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information relating to Parent or its Subsidiaries (including the identity of the Person making or submitting such Acquisition Proposal, inquiry, indication of interest or request, and the material terms thereof) that is made or submitted by any Person during the Pre-Closing Period. Parent will keep Company informed on a prompt basis in all material respects with respect to the status of any such Acquisition Proposal, inquiry, indication of interest or request and any modification or proposed modification thereto.

(c) Parent will immediately cease and cause to be terminated any existing discussions with any Person that relate to any Acquisition Proposal.

5.14 Financing Agreement . The Financing Agreement will not be amended or modified in any manner except as provided for therein. As of the date hereof, the Financing Agreement is in full force and effect and, (i) to the knowledge of Company, represents a valid, binding and enforceable obligation of Company except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity and (ii) to the knowledge of Parent, represents a valid, binding and enforceable obligation of Parent except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity. The aggregate gross proceeds to Parent contemplated by the Financing Agreement equal $20 million as further set forth therein, and the number of securities to be issued in connection therewith is set forth therein (subject to adjustment as provided in Section 1.12(b)).

5.15 Section 16 Matters . Subject to the following sentence, prior to the Effective Time, Parent and Company will take all such steps as may be required (to the extent permitted under applicable Legal Requirements and no-action letters issued by the SEC) to cause any acquisition of Parent Common Stock (including derivative securities with respect to Parent Common Stock) by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent, to be exempt under Rule 16b-3 under the Exchange Act. At least thirty (30) days prior to the Closing Date, Company will furnish the following information to Parent for each individual who, immediately after the Effective Time, will become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent: (a) the number of shares of Company Capital Stock held by such individual and expected to be exchanged for shares of

 

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Parent Common Stock pursuant to the Merger; and (b) the number of other derivative securities (if any) with respect to Company Capital Stock held by such individual and expected to be converted into shares of Parent Common Stock or derivative securities with respect to Parent Common Stock in connection with the Merger.

5.16 Parent Certificate of Amendment . Immediately prior to the Effective Time, Parent will file the Parent Certificate of Amendment in substantially the form of Exhibit D with the Secretary of State of the State of Delaware to become effective immediately prior to the Effective Time.

5.17 Termination of Company Stockholder and Other Related Agreements . Prior to the Closing Date, Company will obtain the necessary written consent of its stockholders to, effective upon the Closing Date, terminate the following agreements to which the Company and certain of its stockholders are a party: (i) Stockholder Agreement, dated as of November 25, 2015, as amended pursuant to that certain First Amendment to Stockholder Agreement, dated as of July 13, 2016, and by that certain Second Amendment to Stockholder Agreement, dated July 28, 2017 and (ii) Registration Rights Agreement, dated November 25, 2015.

5.18 Company Options .

(a) At the Effective Time, each Company Option that is outstanding and unexercised immediately prior to the Effective Time under the Company Option Plan, whether or not vested, will be converted into and become an option to purchase Parent Common Stock, and Parent shall assume the Company Option Plan. All rights with respect to Company Common Stock under Company Options assumed by Parent will thereupon be converted into rights with respect to Parent Common Stock. Accordingly, from and after the Effective Time: (i) each Company Option assumed by Parent may be exercised solely for shares of Parent Common Stock; (ii) the number of shares of Parent Common Stock subject to each Company Option assumed by Parent will be determined by multiplying (x) the number of shares of Company Common Stock that were subject to such Company Option, as in effect immediately prior to the Effective Time by (y) the Company Common Exchange Ratio and rounding the resulting number down to the nearest whole number of shares of Parent Common Stock; (iii) the per share exercise price for the Parent Common Stock issuable upon exercise of each Company Option assumed by Parent will be determined by dividing (x) the per share exercise price of Company Common Stock subject to such Company Option, as in effect immediately prior to the Effective Time, by (y) the Company Common Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent; and (iv) any restriction on the exercise of any Company Option assumed by Parent will continue in full force and effect and the term, exercisability, vesting schedule, status as an “incentive stock option” under Section 422 of the Code, if applicable, and other provisions of such Company Option will otherwise remain unchanged; provided , however , that: (1) to the extent provided under the terms of a Company Option, such Company Option assumed by Parent in accordance with this Section 5.18(a) will, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction with respect to Parent Common Stock subsequent to the Effective Time; and (2) Parent’ board of directors or a committee thereof will succeed to the authority and responsibility of Company’s board of directors or any committee thereof with respect to each Company Option assumed by Parent. Notwithstanding anything to the contrary in this Section 5.18(a), the conversion of each Company Option (regardless of whether such option qualifies as an “incentive stock option” within the meaning of Section 422 of the Code) into an option to purchase shares of Parent Common Stock will be made in a manner consistent with Treasury Regulation Section 1.424-1, such that the conversion of a Company Option will not constitute a “modification” of such Company Option for purposes of Section 409A or Section 424 of the Code. It is the intention of the parties that each Company Option so assumed by Parent shall qualify following the Effective Time as an incentive stock option as defined in Section 422 of the Code to the extent permitted under Section 422 of the Code and to the extent such Company Option qualified as an incentive stock option prior to the Effective Time.

(b) Parent will file with the SEC, as soon as practicable (and in any event within 10 Business Days) after the Effective Time, a registration statement on Form S-8 relating to the shares of Parent Common Stock issuable with respect to Company Options assumed by Parent in accordance with Section 5.18(a), to the extent

 

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permitted by federal securities laws, and Parent shall use its commercially reasonable efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses delivered with respect to such shares) for so long as such options remain outstanding.

(c) Within twenty (20) business days after the Effective Time, Parent will issue to each person who, immediately prior to the Effective Time, was a holder of a Company Option a document evidencing the foregoing assumption of such option by Parent.

5.19 Allocation Certificate . Company will prepare and deliver to Parent at least two Business Days prior to the Closing Date a certificate signed by the Chief Financial Officer and Secretary of Company in a form reasonably acceptable to Parent which sets forth (a) a true and complete list of the Company Stockholders immediately prior to the Effective Time and the number and type of shares of Company Capital Stock owned by each such Company Stockholder, and (b) the allocation of the Merger Consideration among the Company Stockholders pursuant to the Merger (the “ Allocation Certificate ”).

5.20 Employee Benefit Matters .

(a) All employees of the Company and the Acquired Company shall continue in their existing benefit plans until such time as, in Parent’s sole discretion, an orderly transition can be accomplished to employee benefit plans and programs maintained by Parent for its and its affiliates’ employees in the United States. Parent shall take such reasonable actions, to the extent permitted by Parent’s benefits programs, as are necessary to allow eligible employees of the Company and the Acquired Company to participate in the health, welfare and other benefit programs of Parent or alternative benefits programs in the aggregate that are substantially similar to those applicable to employees of Parent in similar functions and positions on similar terms (it being understood that equity incentive plans are not considered employee benefits). Pending such action, Parent shall maintain the effectiveness of the Company’s and each Acquired Company’s benefit plans. All employees of the Company and each Acquired Company shall be given credit for all service with the Company (or service credited by the Company) for purposes of eligibility and vesting (but not for purposes of benefit accrual) under all employee benefit plans, programs, policies and arrangements and employment policies maintained by Parent in which they become participants. No employees of the Company or of any Acquired Company (or their dependents) shall be excluded from, or limited in, receiving any benefits or participating in a group health plan of Parent for which they would otherwise be eligible by reason of any waiting period, evidence of insurability requirement, pre-existing condition exclusion or similar limitation other than limitations or waiting periods that are already in effect with respect to such individuals to the extent not satisfied as of the Effective Time under the corresponding Company Employee Plan.

(b) At Parent’s request, Company will terminate any or all Company Employee Plans intended to include a Code Section 401(k) arrangement (each a “ Company 401(k) Plan ”), with such termination to be effective as of the day immediately preceding the Closing Date and reflected in resolutions of Company’s board of directors. The form and substance of such resolutions will be subject to the prior review and approval of Parent. For purposes of clarity, participation in any Company 401(k) Plan for which no request has been made by Parent on or prior to the day immediately prior to the Closing Date will not be terminated by Company.

5.21 Stockholder Litigation . From and after the date of this Agreement until the earlier of the Effective Time or the date, if any, on which this Agreement is terminated pursuant to Article 7, Parent shall promptly notify Company of any litigation brought, or threatened, against Parent and/or members of the board of directors of Parent or any of its officers relating to the Transactions or otherwise and shall keep Company informed on a reasonably current basis with respect to the status thereof. From and after the date of this Agreement until the earlier of the Effective Time or the date, if any, on which this Agreement is terminated pursuant to Article 7, Company shall promptly notify Parent of any litigation brought, or threatened, against Company and/or members of the board of directors of Company or any of its officers relating to the Transactions or otherwise and shall keep Parent informed on a reasonably current basis with respect to the status thereof. Each Party shall give the other Party the right to review and comment on all material filings or responses to be made by such Party in

 

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connection with the foregoing and, no settlement shall be agreed to in connection with the foregoing without the other Party’s prior written consent (such consent not to be unreasonably withheld, conditioned or delayed).

5.22 Company and Parent Disclosure Schedules . Each of Company and Parent may in its discretion, for informational purposes only, supplement the information set forth on the Company Disclosure Schedule or Parent Disclosure Schedule, as applicable, with respect to any matter now existing or hereafter arising that, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in the Company Disclosure Schedule or Parent Disclosure Schedule, as applicable, on the date of this Agreement or that is necessary to correct any information in the Company Disclosure Schedule or Parent Disclosure Schedule, as applicable, which has been rendered inaccurate thereby promptly following discovery thereof. Any such amended or supplemented disclosure shall not be deemed to modify the representations and warranties of Company, Parent or Merger Sub for purposes of Section 6.2(a) and 6.3(a) of this Agreement.

5.23 Tax Matters .

(a) Parent, Merger Sub and Company shall use their respective commercially reasonable efforts to cause the Merger to qualify, and agree not to, and not to permit or cause any affiliate or subsidiary to, take any actions or cause any action to be taken which would reasonably be expected to prevent the Merger from qualifying, as a “reorganization” under Section 368(a) of the Code.

(b) Parent, Merger Sub and Company shall treat, and shall not take any Tax reporting position inconsistent with the treatment of, the Merger as a reorganization within the meaning of Section 368(a) of the Code for U.S. federal, state and other relevant Tax purposes, unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code.

5.24 Post-Merger Voting Agreements . At or immediately following the Effective Time, Parent and any holder of shares of Parent Common Stock representing more than 19.5% of the issued and outstanding Parent Common Stock as of the Effective Time (such percentage, the “ Voting Threshold ”) then required by laws or regulations applicable to such holder limiting its ability to vote shares of Parent Common Stock in excess of the Voting Threshold, will enter into either a mutually agreeable voting agreement or a mutually agreeable voting trust arrangement pursuant to which certain members of Parent’s management will be delegated the authority to vote the applicable number of shares of Parent Common Stock held by such holder in excess of the Voting Threshold in proportion to all other votes cast by such Parent stockholders at any Parent stockholder meeting.

5.25 Reverse Split . Parent shall submit to the holders of Parent Common Stock at the Parent Stockholders’ Meeting a proposal to approve and adopt Parent Certificate of Amendment authorizing the Board of Directors of Parent to effect a reverse stock split of all outstanding shares of Parent Common Stock at a reverse stock split ratio as mutually agreed to by Parent and Company (the “ Reverse Split ”) and within the range approved by the holders of Parent Common Stock. Parent shall cause the Reverse Split to be implemented and take effect immediately prior to the Effective Time.

5.26 Listing . Parent shall use its commercially reasonable efforts, (a) to the extent required by the rules and regulations of NASDAQ CM, to prepare and submit to NASDAQ CM a notification form for the listing of the shares of Parent Common Stock to be issued in connection with the Contemplated Transactions, and to cause such shares to be approved for listing (subject to official notice of issuance); and (b) to the extent required by NASDAQ Marketplace Rule 5110, to file an initial listing application for the Parent Common Stock on NASDAQ CM (the “ NASDAQ Listing Application ”) and to cause such NASDAQ Listing Application to be approved prior to the Effective Time. The Parties will use commercially reasonable efforts to coordinate with respect to compliance with NASDAQ rules and regulations. The Company will cooperate with Parent as reasonably requested by Parent with respect to the NASDAQ Listing Application and promptly furnish to Parent all information concerning the Company and its stockholders that may be required or reasonably requested in connection with any action contemplated by this Section 5.26.

 

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ARTICLE 6

CONDITIONS TO THE MERGER

6.1 Conditions To Obligation Of Each Party To Effect The Merger . The respective obligations of each party to effect the Merger will be subject to the satisfaction at or prior to the Effective Time of the following conditions:

(a) No Injunctions or Restraints; Illegality . No temporary restraining order, preliminary or permanent injunction or other order (whether temporary, preliminary or permanent) issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger on substantially identical terms and conferring upon Parent substantially all the rights and benefits as contemplated herein, will be in effect, nor will any proceeding brought by any administrative agency or commission or other Governmental Body or instrumentality, domestic or foreign, seeking any of the foregoing be pending; and there will not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger on substantially identical terms and conferring upon Parent substantially all the rights and benefits as contemplated herein, illegal;

(b) Reserved .

(c) Governmental Approvals . Any waiting period applicable to the consummation of the Merger under the HSR Act will have expired or been terminated.

(d) Stockholder Approvals . This Agreement will have been duly adopted and the Merger will have been duly approved by the Company Stockholder Approval and the Parent Stockholder Approval Matters will have been duly adopted and approved by the Parent Stockholder Approval.

6.2 Additional Conditions to Obligations Of Parent . The obligations of Parent to effect the Merger are also subject to the following conditions:

(a) Representations and Warranties . The representations and warranties of Company (i) set forth in Section 2.2 (Capital Structure) and 2.3 (Authority; Non-Contravention; Approvals) will be true and correct in all material respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties which address matters only as of a particular date (which will remain true and correct in all material respects as of such date) and (ii) contained in this Agreement (other than those set forth in Section 2.2 (Capital Structure) and 2.3 (Authority; Non-Contravention; Approvals)) will be true and correct in all respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties which address matters only as of a particular date (which will remain true and correct in all material respects as of such date) or those inaccuracies that, individually or in the aggregate, do not constitute and would not reasonably be expected to constitute a Company Material Adverse Effect; provided that, for purposes of this clause (ii), all “Company Material Adverse Effect” qualifications and other materiality qualifications limiting the scope of the representations and warranties of Company contained in this Agreement will be disregarded. Parent will have received a certificate to such effect signed by an officer of Company. For purposes of clarity, the transactions contemplated by Article 1 of this Agreement shall not constitute a breach of the representations and warranties of Company set forth in Section 2.2 (Capital Structure).

(b) Agreements and Covenants . Company will have performed or complied with in all material respects all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time. Parent will have received a certificate to such effect signed by and officer of Company.

(c) Consents Obtained . Parent will have received evidence, in form and substance satisfactory to it, that all Consents listed on Schedule 6.2(c) required to be obtained, and all filings required to be made, by Company for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby will have been obtained and made by Company.

 

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(d) Company Material Adverse Effect . Since the date of this Agreement, there will have been no change, occurrence or circumstance in the business, results of operations or financial condition of Company or any Subsidiary of Company having, individually or in the aggregate, a Company Material Adverse Effect.

(e) Other Deliveries . Parent will have received such other certificates and instruments (including without limitation certificates of good standing of Company in its jurisdiction of organization and the various foreign jurisdictions in which it is qualified, certified charter documents, certificates as to the incumbency of officers and the adoption of authorizing resolutions) as it will reasonably request in connection with the closing of the transactions contemplated by this Agreement.

(f) FIRPTA Certificate . Parent will have received from Company applicable FIRPTA documentation, consisting of (i) a notice to the IRS, in accordance with the requirements of Section 1.897-2(h)(2) of the Treasury Regulations, in substantially the form of Exhibit E attached hereto, dated as of the Closing Date and executed by Company, together with written authorization for Parent to deliver such notice form to the IRS on behalf of Company after the Closing, and (ii) a FIRPTA Notification Letter, in substantially the form of Exhibit E attached hereto, dated as of the Closing Date and executed by Company.

(g) Allocation Certificate . The Chief Financial Officer of Company will have executed and delivered to Parent the Allocation Certificate.

(h) Termination of Contracts . Company will have delivered to Parent evidence in form and substance satisfactory to Parent that the Contracts listed in Section 5.17 have been terminated.

(i) Additional Parent Funding . The Financing Agreement will continue to be in full force and effect and the Additional Parent Funding will be capable of being consummated immediately following the Effective Time pursuant to the terms of the Financing Agreement.

(j) Company Board of Directors Resignation Letters . Parent will have received a duly executed copy of a resignation letter from each of the resigning members of the board of directors of Company contemplated by Section 5.11, pursuant to which each such person will resign as a member of the board of directors of Company immediately following the Effective Time.

(k) Company Lock-up Agreements . The Company Lock-up Agreements will continue to be in full force and effect as of immediately following the Effective Time.

(l) Preferred Stock Conversion . Company shall have effected a conversion of all shares of Company Preferred Stock into shares of Company Common Stock immediately prior to the Effective Time.

6.3 Additional Conditions to Obligations Of Company . The obligation of Company to effect the Merger is also subject to the following conditions:

(a) Representations and Warranties . The representations and warranties of Parent and Merger Sub (i) set forth in Section 3.2 (Capital Structure) and 3.3 (Authority; Non-Contravention; Approvals) will be true and correct in all material respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties which address matters only as of a particular date (which will remain true and correct in all material respects as of such date) and (ii) contained in this Agreement (other than those set forth in Section 3.2 (Capital Structure) and 3.3 (Authority; Non-Contravention; Approvals)) will be true and correct in all respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties which address matters only as of a particular date (which will remain true and correct in all material respects as of such date) or those inaccuracies that, individually or in the aggregate, do not constitute and would not reasonably be expected to constitute a Parent Material Adverse Effect; provided that, for purposes of this clause (ii), all “Parent Material Adverse Effect” qualifications and other materiality qualifications limiting the scope of the representations and warranties of Parent and Merger Sub contained in this Agreement will be disregarded. Company will have received a certificate to such effect signed by an officer of each of Parent and Merger Sub.

 

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(b) Agreements and Covenants . Parent will have performed or complied with in all material respects all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time. Company will have received a certificate to such effect signed by an officer of Parent.

(c) Consents Obtained . Company will have received evidence, in form and substance satisfactory to it, that all Consents listed on Schedule 6.3(c) required to be obtained, and all filings required to be made, by Parent for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby will have been obtained and made by Parent.

(d) Parent Material Adverse Effect . Since the date of this Agreement, there will have been no change, occurrence or circumstance in the business, results of operations or financial condition of Parent or any Subsidiary of Parent having, individually or in the aggregate, a Parent Material Adverse Effect, that is continuing.

(e) Parent Board of Directors Resignation Letters . Company will have received a duly executed copy of a resignation letter from each of the resigning members of the board of directors of Parent contemplated by Section 5.11, pursuant to which each such person will resign as a member of the board of directors of Parent immediately following the Effective Time.

(f) Company Appointees . Each of the Company Appointees shall have been duly elected to the board of directors of Parent per Schedule 5.11.

(g) NASDAQ Listing . Shares of Parent Common Stock shall have been approved for listing on the NASDAQ CM as of the Closing and the NASDAQ Listing Application shall have been approved.

(h) Registration Rights Agreement . Parent shall have delivered a fully executed and duly authorized copy of the Registration Rights Agreement to Company.

(i) Amended and Restated Investors’ Rights Agreement . On or prior to the Effective Time, Parent shall have terminated that certain Fourth Amended and Restated Investors’ Rights Agreement, dated September 22, 2014, by and among Parent and the Persons signatory thereto.

ARTICLE 7

TERMINATION

7.1 Termination . This Agreement may be terminated and the Merger may be abandoned, at any time prior to the Effective Time, notwithstanding approval thereof by the stockholders of Company and Parent:

(a) by mutual written consent of Company and Parent duly authorized by each of their respective boards of directors;

(b) by either Parent or Company if the Merger has not been consummated by the End Date (provided that the right to terminate this Agreement under this Section 7.1(b) will not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Merger to occur on or before such date);

(c) by either Parent or Company if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission will have issued a non-appealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger;

(d) by either Parent or the Company if the Company Stockholder Approval has not been obtained by the Company Vote Deadline (provided that the right to terminate this Agreement under this Section 7.1(d) will not be available to any party where the failure to obtain the Company Stockholder Approval will have been caused by the action or failure to act of such party in breach of this Agreement);

 

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(e) by either Parent or Company, if the Parent Stockholder Approval contemplated by this Agreement will not have been obtained (provided that the right to terminate this Agreement under this Section 7.1(e) will not be available to any party where the failure to obtain the Parent Stockholder Approval will have been caused by the action or failure to act of such party in breach of this Agreement); provided , however , that Parent’s adjournment of the Parent Stockholders’ Meeting will not result in a failure to obtain the requisite vote under this Section 7.1(e) unless Parent does not obtain the Parent Stockholder Approval prior to the date sixty (60) days after the date that the initial Parent Stockholders’ Meeting is held; provided , however , that Parent may not terminate this Agreement pursuant to Section 7.1(b) until sixty five (65) days after the date that the initial Parent Stockholders’ Meeting is held; provided further that if the Parent Board Recommendation is withdrawn or modified in a manner adverse to Company, the Company may terminate this Agreement pursuant to this Section 7.1(e) before that date that is sixty (60) days after the date that the initial Parent Stockholders’ Meeting is held;

(f) by Parent upon breach of any of the representations, warranties, covenants or agreements on the part of Company set forth in this Agreement, or if any representation or warranty of Company will have become inaccurate, in either case such that the conditions set forth in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty will have become inaccurate; provided if such breach or inaccuracy is curable by Company, then this Agreement will not terminate pursuant to this Section 7.1(f) as a result of such particular breach or inaccuracy unless the breach or inaccuracy remains uncured as of the tenth (10 th ) Business Day following the date of written notice given by Parent to Company of such breach or inaccuracy and its intention to terminate the agreement pursuant to this Section 7.1(f); provided, further that no termination may be made pursuant to this Section 7.1(f) solely as a result of the failure of Company to obtain the Company Stockholder Approval (in which case such termination must be made pursuant to Section 7.1(d));

(g) by Company upon breach of any of the representations, warranties, covenants or agreements on the part of Parent or Merger Sub set forth in this Agreement, or if any representation or warranty of Parent or Merger Sub will have become inaccurate, in either case such that the conditions set forth in Section 6.3(a) or Section 6.3(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty will have become inaccurate; provided if such breach or inaccuracy is curable by Parent or Merger Sub, then this Agreement will not terminate pursuant to this Section 7.1(g) as a result of such particular breach or inaccuracy unless the breach or inaccuracy remains uncured as of the tenth (10 th ) Business Day following the date of written notice given by Company to Parent of such breach or inaccuracy and its intention to terminate the agreement pursuant to this Section 7.1(g); provided, further that no termination may be made pursuant to this Section 7.1(g) solely as a result of the failure of Parent to obtain the Parent Stockholder Approval (in which case such termination must be made pursuant to Section 7.1(e));

(h) by Company, if there will have occurred any Parent Material Adverse Effect since the date of this Agreement; provided , however , such termination shall only be effective if such Parent Material Adverse Effect is not cured within fifteen (15) days; or

(i) by Parent, if there will have occurred any Company Material Adverse Effect since the date of this Agreement; provided , however , such termination shall only be effective if such Company Material Adverse Effect is not cured within fifteen (15) days.

7.2 Effect Of Termination . In the event of the termination of this Agreement pursuant to Section 7.1, this Agreement will forthwith become void and there will be no liability on the part of any party hereto or any of its Affiliates, directors, officers or stockholders except (i) as set forth in Sections 7.2, and 7.3 and (ii) for any liability for any willful breach of any representation, warranty, covenant or obligation contained in this Agreement (for purposes of this Section 7.2, a “willful breach” is an act or omission with the actual knowledge that such act or omission would cause a breach of this Agreement). No termination of this Agreement will affect the obligations of the parties contained in the Confidentiality Agreement, all of which obligations will, in addition to this Article 7, survive termination of this Agreement in accordance with its terms.

 

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7.3 Expenses; Termination Fees .

(a) Except as set forth in this Section 7.3, all fees and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement will be paid by the party incurring such expenses, whether or not the Merger is consummated ( provided , however , that if the Merger is consummated, such fees and expenses will be paid by such party out of its own cash on hand prior to the Effective Time).

(b) Company will pay to Parent a termination fee in an amount in cash equal to (i) $1,250,000 in the event that this Agreement is terminated pursuant to Section 7.1(d), such fee to be paid within two (2) Business Days after such termination, and (ii) an additional $250,000 in the event an Acquisition Proposal with respect to Company has been publicly announced, disclosed or otherwise communicated to Company’s board of directors and, within 12 months after the date of such termination, Company enters into a definitive agreement with respect to an Acquisition Transaction or consummates an Acquisition Transaction, such fee to be paid not later than two (2) Business days after the Acquisition Transaction is consummated.

(c) Parent will pay to Company a termination fee in an amount in cash equal to (i) $1,250,000 in the event that this Agreement is terminated pursuant to Section 7.1(e), such fee to be paid within two (2) Business Days after such termination, and (ii) an additional $250,000 in the event an Acquisition Proposal with respect to Parent has been publicly announced, disclosed or otherwise communicated to Parent’s board of directors and, within 12 months after the date of such termination, Parent enters into a definitive agreement with respect to an Acquisition Transaction or consummates an Acquisition Transaction, such fee to be paid not later than two (2) Business days after the Acquisition Transaction is consummated.

(d) In addition to the fee set forth in Section 7.3(b)(i) above, Company shall no later than two (2) Business Days after receipt of reasonable supporting documentation evidencing such fees and expenses reimburse Parent for all fees and expenses (up to $250,000 in the aggregate) incurred by Parent and Merger Sub in connection with the authorization, preparation, negotiation, execution and performance of this Agreement and the transactions contemplated by this Agreement if this Agreement is terminated pursuant to Section 7.1(d) or if Parent terminates this Agreement pursuant to Section 7.1(f).

(e) In addition to the fee set forth in Section 7.3(c)(i) above, Parent shall no later than two (2) Business Days after receipt of reasonable supporting documentation evidencing such fees and expenses reimburse Company for all fees and expenses (up to $250,000 in the aggregate) incurred by Company in connection with the authorization, preparation, negotiation, execution and performance of this Agreement and the transactions contemplated by this Agreement if this Agreement is terminated pursuant to Section 7.1(e) or if the Company terminates this Agreement pursuant to Section 7.1(g).

(f) If Company fails to pay when due any amount payable by Company under this Section 7.3, then (i) Company will reimburse Parent for all costs and expenses (including fees and disbursements of counsel) incurred in connection with the collection of such overdue amount and the enforcement by Parent of its rights under this Section 7.3, and (ii) Company will pay to Parent interest on such overdue amount (for the period commencing as of the date such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid to Parent in full) at a rate per annum equal to the “prime rate” (as announced by Bank of America or any successor thereto) in effect on the date such overdue amount was originally required to be paid. If Parent fails to pay when due any amount payable by Parent under this Section 7.3, then (i) Parent will reimburse Company for all costs and expenses (including fees and disbursements of counsel) incurred in connection with the collection of such overdue amount and the enforcement by Company of its rights under this Section 7.3, and (ii) Parent will pay to Company interest on such overdue amount (for the period commencing as of the date such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid to Company in full) at a rate per annum equal to the “prime rate” (as announced by Bank of America or any successor thereto) in effect on the date such overdue amount was originally required to be paid.

 

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ARTICLE 8

GENERAL PROVISIONS

8.1 Notices . Any notice or other communication required or permitted to be delivered to any party under this Agreement will be in writing and will be deemed properly delivered, given and received: (a) if delivered by hand, when delivered; (b) if sent on a Business Day by email before 11:59 p.m. (recipient’s time), when transmitted; (c) if sent by email on a day other than a Business, or if sent by email after 11:59 p.m. (recipient’s time), on the Business Day following the date when transmitted; (d) if sent by registered, certified or first class mail, the third Business Day after being sent; and (e) if sent by overnight delivery via a national courier service, one Business Day after being sent, in each case to the address set forth beneath the name of such party below (or to such other address as such party shall have specified in a written notice given to the other parties hereto):

(a)   If to Parent or Merger Sub:

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

Attn: Susan Knudson

E-Mail: sknudson@neothetics.com

With a copy (which shall not constitute notice) to:

DLA Piper LLP (US)

4365 Executive Drive

11 th Floor

San Diego, CA 92130

Attn.: Michael S. Kagnoff

E-Mail: Michael.kagnoff@dlapiper.com

(b)   If to Company:

Evofem Biosciences, Inc.

12400 High Bluff Drive

Suite 600

San Diego, CA 92130

Attn: Jay File

E-Mail: jfile@evofem.com

With a copy (which shall not constitute notice) to:

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

3580 Carmel Mountain Road, Suite 300

San Diego, CA 92130

Attn.: Adam C. Lenain

E-Mail: aclenain@mintz.com

8.2 Amendment . This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective boards of directors at any time prior to the Effective Time; provided , however , that, after approval of the Merger by the Company Stockholder Approval or the Parent Stockholder Approval, as applicable, no amendment may be made which by Legal Requirements requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.

8.3 Headings . The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement.

 

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8.4 Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

8.5 Entire Agreement . This Agreement constitutes the entire agreement and supersedes all prior agreements and undertakings (other than the Confidentiality Agreement), both written and oral, among the parties, or any of them, with respect to the subject matter hereof and, except as otherwise expressly provided herein, are not intended to confer upon any other person any rights or remedies hereunder.

8.6 Successors and Assigns . This Agreement will be binding upon: (a) Company and its successors and assigns (if any); (b) Parent and its successors and assigns (if any); and (c) Merger Sub and its successors and assigns (if any). This Agreement will inure to the benefit of: (i) Company; (ii) Parent; (iii) Merger Sub; and (iv) the respective successors and assigns (if any) of the foregoing. No party may assign this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other parties hereto.

8.7 Parties In Interest . This Agreement will be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, expressed or implied, is intended to or will confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, other than Section 5.6 (which is intended to be for the benefit of the parties indemnified thereby and may be enforced by such parties).

8.8 Waiver . No failure or delay on the part of any party hereto in the exercise of any right hereunder will impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor will any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. At any time prior to the Effective Time, any party hereto may, with respect to any other party hereto, (a) extend the time for the performance of any of the obligations or other acts, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver will be valid if set forth in an instrument in writing signed by the party or parties to be bound.

8.9 Remedies Cumulative; Specific Performance . All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. Each party to this Agreement agree that, in the event of any breach or threatened breach by the other party of any covenant, obligation or other provision set forth in this Agreement: (a) such party will be entitled, without any proof of actual damages (and in addition to any other remedy that may be available to it) to: (i) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision; and (ii) an injunction restraining such breach or threatened breach; and (b) such party will not be required to provide any bond or other security in connection with any such decree, order or injunction or in connection with any related action or Legal Proceeding.

8.10 Governing Law; Venue; Waiver of Jury Trial .

(a) This Agreement will be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.

(b) Any action, suit or other Legal Proceeding relating to this Agreement or the enforcement of any provision of this Agreement will be brought or otherwise commenced exclusively in the Court of Chancery of the

 

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State of Delaware or, if jurisdiction over the matter is vested exclusively in the federal courts, the United States District Court for the District of Delaware. Each party to this Agreement: (i) expressly and irrevocably consents and submits to the exclusive jurisdiction of such court (and each appellate court therefrom) in connection with any such action, suit or Legal Proceeding; (ii) agrees that such court will be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such action, suit or Legal Proceeding commenced in any such court, any claim that such party is not subject personally to the jurisdiction of such court, that such action, suit or Legal Proceeding has been brought in an inconvenient forum, that the venue of such action, suit or other Legal Proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court.

(c) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENTS, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

8.11 Counterparts and Exchanges by Electronic Transmission or Facsimile . This Agreement may be executed in counterparts, and by the different parties hereto in separate counterparts and by facsimile or electronic (i.e., PDF) transmission, each of which when executed will be deemed to be an original but all of which taken together will constitute one and the same agreement.

8.12 Attorney Fees . In any action at law or suit in equity to enforce this Agreement or the rights of any of the parties hereunder, the prevailing party in such action or suit will be entitled to receive a reasonable sum for its attorneys’ fees and all other reasonable costs and expenses incurred in such action or suit.

8.13 Cooperation . In further of, and not in limitation of, any other provision of this Agreement, each party hereto agrees to cooperate fully with the other parties hereto and to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by the other parties hereto to evidence or reflect the transactions contemplated by this Agreement and to carry out the intent and purposes of this Agreement.

8.14 Construction .

(a) For purposes of this Agreement, whenever the context requires: the singular number will include the plural, and vice versa; the masculine gender will include the feminine and neuter genders; the feminine gender will include the masculine and neuter genders; and the neuter gender will include masculine and feminine genders.

(b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party will not be applied in the construction or interpretation of this Agreement.

(c) As used in this Agreement, the words “include” and “including,” and variations thereof, will not be deemed to be terms of limitation, but rather will be deemed to be followed by the words “without limitation.”

(d) Except as otherwise indicated, all references in this Agreement to “Sections,” “Exhibits” and “Schedules” are intended to refer to Sections of this Agreement and Exhibits or Schedules to this Agreement.

(e) The term “ knowledge of Company ”, and all variations thereof, will mean the actual knowledge of Saundra Pelletier and Jay File after reasonable inquiry. The term “ knowledge of Parent ”, and all variations thereof, will mean the actual knowledge of Susan Knudson after reasonable inquiry. For purposes of this Section 8.14(e), “reasonable inquiry” by any individual will be deemed to mean obtaining actual knowledge of the following: (i) each fact, circumstance, event or other matter that is reflected in one or more documents (whether written or electronic, including electronic mails sent to or by such individual) in, or that have been in, the possession of such individual, including his or her personal files, (ii) each fact, circumstance, event or other matter that is reflected in one or more documents (whether written or electronic) contained in books and records of such person that would reasonably be expected to be reviewed by an individual who has the duties and

 

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responsibilities of such individual in the customary performance of such duties and responsibilities, and (iii) knowledge that could be obtained from reasonable inquiry of an individual’s direct reports.

8.15 Non-Survival of Representations and Warranties . The representations and warranties of the Company, Parent and Merger Sub contained in this Agreement or any certificate or instrument delivered pursuant to this Agreement shall terminate at the Effective Time, and only the covenants that by their terms survive the Effective Time shall survive the Effective Time.

[Signature Page Follows]

 

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IN WITNESS WHEREOF , the undersigned parties have caused this Agreement to be executed as of the date first written above.

 

NEOTHETICS, INC.
By:  

/s/ Susan A. Knudson

Name: Susan A. Knudson
Title: Chief Financial Officer
NOBELLI MERGER SUB, INC.
By:  

/s/ Susan A. Knudson

Name: Susan A. Knudson
Title: President

[Signature Page to Agreement and Plan of Merger and Reorganization]


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IN WITNESS WHEREOF , the undersigned parties have caused this Agreement to be executed as of the date first written above.

 

EVOFEM BIOSCIENCES, INC.
By:  

/s/ Saundra Pelletier

Name: Saundra Pelletier
Title: Chief Executive Officer

[Signature Page to Agreement and Plan of Merger and Reorganization]


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EXHIBIT A

CERTAIN DEFINITIONS

For purposes of the Agreement (including this Exhibit A ):

Acquired Companies ” mean Company and its direct and indirect Subsidiaries.

Acquiring Companies ” mean Parent and Merger Sub.

Acquisition Proposal ” means any offer, proposal, inquiry or indication of interest contemplating or otherwise relating to any Acquisition Transaction.

Acquisition Transaction ” means any transaction or series of transactions involving (but excluding the Financing):

(a) any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction (i) in which Company (or its Subsidiaries) or Parent (or its Subsidiaries) is a constituent corporation, (ii) in which a Person or “group” (as defined in the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of Company (or its Subsidiaries) or Parent (or its Subsidiaries), or (iii) in which Company (or its Subsidiaries) or Parent (or its Subsidiaries) issues securities representing more than 15% of the outstanding securities of any class of voting securities of any such Entity (other than as contemplated under this Agreement);

(b) any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 15% or more of the consolidated net revenues, net income or assets of Company (or its Subsidiaries) or Parent (or its Subsidiaries); or

(c) any liquidation or dissolution of any of Company (or its Subsidiaries) or Parent (or its Subsidiaries).

Affiliates ” mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person.

Board Recommendation ” mean the Company Board Recommendation or the Parent Board Recommendation, as applicable.

Business Day ” means a day other than a Saturday, Sunday or other day on which banks located in San Diego, California are authorized or required by applicable Legal Requirements to close.

Company Budget ” means the budget of the Company attached as Schedule 4.1 of the Company Disclosure Schedule.

Company Capital Stock ” means the Company Common Stock, the Company Preferred Stock on an as converted to Company Common Stock basis and the Company Series D Preferred Stock.

Company Common Stock ” means the Common Stock of the Company, par value $0.001 per share.

Company Common Exchange Ratio ” means, calculated to the nearest 1/10,000 of a share, the quotient obtained by dividing the (A) Company Common Merger Shares by (B) the number of Company Common Exchange Ratio Outstanding Shares.

Company Common Exchange Ratio Outstanding Shares ” means the total number of shares of Company Common Stock, outstanding immediately prior to the Effective Time (on an as converted to Company Common

 

Exhibit A-1


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Stock basis with respect to any shares of Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock and Company Series C-1 Preferred Stock) and assuming the cashless exercise of the Investor Pre-Closing Warrant and any other Company Warrants (excluding the Company Series D Warrant).

Company Common Merger Shares ” means that number of Company Merger Shares equal to the difference of (i) the aggregate number of Company Merger Shares minus (ii) the number of Company Series D Preference Merger Shares.

Company Disclosure Schedule ” means the disclosure schedule that has been delivered by Company to Parent on the date of this Agreement.

Company IP Rights ” mean all IP Rights owned solely or co-owned by an Acquired Company or in which an Acquired Company has any right, title or interest and which are used by an Acquired Company in the ordinary course of its business.

Company Lock-up Agreement Signatories ” means Saundra Pelletier, Jay File and Thomas Lynch.

Company Material Adverse Effect ” means any effect, change, event or circumstance that has a material adverse effect on: (a) the business, financial condition, operations or results of operations of the Acquired Companies taken as a whole; provided , however , that, in no event will any of the following, alone or in combination, be deemed to constitute, nor shall any of the following be taken into account in determining whether there has occurred, a Company Material Adverse Effect: Effects resulting from (i) conditions generally affecting the industries in which the Acquired Companies participate or the United States or global economy or capital markets as a whole, to the extent that such conditions do not have a disproportionate impact on the Acquired Companies taken as a whole; (ii) any failure by the Company or any of its Subsidiaries to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending (or for which revenues or earnings are released) on or after the date of the Agreement (it being understood, however, that any effect causing or contributing to such failures to meet projections or predictions may constitute a Company Material Adverse Effect and may be taken into account in determining whether a Company Material Adverse Effect has occurred); (iii) the execution, delivery, announcement or performance of the obligations under this Agreement or the announcement, pendency or anticipated consummation of the Merger; (iv) any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof; or (v) any changes (after the date of this Agreement) in GAAP or applicable Legal Requirements; or (b) the ability of the Company to consummate the Merger or to perform any of its covenants or obligations under the Agreement.

Company Merger Shares ” means 82,893,740 shares of Parent Common Stock.

Company Option ” means an option to purchase shares of Company Capital Stock.

Company Option Plan ” means the Company’s Amended and Restated 2012 Equity Incentive Plan.

Company Preferred Stock ” means the Company’s Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock.

Company Series A Preferred Stock ” means the Series A Preferred Stock of the Company, $0.001 per share.

Company Series B Preferred Stock ” means the Series B Preferred Stock of the Company, $0.001 per share.

Company Series C Preferred Stock ” means the Series C Preferred Stock of the Company, $0.001 per share.

Company Series C-1 Preferred Stock ” means the Series C-1 Preferred Stock of the Company, $0.001 per share.

Company Series D Preferred Stock ” means the Series D Preferred Stock of the Company, $0.001 per share.

 

Exhibit A-2


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Company Series D Exchange Ratio ” means, calculated to the nearest 1/10,000 of a share, the quotient obtained by dividing the (A) Company Series D Preference Merger Shares by (B) the number of issued and outstanding shares of Company Series D Preferred Stock as of immediately prior to the Effective Time.

Company Series D Preference Amount ” means the amount in United States Dollars calculated as of the Effective Time payable to the holders of the Company Series D Preferred Stock pursuant to Section 2(a) of Article IV(B) of Company’s Third Amended and Restated Certificate of Incorporation in connection with the consummation of the Merger, which, assuming the Effective Time takes place on December 31, 2017 and that the final investment of $2.5 million pursuant to the Series D PurchaseAgreement was received on October 1, 2017, equals $85,291,178.

Company Series D Preference Merger Shares ” that number of Company Merger Shares, rounded up to the nearest whole share, equal to the quotient of (A) the Series D Preference Amount divided by (B) $2.0677.

Company Series D Purchase Agreement ” means that certain Series D Purchase Agreement, dated July 13, 2016, by and between the Company and Woodford Investment Management Limited as amended by that certain Amendment No. 1 to the Series D Preferred Stock Purchase Agreement, dated July 28, 2017, by and between the Company and Woodford Investment Management Limited.

Company Series D Warrant ” means those certain Company Warrants to purchase “Next Equity Securities” (as defined therein) issued to Woodford Investment Management LLP, as agent for and on behalf of (1) CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund, (2) Woodford Patient Capital Trust plc, (3) Omnis Income & Growth Fund, a sub-fund of Omnis Portfolio Investments ICVC exercisable to purchase Next Equity Securities (as defined therein) at an exercise price equal to the price per share paid by the New Investors (as defined therein) in a Next Equity Financing (as defined therein).

Company Stockholders ” mean the holders of Company Capital Stock issued and outstanding immediately prior to the Effective Time.

Company Support Agreement Signatories ” mean: (a) Invesco Asset Management Limited acting as agent for and on behalf of its discretionary managed clients identified on Annex A thereto, (b) Woodford Investment Management Limited, acting as agent for and on behalf of its discretionary managed clients identified on Annex A thereto, and (c) Brickhaven II, LLC.

Company Warrant ” means the warrants to purchase shares of Company Capital Stock.

Consent ” means any approval, consent, ratification, permission, waiver or authorization.

Contract ” means any written agreement, contract, subcontract, lease, understanding, arrangement, instrument, note, option, warranty, purchase Order, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature.

Copyrights ” mean all copyrights and copyrightable works (including without limitation databases and other compilations of information, mask works and semiconductor chip rights), including all rights of authorship, use, publication, reproduction, distribution, performance, transformation, moral rights and rights of ownership of copyrightable works and all registrations and rights to register and obtain renewals and extensions of registrations, together with all other interests accruing by reason of international copyright.

Encumbrance ” means any lien, pledge, hypothecation, charge, mortgage, easement, encroachment, imperfection of title, title exception, title defect, right of possession, lease, tenancy license, security interest, encumbrance, claim, infringement, interference, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of

 

Exhibit A-3


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any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset). For the avoidance of doubt, Encumbrance does not include Out-Licenses.

End Date ” means the date that is four (4) months after the date of this Agreement.

Entity ” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or entity.

FDA ” means the United States Food and Drug Administration.

Financing ” means the sale and issuance of equity securities, in connection with the Additional Parent Funding, which funding, in each case, is consistent with the terms and conditions hereof and of the Financing Agreement.

Financing Agreement Signatories ” means the Investor, Parent and Company.

Form S-4 Registration Statement shall mean the registration statement on Form S-4 to be filed with the SEC by Parent registering the public offering and sale of Parent Common Stock to all holders of Company Series D Preferred Stock and Company Common Stock in the Merger, including all shares of Parent Common Stock to be issued in exchange for all other shares of Company Series D Preferred Stock and Company Common Stock in the Merger, as said registration statement may be amended prior to the time it is declared effective by the SEC.

Governmental Body ” means any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, regulatory agency, department, agency, commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity and any court or other tribunal).

HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Investor ” means Invesco Asset Management Limited, acting as agent for and on behalf of certain of its discretionary managed clients.

IP Rights ” mean any and all of the following in any country or region: (a) Copyrights, Patent Rights, Trademark Rights, domain name registrations, Trade Secrets, and other intellectual property rights; and (b) the right (whether at law, in equity, by Contract or otherwise) to enjoy or otherwise exploit any of the foregoing, including the rights to sue for and remedies against past, present and future infringements of any or all of the foregoing, and rights of priority and protection of interests therein under the Legal Requirements of any jurisdiction worldwide.

Legal Proceeding ” means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.

Legal Requirements ” mean any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body.

Merger Sub Common Stock ” means the Common Stock, $0.001 par value per share, of the Merger Sub.

NASDAQ CM ” means The Nasdaq Capital Market.

Order ” means any order, writ, injunction, judgment or decree.

 

Exhibit A-4


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Parent Capital Stock ” means Parent Common Stock and Parent Preferred Stock.

Parent Disclosure Schedule ” means the disclosure schedule that has been delivered by Parent to Company on the date of this Agreement.

Parent IP Rights ” mean all IP Rights owned solely or co-owned by Parent or in which Parent has any right, title or interest.

Parent Material Adverse Effect ” means any Effect that, considered together with all other Effects, has a material adverse effect on: (a) the business, financial condition, operations or results of operations of Parent and its Subsidiaries taken as a whole; provided , however , that, in no event will any of the following, alone or in combination, be deemed to constitute, nor will any of the following be taken into account in determining whether there has occurred, a Parent Material Adverse Effect: Effects resulting (i) from conditions generally affecting the industries in which Parent participates or the United States or global economy or capital markets as a whole, to the extent that such conditions do not have a disproportionate impact on Parent and its Subsidiaries taken as a whole; (ii) changes in the trading price or trading volume of Parent Common Stock (it being understood, however, that any effect causing or contributing to such changes in the trading price or trading volume of Parent Common Stock may constitute a Parent Material Adverse Effect and may be taken into account in determining whether a Parent Material Adverse Effect has occurred); (iii) any failure by Parent or any of its Subsidiaries to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending (or for which revenues or earnings are released) on or after the date of the Agreement (it being understood, however, that any effect causing or contributing to such failures to meet projections or predictions may constitute a Parent Material Adverse Effect and may be taken into account in determining whether a Parent Material Adverse Effect has occurred); (iv) the execution, delivery, announcement or performance of the obligations under this Agreement or the announcement, pendency or anticipated consummation of the Merger; (v) any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof; and (vi) any changes (after the date of this Agreement) in GAAP or applicable Legal Requirements; or (b) the ability of Parent or Merger Sub to consummate the Merger or to perform any of its covenants or obligations under this Agreement.

Parent Outstanding Shares ” means, subject to Section 1.6(g), the total number of shares of Parent Common Stock outstanding immediately prior to the Effective Time (on an as converted to Parent Common Stock basis.

Parent Stock Option Plans ” mean the Parent Stock Option Plan and 2014 Equity Incentive Plan and 2014 Employee Stock Purchase Plan.

Parent Warrant ” means any warrant outstanding prior to the Effective Time to purchase shares of Parent Capital Stock.

Patent Rights ” mean all issued patents, pending patent applications and abandoned patents and patent applications provided that they can be revived (which for purposes of this Agreement will include utility models, design patents, industrial designs, certificates of invention and applications for certificates of invention and priority rights) in any country or region, including all provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals, reissues, re-examinations and extensions thereof.

Person ” means any person, Entity, Governmental Body, or group (as defined in Section 13(d)(3) of the Exchange Act).

Personal Data ” means a natural person’s name, street address, telephone number, e-mail address, photograph, social security number, driver’s license number, passport number, or any other piece of information that allows the identification of a natural person.

 

Exhibit A-5


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Proxy Statement/Prospectus/Information Statement shall mean the proxy statement/prospectus/information statement to be sent to Company’s stockholders in connection with the approval of this Agreement and the Merger (by signing the Company Stockholder Written Consent) and to Parent’s stockholders in connection with the Parent’s Stockholders’ Meeting.

Registration Rights Agreement ” means that certain Registration Rights Agreement, by and among, Parent and the Registration Rights Holders in the form attached hereto as Exhibit G .

Registration Rights Holders ” means Investor, Woodford Investment Management Limited (acting on behalf of certain of its discretionarily managed clients) and certain holders of Parent Common Stock set forth on the signature pages to the Registration Rights Agreement.

A party’s “ Representatives ” include each Person that is or becomes (a) a Subsidiary or other Affiliate of such party or (b) an officer, director, employee, partner, attorney, advisor, accountant, agent or representative of such party or of any such party’s Subsidiaries or other Affiliates.

SEC Documents ” mean each report, registration statement, proxy statement and other statements, reports, schedules, forms and other documents filed by Parent with the SEC since January 1, 2016, including all amendments thereto.

An Entity will be deemed to be a “ Subsidiary ” of another Person if such Person directly or indirectly owns, beneficially or of record, (a) an amount of voting securities of or other interests in such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entity’s board of directors or other governing body, or (b) at least 50% of the outstanding equity or financial interests of such Entity.

Superior Offer ” means an unsolicited, bona fide written offer made by a third party to purchase all of the outstanding shares of capital stock of either Parent or Company, as applicable, on terms that the board of directors of either Parent or Company, as applicable, determines, in its reasonable judgment, based upon a written opinion of an independent financial advisor of nationally recognized reputation, to be more favorable to its stockholders from a financial point of view than the terms of the Merger; provided , however , that any such offer will not be deemed to be a “Superior Offer” if any financing required to consummate the transaction contemplated by such offer is not committed and is not reasonably capable of being obtained by such third party.

Tax ” and “ Taxes ” mean any federal, state, local, or non-U.S. income, gross receipts, license, payroll, employment, excise, escheat, severance, stamp, occupation, premium, windfall profits, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person.

Tax Return ” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

Trade Secrets ” mean trade secrets, know-how, proprietary information, inventions, discoveries, improvements, technology, technical data and research and development, whether patentable or not.

Trademark Rights ” mean all material common law trademarks, registered trademarks, applications for registration of trademarks, material common law service marks, registered service marks, applications for registration of service marks, trade names, registered trade names and applications for registration of trade names, and Internet domain name registrations; and including all filings with the applicable Governmental Body indicating an intent to use any of the foregoing if not registered or subject to a pending application.

 

Exhibit A-6


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Additionally, the following terms have the meanings assigned to such terms in the Sections of this Agreement set forth below opposite such term:

 

Defined Word

  

Section of Agreement

Acceptable Company Confidentiality Agreement    Section 5.12(a)
Acceptable Parent Confidentiality Agreement    Section 5.13(a)
Additional Parent Funding    Recitals
Agreement    Preamble
Allocation Certificate    Section 5.19
Certificate of Merger    Section 1.2
Closing    Section 1.2
Closing Date    Section 1.2
COBRA    Section 2.12(f)
Code    Recitals
Company    Preamble
Company 401(k) Plan    Section 5.20(b)
“Company Appointees”    Section 5.11
“Company Balance Sheet”    Section 2.5(a)
“Company Board Recommendation”    Section 5.2(b)
“Company Contract”    Section 2.16(b)
“Company Disclosure Schedule”    Article 2
“Company Employee Plans”    Section 2.12(a)
“Company Environmental Permits”    Section 2.14(c)
“Company Financials”    Section 2.5(a)
“Company Lock-up Agreements”    Recitals
“Company Owned IP Rights”    Section 2.8(d)
“Company Permits”    Section 2.9(b)
“Company Stock Certificate”    Section 1.9
“Company Stockholder Approval”    Section 2.3(a)
“Company Stockholder Matters”    Section 5.2(a)
“Company Support Agreements”    Recitals
“Company Vote Deadline”    Section 5.2(a)
“Company Written Consent”    Section 5.2(a)
“Confidentiality Agreement”    Section 5.4
“Delay Period”    Section 5.26
“Delaware Law”    Section 1.1
“Determination Letter”    Section 2.12(b)
“Dissenting Shares”    Section 1.7
“Effective Time”    Section 1.2
“ERISA”    Section 2.12(a)
“ERISA Affiliate”    Section 2.12(a)
“Exchange Act”    Section 2.3(d)
“Exchange Agent”    Section 1.8(a)
“Exchange Fund”    Section 1.8(a)
“Financing Agreement”    Recitals
“GAAP”    Section 2.5(a)
“Hazardous Material”    Section 2.14(a)
“Hazardous Material Activities”    Section 2.14(b)
“HIPAA”    Section 2.12(f)
“HMO”    Section 2.12(k)
“Investor Pre-Closing Warrant”    Recitals
“Insurance Policies”    Section 2.18(a)

 

Exhibit A-7


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Defined Word

  

Section of Agreement

“Interim Financial Statements”    Section 5.8
“Knowledge of Company”    Section 8.14(e)
“Knowledge of Parent”    Section 8.14(e)
“Merger”    Recitals
“Merger Consideration”    Section 1.6(a)(ii)
“Merger Sub”    Preamble
“NASDAQ Listing Application”    Section 5.26
“Out Licenses”    Section 2.8(c)
“Parent”    Preamble
“Parent Appointee”    Section 5.11
“Parent Board Recommendation”    Section 5.3(b)
“Parent Change in Recommendation”    Section 5.3(c)
“Parent Certificate of Amendment”    Section 1.4(c)
Parent Common Stock    Section 1.6(a)(i)
Parent Contract    Section 3.12(b)
Parent Employee Plans    Section 3.10(a)
Parent Financials    Section 3.5(c)
Parent Intervening Event    Section 5.3(c)
Parent Preferred Stock    Section 3.2(a)
Parent Stockholder Approval    Section 3.3(a)
Parent Stockholder Approval Matters    Section 5.3(a)
Parent Stockholders’ Meeting    Section 5.3
Party ” or “ Parties    Preamble
Pre-Closing Period    Section 4.1
“Post-Merger Series D Warrant”    Section 1.6(f)
“Reverse Split”    Section 5.25
SEC    Section 2.3(d)
Securities Act    Section 2.3(d)
Surviving Corporation    Section 1.1
Tax Returns    Section 2.7(a)
Voting Threshold    Section 5.24

 

Exhibit A-9


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Exhibit G

[                ], INC. 1

REGISTRATION RIGHTS AGREEMENT

DATED AS OF                , 2017

 

1   Note: Name of Company to be updated per Certificate Amendment and Section 1.4 of the Merger Agreement.


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         Page  
1.   Definitions      1  
2.   Registration      5  
3.   Alternative Transactions      12  
4.   Registration Procedures      13  
5.   Registration Expenses      19  
6.   Indemnification      19  
7.   Facilitation of Sales Pursuant to Rule 144      22  
8.   Miscellaneous      22  


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[                ], INC.

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of [                    ], 2017, by and among [                    ], Inc., a Delaware corporation (the “ Company ”), and the signatories hereto (each such party, together with any Person (as defined below) who hereafter becomes a party to this Agreement, a “ Holder ” and collectively, the “Holders”). The Company and the Holders are referred to collectively herein as the “ Parties .”

In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each Party, the Parties agree as follows:

1. Definitions . As used in this Agreement, the following terms shall have the respective meanings set forth in this Section 1 :

Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person as of the date on which, or at any time during the period for which, the determination of affiliation is being made (including any investment fund the primary investment advisor to which is such Person or an Affiliate thereof); provided , that for purposes of this Agreement, no Holder shall be deemed an Affiliate of the Company or any of its Subsidiaries. For purposes of this definition, the term “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

Agreement ” has the meaning set forth in the preamble.

Approved Transferee ” means any Affiliate of any Holder who acquires Registrable Securities from such Holder.

Alternative Transaction ” means the sale of Registrable Securities constituting less than 3% of Company Common Stock then outstanding to one or more purchasers in a registered transaction without a prior marketing process by means of (a) a bought deal, (b) a block trade, (c) a direct sale or (d) any other transaction that is registered pursuant to a Shelf Registration that is not a firm commitment underwritten offering.

Automatic Shelf Registration Statement ” means an “automatic shelf registration statement” as defined in Rule 405.

Board ” means the board of directors of the Company.

Business Day ” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in New York, New York.

Certificate of Incorporation ” means the Certificate of Incorporation of the Company as amended from time to time.

Chosen Courts ” has the meaning set forth in Section 8(d) .

Close of Business ” means 5:00 p.m. Eastern Time.

Commission ” means the Securities and Exchange Commission or any other federal agency then administering the Securities Act or Exchange Act.


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Company ” has the meaning set forth in the preamble.

Company Common Stock ” means the shares of common stock, par value $0.0001 per share, of the Company.

Company Notice ” has the meaning set forth in Section 2(a)(iii) .

Demand Eligible Holder ” has the meaning set forth in Section 2(b)(i) .

Demand Eligible Holder Request ” has the meaning set forth in Section 2(b)(i) .

Demand Notice ” has the meaning set forth in Section 2(b)(i) .

Demand Registration ” has the meaning set forth in Section 2(b)(i) .

Demand Registration Statement ” has the meaning set forth in Section 2(b)(i) .

Determination Date ” has the meaning set forth in Section 2(a)(viii) .

Effectiveness Period ” has the meaning set forth in Section 2(b)(iii) .

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

Family Member ” shall mean, with respect to any natural Person, such Person’s parents, spouse (but not including a former spouse or a spouse from whom such Person is legally separated) and descendants (whether or not adopted) and any trust, family limited partnership or limited liability company that is and remains solely for the benefit of such Person and such Person’s spouse (but not including a former spouse or a spouse from whom such Person is legally separated) and/or descendants.

FINRA ” means the Financial Industry Regulatory Authority.

Form S-1 Shelf ” has the meaning set forth in Section 2(a)(i) .

Form S-3 Shelf ” has the meaning set forth in Section 2(a)(i) .

Holder ” has the meaning set forth in the preamble. A Person shall cease to be a Holder hereunder at such time as it ceases to hold any Registrable Securities.

Holders of a Majority of Included Registrable Securities ” means Holders of a majority of the Registrable Securities included in the Registration Statement or public offering.

Indemnified Persons ” has the meaning set forth in Section 6(a) .

Issuer Free Writing Prospectus ” means an issuer free writing prospectus, as defined in Rule 433, relating to an offer of the Registrable Securities.

Losses ” has the meaning set forth in Section 6(a) .

Maximum Offering Size ” has the meaning set forth in Section 2(a)(iv) .

Merger Agreement ” means the Agreement and Plan of Merger and Reorganization, dated as of October [        ], 2017, by and among the Company, a Delaware corporation, Nobelli Merger Sub, Inc., a Delaware corporation and Evofem Biosciences, Inc., a Delaware corporation.

 

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Merger Effective Date ” means the effective date on which the merger of Nobelli Merger Sub, Inc. with and into Evofem Biosciences, Inc. in accordance with the terms of the Merger Agreement is consummated.

Other Registrable Securities ” means (a) Company Common Stock, (b) any securities issued or issuable with respect to, on account of or in exchange for Company Common Stock, whether by stock split, stock dividend, recapitalization, merger, consolidation or other reorganization, charter amendment or otherwise and (c) any options, warrants or other rights to acquire, and any securities received as a dividend or distribution in respect of, any of the securities described in clauses (a) and (b) above, in each case held by any other Person who has rights to participate in any offering of securities by the Company pursuant to a registration rights agreement or other similar arrangement with the Company or any direct or indirect parent of the Company relating to the Company Common Stock (which shall not include this Agreement).

Parties ” has the meaning set forth in the preamble.

Person ” means any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.

Piggyback Eligible Holders ” has the meaning set forth in Section 2(c)(i) .

Piggyback Notice ” has the meaning set forth in Section 2(c)(i) .

Piggyback Registration ” has the meaning set forth in Section 2(c)(i) .

Piggyback Registration Statement ” has the meaning set forth in Section 2(c)(i) .

Piggyback Request ” has the meaning set forth in Section 2(c)(i) .

Proceeding ” means any action, claim, suit, proceeding or investigation (including a preliminary investigation or partial proceeding, such as a deposition) pending or known to the Company to be threatened.

Prospectus ” means the prospectus included in a Registration Statement (including a prospectus that includes any information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A), all amendments and supplements to the Prospectus, including post-effective amendments, all material incorporated by reference or deemed to be incorporated by reference in such Prospectus and any Issuer Free Writing Prospectus.

Public Offering ” means any sale of shares of Company Common Stock to the public pursuant to a public offering registered (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 is applicable) under the Securities Act.

Qualified Holder ” means one or more Holders who beneficially own in the aggregate 20% or more of the outstanding shares of Company Common Stock as of the date of determination.

Registrable Securities ” means (a) any Company Common Stock, (b) any securities issued or issuable with respect to, on account of or in exchange for Company Common Stock, whether by stock split, stock dividend, recapitalization, merger, consolidation or other reorganization, charter amendment or otherwise and (c) any options, warrants or other rights to acquire, and any securities received as a dividend or distribution in respect of, any of the securities described in clauses (a) and (b) above, in each case that are held by the Holders and their Affiliates or any transferee or assignee of any Holder or its Affiliates and originally issued to the Holder pursuant to the Merger Agreement and/or the Financing Agreement, including, without limitation the Company Common Stock issuable upon exercise of the Post-Merger Series D Warrant (as those terms are defined in the Merger

 

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Agreement), all of which securities are subject to the rights provided herein until such rights terminate pursuant to the provisions of this Agreement. As to any particular Registrable Securities, such securities shall not be Registrable Securities when (i) a Registration Statement registering such Registrable Securities under the Securities Act has been declared effective and such Registrable Securities have been sold, transferred or otherwise disposed of by the Holder thereof pursuant to such effective Registration Statement, (ii) such Registrable Securities are sold, transferred or otherwise disposed of pursuant to Rule 144, (iii) such securities cease to be outstanding, or (iv) such securities have become eligible for sale by the applicable Holder pursuant to Rule 144 without any restriction on the volume or manner of such sale and all restrictive legends and stop transfer instructions have been removed with respect to all book entries representing the applicable Registrable Securities.

Registration Expenses ” has the meaning set forth in Section 5 .

Registration Statement ” means a registration statement of the Company filed with or to be filed with the Commission under the Securities Act and other applicable law, including an Automatic Shelf Registration Statement, and including any Prospectus, amendments and supplements to each such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

Related Person ” has the meaning set forth in Section 8(m) .

Representatives ” of a Holder means its partners, shareholders, members, directors, officers, employees, agents, counsel, accountants, consultants, investment advisers or other professionals or representatives, or its affiliates or wholly owned subsidiaries.

Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

Rule 145 ” means Rule 145 promulgated by the Commission pursuant to the Securities Act, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

Rule 158 ” means Rule 158 promulgated by the Commission pursuant to the Securities Act, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

Rule 405 ” means Rule 405 promulgated by the Commission pursuant to the Securities Act, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the Securities Act, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

Rule 430A ” means Rule 430A promulgated by the Commission pursuant to the Securities Act, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

Rule 433 ” means Rule 433 promulgated by the Commission pursuant to the Securities Act, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

Seasoned Issuer ” means an issuer eligible to use Form S-3 under the Securities Act and who is not an “ineligible issuer” as defined in Rule 405.

 

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Securities Act ” means the Securities Act of 1933, as amended.

Selling Expenses ” means all underwriting fees, discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and related legal and other fees of a Holder not included within the definition of Registration Expenses.

Shelf Period ” has the meaning set forth in Section 2(a)(i) .

Shelf Public Offering Requesting Holder ” has the meaning set forth in Section 2(a)(ii) .

Shelf Registration ” means the registration of an offering of Registrable Securities on a Form S-1 Shelf or a Form S-3 Shelf, as applicable, on a delayed or continuous basis under Rule 415, pursuant to Section 2(a)(i) .

Shelf Registration Statement ” has the meaning set forth in Section 2(a)(i) .

Shelf Takedown Notice ” has the meaning set forth in Section 2(a)(iii) .

Subsidiary ” means, when used with respect to any Person, any corporation or other entity, whether incorporated or unincorporated, (a) of which such Person or any other Subsidiary of such Person is a general partner (excluding partnerships, the general partnership interests of which held by such Person or any Subsidiary of such Person do not have a majority of the voting interests in such partnership) or (b) at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other entity is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries.

Suspension Period ” has the meaning set forth in Section 2(e) .

Trading Market ” means the principal national securities exchange in the United States on which Registrable Securities are (or are to be) listed.

Underwritten Shelf Takedown ” has the meaning set forth in Section 2(b)(ii) .

WKSI ” means a “well known seasoned issuer” as defined under Rule 405 and which (i) is a “well-known seasoned issuer” under paragraph (1)(i)(A) of such definition or (ii) is a “well-known seasoned issuer” under paragraph (1)(i)(B) of such definition and is also a Seasoned Issuer.

WKSI Date ” has the meaning set forth in Section 2(a)(viii) .

Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms; (b) references to Sections, paragraphs and clauses refer to Sections, paragraphs and clauses of this Agreement; (c) the terms “include,” “includes,” “including” or words of like import shall be deemed to be followed by the words “without limitation”; (d) the terms “hereof,” “herein” or “hereunder” refer to this Agreement as a whole and not to any particular provision of this Agreement; (e) unless the context otherwise requires, the term “or” is not exclusive and shall have the inclusive meaning of “and/or”; (f) defined terms herein will apply equally to both the singular and plural forms and derivative forms of defined terms will have correlative meanings; (g) references to any law or statute shall be deemed to refer to such law or statute as amended or supplemented from time to time and shall include all rules and regulations and forms promulgated thereunder, and references to any law, rule, form or statute shall be construed as including any legal and statutory provisions, rules or forms consolidating, amending, succeeding or replacing the applicable law, rule, form or statute; (h) references to any Person include such Person’s successors and permitted assigns; and (i) references to “days” are to calendar days unless otherwise indicated. Each of the Parties hereto acknowledges

 

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that each Party was actively involved in the negotiation and drafting of this Agreement and that no law or rule of construction shall be raised or used in which the provisions of this Agreement shall be construed in favor or against any Party hereto because one is deemed to be the author thereof.

2. Registration .

(a) Shelf Registration .

(i) Filing of Shelf Registration Statement . No later than sixty (60) days after the Merger Effective Date, (x) the Company shall file a Registration Statement for a Shelf Registration on Form S-3 (or any successor to Form S-3) covering the resale of all of the Registrable Securities held by the Holders (the “ Form S-3 Shelf ”), or (y) if the Company is not a Seasoned Issuer or WKSI at the time of filing, the Company shall file a Registration Statement for a Shelf Registration on Form S-1 (or any successor to Form S-1) (the “ Form S-1 Shelf ” and, together with the Form S-3 Shelf, the “ Shelf Registration Statement ”). In the event that the Company files such Shelf Registration Statement on a Form S-1 Shelf and thereafter becomes a Seasoned Issuer or WKSI, the Company shall use its commercially reasonable efforts to convert the Form S-1 Shelf to a Form S-3 Shelf (which shall be an Automatic Shelf Registration Statement if the Company is a WKSI) as soon as practicable after the Company becomes so eligible. Subject to the terms of this Agreement, including any applicable Suspension Period, the Company shall use its commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event (x) no later than the fifteenth (15th) day following the filing of the Shelf Registration Statement in the event of no “review” by the Commission, (y) no later than the sixtieth (60th) day following the filing of the Shelf Registration Statement in the event of “limited review” by the Commission, or (z) in the event of a “review” by the Commission, the one hundred and twentieth (120th) day following the filing of the Shelf Registration Statement (the number of days in (x), (y) and (z) each being a “Review Period,” depending on the nature of the Commission’s review), and shall use its commercially reasonable efforts to keep such Shelf Registration Statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such Registration Statement are no longer Registrable Securities, including, to the extent a Form S-1 Shelf was converted to a Form S-3 Shelf and the Company thereafter became ineligible to use Form S-3, by filing a Form S-1 Shelf not later than twenty (20) Business Days after the date of such ineligibility and using its commercially reasonable efforts to have such Form S-1 declared effective as promptly as practicable (but in any event within the Review Period, depending on the nature of the Commission’s review) (the period during which the Company shall use its commercially reasonable efforts to keep the Shelf Registration Statement continuously effective under the Securities Act in accordance with this clause (i), the “ Shelf Period ”). The Company shall notify the Holders named in the Shelf Registration Statement via facsimile or by e-mail of the effectiveness of the Shelf Registration Statement (unless an Automatic Shelf Registration Statement) as promptly as practicable, and in any event within twenty-four (24) hours, after the Company telephonically or otherwise confirms effectiveness with the Commission. The Company shall file a final Prospectus with the Commission to the extent required by Rule 424. The “Plan of Distribution” section of such Shelf Registration Statement shall provide for all permitted means of disposition of Registrable Securities, including firm-commitment underwritten public offerings, Alternative Transactions, agented transactions, sales directly into the market, purchases or sales by brokers and sales not involving a public offering.

(ii) Underwritten Shelf Takedown . At any time during the Shelf Period (subject to any Suspension Period), any one or more Holders of Registrable Securities (such Holder, a “ Shelf Public Offering Requesting Holder ”) may request to sell all or any portion of their Registrable Securities in an underwritten offering that is registered pursuant to the Shelf Registration Statement (including, for the avoidance of doubt, a shelf registration filed pursuant to Section 2(a) or Section 2(b) , each, an “ Underwritten Shelf Takedown ” which term shall not include an Alternative Transaction); and the Company shall within fifteen (15) Business Days of such request amend or supplement the Shelf Registration Statement and/or prepare and file related Prospectus supplement as may be necessary in order to enable such Registrable Securities to be distributed pursuant to an Underwritten Shelf Takedown; provided , that, and subject to Section 2(a)(v) below, the Company shall not be obligated to effect (x) more than one (1) Underwritten Shelf Takedowns in any 12-month period for all Holders and (y) any

 

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Underwritten Shelf Takedown if the aggregate gross proceeds expected to be received from the sale of the Registrable Securities requested to be sold in such Underwritten Shelf Takedown (including, for the avoidance of doubt, the Registrable Securities of the Holders (other than the Shelf Public Offering Requesting Holder) requested to be included therein pursuant to 2(a)(iii) below and the Other Registrable Securities to be sold in such Underwritten Shelf Takedown), in the good faith judgment of the managing underwriter(s) therefor, is less than $20 million.

(iii) Notice of Underwritten Shelf Takedown . All requests for Underwritten Shelf Takedowns shall be made by giving written notice to the Company (the “ Shelf Takedown Notice ”). Each Shelf Takedown Notice shall specify the class or series and the approximate number of Registrable Securities to be sold in the Underwritten Shelf Takedown and the expected price range (net of underwriting discounts and commissions) of such Underwritten Shelf Takedown. Subject to Section 2(e) below, within three (3) days after receipt of any Shelf Takedown Notice except in the case of an Alternative Transaction (without regard to the 3% threshold), the Company shall give written notice of such requested Underwritten Shelf Takedown (which notice shall state the material terms of such proposed Underwritten Shelf Takedown, to the extent known, as well as the identity of the Shelf Public Offering Requesting Holder(s)) to all other Holders of Registrable Securities (the “ Company Notice ”) and, subject to the provisions of Section 2(a)(iv) and Section 2(e) below, shall include in such Underwritten Shelf Takedown all Registrable Securities of the same class or series as the Registrable Securities originally requested to be sold by the Shelf Public Offering Requesting Holder(s) with respect to which the Company has received written requests for inclusion therein within five (5) Business Days after giving the Company Notice; provided, that any such Registrable Securities shall be sold subject to the same terms as are applicable to the Registrable Securities the Shelf Public Offering Requesting Holder(s) is requesting to sell.

(iv) Priority of Registrable Shares . If the managing underwriters for such Underwritten Shelf Takedown advise the Company and the Holders of Registrable Securities requested to be included in such Underwritten Shelf Takedown that in their reasonable view the number of Registrable Securities requested to be included in such Underwritten Shelf Takedown exceeds the number of Registrable Securities which can be sold in an orderly manner in such offering within the contemplated price range requested to be included in the Underwritten Shelf Takedown (the “ Maximum Offering Size ”), then the Company shall so advise all Holders of Registrable Securities requested to be included in such Underwritten Shelf Takedown, and shall include in such Underwritten Shelf Takedown the number of Registrable Securities which can be so sold in the following order of priority, up to the Maximum Offering Size: (A) first, the Registrable Securities requested to be included in such Underwritten Shelf Takedown by the Holders, allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Holders on the basis of the number of Registrable Securities requested to be included therein by each such Holder, up to the Maximum Offering Size, (B) second, any securities requested to be included in such Underwritten Shelf Takedown by the Company and (C) third, Other Registrable Securities requested to be included in such Underwritten Shelf Takedown to the extent permitted hereunder, allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among the respective Holders of such Other Registrable Securities on the basis of the number of securities requested to be included therein by each such Holder. For any Holder of Other Registrable Securities that is a partnership, limited liability company, corporation or other entity, the partners, members, stockholders, Subsidiaries, parents and Affiliates of such Holder, or the estates and Family Members of any such partners/members and retired partners/members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “Holder,” and any pro rata reduction with respect to such Other Registrable Securities shall be based upon the aggregate amount of securities requested to be included in such registration by all entities and individuals included in such Other Registrable Securities.

(v) Timing of Underwritten Shelf Takedowns . Subject to Section 2(a)(ii), the Company shall not be obligated to effect an Underwritten Shelf Takedown within sixty (60) days (or such shorter period specified in any applicable lock-up agreement entered into with underwriters) after the consummation of a previous Underwritten Shelf Takedown.

(vi) Selection of Bankers and Counsel . The Holders of a Majority of Included Registrable Securities requested to be included in an Underwritten Shelf Takedown shall have the right to select the investment

 

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banker(s) and manager(s) to administer the offering (which shall consist of one (1) or more reputable nationally recognized investment banks reasonably satisfactory to the Company) and one (1) firm of counsel to represent all of the Holders (along with any reasonably necessary local counsel), in connection with such Underwritten Shelf Takedown; provided , that the Company shall select such investment banker(s) and manager(s) if Holders of a Majority of Included Registrable Securities cannot so agree on the same within twelve (12) Business Days of the Shelf Takedown Notice.

(vii) Withdrawal from Registration . Any Holder whose Registrable Securities were to be included in any such Underwritten Shelf Takedown pursuant to Section 2(a)(ii) or Section 2(a)(iii) may elect to withdraw any or all of its Registrable Securities therefrom, without liability to any of the other Holders and without prejudice to the rights of any such Holder or Holders to include Registrable Securities in any future Underwritten Shelf Takedown(s), by written notice to the Company delivered prior to the pricing date of the relevant Underwritten Shelf Takedown.

(viii) WKSI Filing . Upon the Company first becoming a WKSI (the “ WKSI Date ”), (A) the Company shall give written notice thereof to all of the Holders who hold Registrable Securities as promptly as practicable but in no event later than ten (10) Business Days thereafter, and such notice shall describe, in reasonable detail, the basis on which the Company has become a WKSI, and (B) the Company shall, in accordance with the following sentence, register to the extent eligible under the applicable rules, under an Automatic Shelf Registration Statement, the sale of all Registrable Securities in accordance with the terms of this Agreement. The Company shall use its commercially reasonable efforts to file such Automatic Shelf Registration Statement as promptly as practicable, but in no event later than twenty (20) days after the WKSI Date, and to cause such Automatic Shelf Registration Statement to remain effective thereafter until there are no longer any Registrable Securities; provided , that, the failure of the Company to remain a WKSI after the filing of such Automatic Shelf Registration Statement shall not be deemed to be a breach of its obligations hereunder. The Company shall give written notice of filing such Registration Statement to all of the Holders who hold Registrable Securities as promptly as practicable thereafter. At any time after the filing of an Automatic Shelf Registration Statement by the Company, if it is reasonably likely that the Company will no longer be a WKSI (the “ Determination Date ”), as promptly as practicable but in no event later than ten (10) days after such Determination Date, the Company shall (1) give written notice thereof to all of the Holders and (2) file a Form S-3 Shelf, unless the Company is not then eligible to use Form S-3, in which case it shall use Form S-1 Shelf (or a post-effective amendment converting the Automatic Shelf Registration Statement to an appropriate form), covering all Registrable Securities, and use its commercially reasonable efforts to have such Registration Statement declared effective as promptly as practicable (but in any event within the applicable Review Period, depending on the nature of the Commission’s review) after the date the Automatic Shelf Registration Statement is no longer useable by the Holders to sell their Registrable Securities, and keep such Registration Statement continuously effective under the Securities Act until there are no longer any Registrable Securities.

(ix) Adding Holders to Registration Statement . After the Registration Statement with respect to a Shelf Registration is declared or becomes effective but subject to the Suspension Period, upon written request by one or more Holders (which written request shall specify the amount of such Holders’ Registrable Securities to be registered), the Company shall, as promptly as practicable after receiving such request, (i) if it is a Seasoned Issuer or a WKSI, or if such Registration Statement is an Automatic Shelf Registration Statement, file a Prospectus supplement to include such Holders as selling stockholders in such Registration Statement or (ii) if it is not a Seasoned Issuer or a WKSI, or it is not able to add such Holders through a Prospectus supplement, file a post-effective amendment to the Registration Statement to include such Holders in such Shelf Registration and use commercially reasonable efforts to have such post-effective amendment declared effective.

(b) Demand Registration .

(i) At such time that the Shelf Registration Statement required pursuant to Section 2(a) is not available and subject to the terms and conditions of this Agreement, at any time and from time to time commencing 180 days after the Closing Date upon written notice to the Company (a ” Demand Notice ”) delivered by a Qualified Holder(s) requesting that the Company effect the registration (a “ Demand Registration ”) under the

 

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Securities Act (other than pursuant to a registration statement on Form S-4 or Form S-8 or any similar or successor form under the Securities Act) of any or all of the Registrable Securities held by such Qualified Holder(s) (which offering is expected to yield aggregate gross proceeds of at least $40 million), the Company shall promptly (but in any event, not later than five (5) Business Days following the Company’s receipt of such Demand Notice) give written notice of the receipt of such Demand Notice to all other Holders that, to its knowledge, hold Registrable Securities (each, a “ Demand Eligible Holder ”). The Company shall within fifteen (15) Business Days of its receipt of such Demand Notice file the appropriate Registration Statement (the “ Demand Registration Statement ”) subject to Section 2(b)(ii) and use its commercially reasonable efforts to effect, at the earliest practicable date, the registration under the Securities Act and under the applicable state securities laws of (A) the Registrable Securities which the Company has been so requested to register by the Qualified Holder(s) in the Demand Notice, (B) all other Registrable Securities of the same class or series as those requested to be registered by the Qualified Holder(s) which the Company has been requested to register by the Demand Eligible Holders by written request (the “ Demand Eligible Holder Request ”) given to the Company within ten (10) Business Days after the giving of such written notice by the Company, and (C) any Registrable Securities to be offered and sold by the Company, in each case subject to Section 2(b)(ii) , all to the extent required to permit the disposition (in accordance with the intended methods of disposition) of the Registrable Securities to be so registered. The Holders’ rights to request a Demand Registration set forth in this Section 2(b) shall not be exercisable at any time if the Company (i) (x) is not in violation of its obligations to file a Shelf Registration Statement pursuant to Section 2(a) or (y) has a currently effective Shelf Registration Statement covering all Registrable Securities in accordance with Section 2(a) , and (ii) has otherwise complied with its obligations pursuant to this Agreement.

(ii) Demand Registration Using Form S-3 . The Company shall effect any requested Demand Registration using Form S-3 whenever the Company is a Seasoned Issuer or a WKSI and is eligible to use such form under applicable rules, and shall use an Automatic Shelf Registration Statement if it is a WKSI. Subject to the terms and conditions of this Agreement, for so long as the Company remains a Seasoned Issuer or a WKSI, the Qualified Holder(s) shall have the right to make an unlimited number of requests for Demand Registration on Form S-3; provided that the Company shall not be obligated to effect (x) more than one (1) Demand Registrations in any twelve-month period and (y) a registration pursuant to Section 2(b) unless the Registrable Securities requested to be registered by Qualified Holder(s), together with the Registrable Securities requested to be registered by the Demand Eligible Holders and Other Registrable Securities requested to be included, in such registration are expected to yield aggregate gross proceeds of at least $20 million.

(iii) Effectiveness of Demand Registration Statement . The Company shall use its commercially reasonable efforts to have the Demand Registration Statement declared effective by the Commission and keep the Demand Registration Statement continuously effective under the Securities Act for the period of time necessary for the underwriters or Holders to sell all the Registrable Securities covered by such Demand Registration Statement or such shorter period which will terminate when all Registrable Securities covered by such Demand Registration Statement have been sold pursuant thereto (including by filing with the Commission a post-effective amendment or a supplement to the Demand Registration Statement or the related Prospectus or any document incorporated therein by reference or by filing any other required document or otherwise supplementing or amending the Demand Registration Statement, in each case, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Demand Registration Statement or by the Securities Act, any state securities or “blue sky” laws, or any other rules and regulations thereunder or if otherwise necessary) (the “ Effectiveness Period ”). A Demand Registration requested pursuant to this Section 2(b) shall not be deemed to have been effected (A) if the Demand Registration Statement is withdrawn without becoming effective, (B) if the Demand Registration Statement has not been declared effective or does not remain effective in compliance with the provisions of the Securities Act and the laws of any state or other jurisdiction applicable to the disposition of the Registrable Securities covered by such Registration Statement for the Effectiveness Period, (C) if, after it has become effective, such Registration Statement is subject to any stop order, injunction or other order or requirement of the Commission or other governmental or regulatory agency or court for any reason other than a violation of applicable law solely by any selling Holder and has not thereafter become effective, (D) in the event of an underwritten offering, if the conditions to closing specified in the

 

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underwriting agreement entered into in connection with such registration are not satisfied or waived other than by reason of some wrongful act or omission by a Qualified Holder, or (E) if the Company does not include in the applicable Registration Statement any Registrable Securities held by a Holder that are required by the terms hereof to be included in such Registration Statement.

(iv) Priority of Registration . Notwithstanding any other provision of this Section 2(b) , if (A) the Qualified Holder(s) intend to distribute the Registrable Securities covered by a Demand Registration by means of an underwritten offering and (B) the managing underwriters advise the Company that in their reasonable view, the number of Registrable Securities proposed to be included in such offering (including Registrable Securities requested by Holders to be included in such offering and any securities that the Company or any other Person proposes to be included that are not Registrable Securities) exceeds the Maximum Offering Size, then the Company shall so advise the Qualified Holder(s) and the Demand Eligible Holders with Registrable Securities requested to be included in such underwritten offering, and shall include in such offering the number of Registrable Securities which can be so sold in the following order of priority, up to the Maximum Offering Size: (1)  first , the Registrable Securities requested to be included in such underwritten offering by the Qualified Holders and the Demand Eligible Holders, allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among the Qualified Holders and Demand Eligible Holders on the basis of the number of Registrable Securities requested to be included therein by each such Holder, up to the Maximum Offering Size, (2)  second , any securities proposed to be registered by the Company, and (3)  third , Other Registrable Securities requested to be included in such underwritten offering to the extent permitted hereunder, allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among the respective holders of such Other Registrable Securities on the basis of the number of securities requested to be included therein by each such holder. For any Holder of Other Registrable Securities that is a partnership, limited liability company, corporation or other entity, the partners, members, stockholders, Subsidiaries, parents and Affiliates of such Holder, or the estates and Family Members of any such partners/members and retired partners/members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “Holder,” and any pro rata reduction with respect to such Other Registrable Securities shall be based upon the aggregate amount of securities requested to be included in such registration by all entities and individuals included in such Other Registrable Securities.

(v) Underwritten Demand Registration . The determination of whether any offering of Registrable Securities pursuant to a Demand Registration will be an underwritten offering shall be made in the sole discretion of the Holders of a Majority of Included Registrable Securities included in such underwritten offering, and such Holders of a Majority of Included Registrable Securities shall have the right to (A) determine the plan of distribution, including the price at which the Registrable Securities are to be sold and the underwriting commissions, discounts and fees, and (B) select the investment banker(s) and manager(s) to administer the offering (which shall consist of one (1) or more reputable nationally recognized investment banks reasonably satisfactory to the Company) and one firm of counsel to represent all of the Holders (along with any reasonably necessary local counsel), in connection with such Demand Registration; provided , that the Company shall select such investment banker(s) and manager(s) if the Holders of such Majority of Registrable Securities cannot so agree on the same within twelve (12) business days of the Demand Notice.

(vi) Withdrawal of Registrable Securities . Any Holder whose Registrable Securities were to be included in any such registration pursuant to Section 2(b) may elect to withdraw any or all of its Registrable Securities therefrom, without liability to any of the other Holders and without prejudice to the rights of any such Holder to include Registrable Securities in any future registration (or registrations), by written notice to the Company delivered on or prior to the effective date of the relevant Demand Registration Statement.

(c) Piggyback Registration .

(i) Registration Statement on behalf of the Company . If at any time the Company proposes to file a Registration Statement (other than to file a Shelf Registration under Section 2(a) that is not in connection with a particular offering), or the Company proposes to sell Company Common Stock in an underwritten offering that is registered pursuant to a Shelf Registration Statement, for an offering of Registrable Securities (for purposes of

 

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this section, irrespective of the holders thereof) for cash (excluding an offering relating solely to an employee benefit plan, an offering relating to a transaction on Form S-4, a rights offering or an offering on any form of Registration Statement that does not permit secondary sales) (a “ Piggyback Registration Statement ”), the Company shall give prompt written notice (the “ Piggyback Notice ”) to all Holders that, to its knowledge, hold Registrable Securities (collectively, the “ Piggyback Eligible Holders ”) of the Company’s intention to file a Piggyback Registration Statement reasonably in advance of (and in any event at least ten (10) Business Days before) the anticipated filing date of such Piggyback Registration Statement. The Piggyback Notice shall offer the Piggyback Eligible Holders the opportunity to include for registration in such Piggyback Registration Statement the number of Registrable Securities of the same class and series as those proposed to be registered as they may request, subject to Section 2(c)(ii) (a “ Piggyback Registration ”). Subject to Section 2(c)(ii) , the Company shall use its commercially reasonable efforts to include in each such Piggyback Registration such Registrable Securities for which the Company has received written requests (each, a “ Piggyback Request ”) from Piggyback Eligible Holders within five (5) Business Days after giving the Piggyback Notice. If a Piggyback Eligible Holder decides not to include all of its Registrable Securities in any Piggyback Registration Statement thereafter filed by the Company, such Piggyback Eligible Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent Piggyback Registration Statements or other Registration Statements as may be filed by the Company with respect to offerings of Registrable Securities, all upon the terms and conditions set forth herein. The Company shall use its commercially reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register pursuant to the Piggyback Requests, to the extent required to permit the disposition of the Registrable Securities so requested to be registered.

(ii) Priority of Registration . If the Piggyback Registration under which the Company gives notice pursuant to Section 2(c)(i) is an underwritten offering, and the managing underwriter or managing underwriters of such offering advise the Company and the Piggyback Eligible Holders that, in their reasonable view the amount of securities requested to be included in such registration (including Registrable Securities requested by the Piggyback Eligible Holders to be included in such offering and any securities that the Company or any other Person proposes to be included that are not Registrable Securities) exceeds the Maximum Offering Size (which, for the purposes of a Piggyback Registration shall be within a price range acceptable to the Company), then the Company shall so advise all Piggyback Eligible Holders with Registrable Securities requested to be included in such Piggyback Registration, and shall include in such offering the number which can be so sold in the following order of priority, up to the Maximum Offering Size: (A)  first , the securities that the Company proposes to sell up to the Maximum Offering Size, (B)  second , the Registrable Securities requested to be included in such Piggyback Registration, allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among the Piggyback Eligible Holders on the basis of the number of Registrable Securities requested to be included therein by each such Piggyback Eligible Holder, up to the Maximum Offering Size, and (C)  third , Other Registrable Securities requested to be included in such Piggyback Registration, allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among the holders thereof on the basis of the number of securities requested to be included therein by each such holder. All Piggyback Eligible Holders requesting to be included in the Piggyback Registration must sell their Registrable Securities to the underwriters selected as provided in Section 2(c)(iv)  on the same terms and conditions as apply to the Company if such underwritten offering that is consummated, subject to such Holders’ right to withdraw described in the immediately succeeding sentences. Promptly (and in any event on the same day the Company receives notice) following receipt of notification by the Company from the managing underwriter of a range of prices at which such Registrable Securities are likely to be sold, the Company shall so advise each Piggyback Eligible Holder requesting registration in such offering of such price. If any Piggyback Eligible Holder disapproves of the terms of any such underwriting (including the price offered by the underwriter(s) in such offering), such Piggyback Eligible Holder may elect to withdraw any or all of its Registrable Securities therefrom, without liability to any of the other Holders and without prejudice to the rights of any such Holder to include Registrable Securities in any future Piggyback Registration or other Registration Statement, by written notice to the Company and the managing underwriter(s) delivered on or prior to the effective date of such Piggyback Registration Statement. Any Registrable Securities withdrawn from such underwritten offering shall be excluded and withdrawn from the

 

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registration. For any Piggyback Eligible Holder that is a partnership, limited liability company, corporation or other entity, the partners, members, stockholders, Subsidiaries, parents and Affiliates of such Piggyback Eligible Holder, or the estates and Family Members of any such partners/members and retired partners/members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “Piggyback Eligible Holder,” and any pro rata reduction with respect to such “Piggyback Eligible Holder” shall be based upon the aggregate amount of securities requested to be included in such registration by all entities and individuals included in such “Piggyback Eligible Holder,” as defined in this sentence.

(iii) Withdrawal from Registration . The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2(c) prior to the effective date of such Registration Statement, whether or not any Piggyback Eligible Holder has elected to include Registrable Securities in such Registration Statement, without prejudice, however, to the right of the Holders immediately to request that such registration be effected as a registration under Section 2(b) to the extent permitted thereunder and subject to the terms set forth therein. The Company shall promptly give notice of the withdrawal or termination of any registration to each Piggyback Eligible Holder who has elected to participate in such registration. The Registration Expenses of such withdrawn or terminated registration shall be borne by the Company in accordance with Section 5 hereof.

(iv) Selection of Bankers and Counsel . If a Piggyback Registration pursuant to this Section 2(c) involves an underwritten offering, the Company shall have the right to (A) determine the plan of distribution, including the price at which the Registrable Securities are to be sold and the underwriting commissions, discounts and fees and (B) select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter or underwriters.

(v) Effect of Piggyback Registration . No registration effected under this Section 2(c) shall relieve the Company of its obligations to effect any registration of the offer and sale of Registrable Securities upon request under Section 2(a) or Section 2(b) hereof and no registration effected pursuant to this Section 2(c) shall be deemed to have been effected pursuant to Section 2(a) or Section 2(b) hereof.

(d) Notice Requirements . Any Demand Notice, Demand Eligible Holder Request or Piggyback Request shall (i) specify the maximum number and class or series of Registrable Securities intended to be offered and sold by the Holder making the request, (ii) express such Holder’s bona fide intent to offer up to such maximum number of Registrable Securities for distribution, (iii) describe the nature or method of the proposed offer and sale of Registrable Securities (to the extent applicable), and (iv) contain the undertaking of such Holder to provide all such information and materials and take all action, in each case, as may reasonably be required in order to permit the Company to comply with all applicable requirements in connection with the registration of such Registrable Securities.

(e) Suspension Period . Notwithstanding any other provision of this Section 2 , the Company shall have the right, but not the obligation, to defer the filing of (but not the preparation of), or suspend the use by the Holders of, any Registration Statement for a period of up to sixty (60) days (unless a longer period is consented to by Holders of a Majority of Included Registrable Securities) (i) if the Company is subject to any of its customary suspension or blackout periods, for all or part of such period; (ii) upon issuance by the Commission of a stop order suspending the effectiveness of such Registration Statement with respect to Registrable Securities or the initiation of proceedings with respect to such Registration Statement under Section 9(d) or 8(e) of the Securities Act; (iii) if the Company believes in good faith that any such registration or offering (x) should not be undertaken because it would reasonably be expected to materially interfere with any material corporate development or plan of the Company or (y) would require the Company (after consultation with external legal counsel), under applicable securities laws and other laws, to make disclosure of material nonpublic information that would not otherwise be required to be disclosed at that time and the Company believes in good faith that such disclosures at that time would not be in the Company’s best interests; provided that this exception (y) shall continue to apply only during the time that such material nonpublic information has not been disclosed and remains material; (iv) if the Company elects at such time to offer Company Common Stock or other equity securities of the Company to (x) fund a merger, third-party tender offer or other business combination, acquisition of assets or similar transaction or (y) meet rating agency and other capital funding requirements or (v) if the Company is pursuing a

 

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primary underwritten offering of Company Common Stock pursuant to a registration statement; provided that the Holders shall have Piggyback Registration rights with respect to such primary underwritten offering in accordance with and subject to the restrictions set forth in Section 2(c) (any such period, a “ Suspension Period ”); provided , however , that in such event, the Qualified Holders will be entitled to withdraw any request for a Demand Registration and, if such request is withdrawn, such Demand Registration will not count as a Demand Registration under Section 2(b) and the Company will pay all Registration Expenses in connection with such registration; and provided , further , that in no event shall the Company declare a Suspension Period more than once in any twelve (12) month period. The Company shall (i) give prompt written notice to the Holders of its declaration of a Suspension Period and of the expiration or termination of the relevant Suspension Period and (ii) promptly resume the process of filing or requesting for effectiveness, or update the suspended Registration Statement, as the case may be, as may be necessary to permit the Holders to offer and sell their Registrable Securities in accordance with applicable law. If the filing of any Demand Registration or Shelf Registration is suspended pursuant to this Section 2(e) , once the Suspension Period ends, the Qualified Holders may request a new Demand Registration or a new Shelf Registration.

(f) Required Information . The Company may require each Holder of Registrable Securities as to which any Registration Statement is being filed or sale is being effected to furnish to the Company such information regarding the intended method of distribution of such securities and such other information relating to such Holder and its ownership of Registrable Securities as the Company may from time to time reasonably request in writing ( provided that such information shall be used only in connection with such registration) and the Company may exclude from such registration or sale the Registrable Securities of any such Holder who fails to furnish such information within a reasonable time after receiving such request. Each Holder agrees to furnish such information to the Company and to cooperate with the Company as reasonably necessary to enable the Company to comply with the provisions of this Agreement.

(g) Other Registration Rights Agreements . Except for the Fourth Amended and Restated Investors’ Rights Agreement dated as of September 22, 2014 by and among the Company, John Dobak, M.D. and the investors listed on Exhibit A thereto (the “ 2014 Investor Agreement ”), the Company has not entered into and, unless agreed in writing by each Holder on or after the date of this Agreement, will not enter into, any agreement or arrangement that (i) is inconsistent with the rights granted to the Holders with respect to Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof in any material respect or (ii) other than as set forth in this Agreement, would allow any holder of Company Common Stock or other securities of the Company to include such securities in any Registration Statement filed by the Company on a basis that is more favorable in any material respect to the rights granted to the Holders hereunder. For the avoidance of doubt, granting a Person registration rights that would have priority over the Registrable Securities with respect to the inclusion of such securities in any registration would constitute granting registration rights to such Person on a basis that is more favorable in a material respect with respect to the rights granted to the Holders and would require the consent of each Holder under this Agreement. The Company, Domain Partners VII, L.P. and DP VII Associates, L.P., acknowledge, agree and represent that the 2014 Investor Agreement has been terminated and is no longer in effect.

(h) Cessation of Registration Rights . All registration rights granted under this Section 2 shall continue to be applicable with respect to any Holder until such Holder no longer holds any Registrable Securities. In the event the Company engages in a merger or consolidation in which the Registrable Securities of the Company are converted into securities of another Person, the Company will use its commercially reasonable efforts to make appropriate arrangements so that the registration rights provided under this Agreement continues to be provided by the issuer of such securities. To the extent such new issuer, or any other Person acquired by the Company in a merger or consolidation, was bound by registration rights that would conflict with the provisions of this Agreement, the Company will use its commercially reasonable efforts to modify any such “inherited” registration rights so as not to interfere in any material respect with the rights provided under this Agreement.

3. Alternative Transactions . Notwithstanding anything to the contrary contained herein, (a) no Holder shall be entitled to any piggyback right or to participate as a Demand Eligible Holder under Section 2 in

 

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connection with an Alternative Transaction (including Alternative Transactions off of a Shelf Registration Statement or an Automatic Shelf Registration Statement, or in connection with the registration of Registrable Securities under an Automatic Shelf Registration Statement for purposes of effectuating an Alternative Transaction; provided, that, any registration with respect to an Alternative Transaction shall not constitute a Demand Registration for purposes of determining the number of Demand Registrations effected by the Company under Section 2(b)(ii) above); and (b) no Holder shall be permitted to request or participate in an underwritten offering (including an Underwritten Shelf Takedown) that is an Alternative Transaction.

4. Registration Procedures . The procedures to be followed by the Company and each participating Holder to register the sale of Registrable Securities pursuant to a Registration Statement in accordance with this Agreement, and the respective rights and obligations of the Company and such Holders with respect to the preparation, filing and effectiveness of such Registration Statement, are as follows:

(a) The Company will (i) prepare and file a Registration Statement or a Prospectus, as applicable, with the Commission (within the time period specified in Section 2(a) or Section 2(b) , as applicable, in the case of a Shelf Registration, an Underwritten Shelf Takedown or a Demand Registration) which Registration Statement (A) shall be on a form required by this Agreement (or if not so required, selected by the Company) for which the Company qualifies, (B) shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution, and (C) shall comply as to form in all material respects with the requirements of the applicable form and include and/or incorporate by reference all financial statements required by the Commission to be filed therewith, (ii) use its commercially reasonable efforts to cause such Registration Statement to become effective and remain effective for the periods provided under Section 2(a) or Section 2(b) , as applicable, in the case of a Shelf Registration Statement or a Demand Registration Statement, (iii) use its commercially reasonable efforts to prevent the occurrence of any event that would cause a Registration Statement to contain a material misstatement or omission or to be not effective and usable for resale of the Registrable Securities registered pursuant thereto (during the period that such Registration Statement is required to be effective as provided under Section 2(a) or Section 2(b) , as applicable), and (iv) cause each Registration Statement and the related Prospectus and any amendment or supplement thereto, as of the effective date of such Registration Statement, amendment or supplement, (x) to comply in all material respects with any requirements of the Securities Act and the rules and regulations of the Commission and (y) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Company will, (1) at least three (3) Business Days prior to the anticipated filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto (including any documents incorporated by reference therein) or before using any Issuer Free Writing Prospectus, furnish to such Holders, the Holders’ counsel and the managing underwriter or underwriters of an underwritten offering of Registrable Securities, if applicable, copies of all such documents proposed to be filed and make such of the representatives of the Company as shall be reasonably requested by the Holders available for discussion of such documents, (2) use its commercially reasonable efforts to address in each such document prior to being so filed with the Commission such comments as each such Holder, its counsel or underwriter reasonably shall propose within two (2) Business Days of receipt of such copies by the Holders and (3) not file any Registration Statement or any related Prospectus or any amendment or supplement thereto containing information regarding a participating Holder to which such participating Holder objects.

(b) The Company will as promptly as reasonably practicable (i) prepare and file with the Commission such amendments, including post-effective amendments, and supplements to each Registration Statement and the Prospectus used in connection therewith as (A) may be reasonably requested by any Holder of Registrable Securities covered by such Registration Statement necessary to permit such Holder to sell in accordance with its intended method of distribution or (B) may be necessary under applicable law to keep such Registration Statement continuously effective with respect to the disposition of all Registrable Securities covered thereby for the periods provided under Section 2(a) or Section 2(b) , as applicable, in accordance with the intended method of distribution and, subject to the limitations contained in this Agreement, prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities held by the Holders, (ii) cause the related Prospectus to be amended or supplemented by

 

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any required prospectus supplement, and as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond to any comments received from the Commission with respect to each Registration Statement or Prospectus or any amendment thereto, and (iv) as promptly as reasonably practicable, provide such Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement or Prospectus other than any comments that the Company determines in good faith would result in the disclosure to such Holders of material non-public information concerning the Company that is not already in the possession of such Holder.

(c) The Company will comply in all material respects with the provisions of the Securities Act and the Exchange Act (including Regulation M under the Exchange Act) with respect to each Registration Statement and the disposition of all Registrable Securities covered by each Registration Statement.

(d) The Company will notify such Holders that hold Registrable Securities and the managing underwriter or underwriters of an underwritten offering of Registrable Securities, if applicable, as promptly as reasonably practicable: (i)(A) when a Registration Statement, any pre-effective amendment, any Prospectus or any prospectus supplement or post-effective amendment to a Registration Statement or any free writing prospectus is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments on such Registration Statement (in which case the Company shall provide true and complete copies thereof and all written responses thereto to each Holder, its counsel and each underwriter, if applicable, other than information which the Company determines in good faith would constitute material non-public information that is not already in the possession of such Holder); and (C) with respect to each Registration Statement or any post-effective amendment thereto, when the same has been declared effective; (ii) of any request by the Commission or any other federal or state governmental or regulatory authority for amendments or supplements to a Registration Statement or Prospectus or for additional information (whether before or after the effective date of the Registration Statement) or any other correspondence with the Commission or any such authority relating to, or which may affect, the Registration Statement; (iii) of the issuance by the Commission or any other governmental or regulatory authority of any stop order, injunction or other order or requirement suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or preventing or suspending the use of any Prospectus or the initiation or threatening of any Proceedings for such purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) if, at any time, the representations and warranties of the Company in any applicable underwriting agreement or similar agreement cease to be true and correct in all material respects; or (vi) of the occurrence of any event that makes any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or if, as a result of such event or the passage of time, such Registration Statement, Prospectus or other documents requires revisions so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading, or when any Issuer Free Writing Prospectus includes information that may conflict with the information contained in the Registration Statement or Prospectus, or if, for any other reason, it shall be necessary during such time period to amend or supplement such Registration Statement or Prospectus in order to comply with the Securities Act, which shall correct such misstatement or omission or effect such compliance.

(e) The Company will use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any stop order or other order suspending the effectiveness of a Registration Statement or preventing or suspending the use of any Prospectus, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment, or if any such order or suspension is made effective during any Suspension Period, at the earliest practicable moment after the Suspension Period is over.

(f) During the Effectiveness Period or the Shelf Period, as applicable, the Company will furnish to each selling Holder, its counsel and the managing underwriter or underwriters of an underwritten offering of

 

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Registrable Securities, if applicable, upon their request, without charge, at least one conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent requested by such selling Holder, counsel or underwriter (including those incorporated by reference) promptly after the filing of such documents with the Commission.

(g) The Company will promptly deliver to each selling Holder, its counsel and the managing underwriter or underwriters of an underwritten offering of Registrable Securities, if applicable, as many copies of each Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such selling Holder, counsel or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities by such selling Holder or underwriter. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders and any applicable underwriter in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

(h) The Company will use its commercially reasonable efforts to (i) register and qualify, or cooperate with the selling Holders, their counsel, the underwriters, if any, and counsel for the underwriters in connection with the registration or qualification (or exemption from such registration or qualification) of, the Registrable Securities covered by a Registration Statement, no later than the time such Registration Statement is declared effective by the Commission, under all applicable securities laws (including the “blue sky” laws) of such jurisdictions each underwriter, if any, or any selling Holder shall reasonably request; (ii) keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective under the terms of this Agreement and (iii) do any and all other acts and things which may be reasonably necessary or advisable to enable such underwriter, if any, and each selling Holder to consummate the disposition of the Registrable Securities covered by such Registration Statement in each such jurisdiction; provided , however , that the Company will not be required to (x) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (y) subject itself to taxation in any such jurisdiction or (z) consent to general service of process (other than service of process in connection with such registration or qualification or any sale of Registrable Securities in connection therewith) in any such jurisdiction.

(i) To the extent that the Company has certificated shares of Company Common Stock, the Company will cooperate with each selling Holder and the underwriter or managing underwriter of an underwritten offering of Registrable Securities, if applicable, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free of all restrictive legends indicating that the Registrable Securities are unregistered or unqualified for resale under the Securities Act, Exchange Act or other applicable securities laws, and to enable such Registrable Securities to be in such denominations and registered in such names as each selling Holder or the underwriter or managing underwriter of an underwritten offering of Registrable Securities, if any, may request in writing. In connection therewith, if required by the Company’s transfer agent, the Company will promptly, after the effective date of the Registration Statement, cause an opinion of counsel as to the effectiveness of the Registration Statement to be delivered to and maintained with such transfer agent, together with any other authorizations, certificates and directions required by the transfer agent which authorize and direct the transfer agent to issue such Registrable Securities without any such legend upon sale by the Holder or the underwriter or managing underwriter of an underwritten offering of Registrable Securities, if any, of such Registrable Securities pursuant to the Registration Statement.

(j) Upon the occurrence of any event contemplated by Section 4(d)(vi) , as promptly as reasonably practicable, the Company will prepare a supplement or amendment, including a post-effective amendment, if required by applicable law, to the affected Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference or to the applicable Issuer Free Writing Prospectus, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, in light of the circumstances under which they were made) not misleading and no Issuer Free Writing Prospectus will

 

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include information that conflicts with information contained in the Registration Statement or Prospectus, such that each selling Holder can resume disposition of such Registrable Securities covered by such Registration Statement or Prospectus.

(k) Selling Holders may distribute the Registrable Securities by means of an underwritten offering; provided that (i) such Holders provide to the Company a Shelf Takedown Notice or Demand Notice of their intention to distribute Registrable Securities by means of an underwritten offering, (ii) 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 underwritten offering and the inclusion of such Holder’s Registrable Securities in the underwritten offering to the extent provided herein, (iii) each Holder participating in such underwritten offering agrees to enter into customary agreements, including an underwriting agreement in customary form, and sell such Holder’s Registrable Securities on the basis provided in any underwriting arrangements approved by the Holders entitled to select the managing underwriter or managing underwriters hereunder ( provided that any such Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties, agreements and indemnities regarding such Holder, such Holder’s title to the Registrable Securities, such Holder’s intended method of distribution, and the accuracy of information contained in the applicable Registration Statement or the related Prospectus concerning such Holder as provided by or on behalf of such Holder and the aggregate amount of the liability of such Holder in connection with such offering shall not exceed such Holder’s net proceeds from the disposition of such Holder’s Registrable Securities in such offering) and (iv) each Holder participating in such underwritten offering completes and executes all questionnaires, powers of attorney, custody agreements and other documents reasonably required under the terms of such underwriting arrangements. The Company hereby agrees with each Holder that, in connection with any underwritten offering in accordance with the terms hereof, it will negotiate in good faith, execute and perform its obligations under all indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and will procure auditor “comfort” letters addressed to the underwriters in the offering from the Company’s independent certified public accountants or independent auditors (and, if necessary, any other independent certified public accountants or independent auditors of any Subsidiary of the Company or any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement) in customary form and covering such matters of the type customarily covered by comfort letters for an underwritten public offering as the underwriters reasonably request, dated the date of execution of the underwriting agreement and brought down to the closing under the underwriting agreement.

(l) The Company will obtain for delivery to the underwriter or underwriters of an underwritten offering of Registrable Securities an opinion or opinions and a negative assurance letter from counsel for the Company (including any local counsel reasonably requested by the underwriters) dated the most recent effective date of the Registration Statement or, in the event of an underwritten offering, the date of the closing under the underwriting agreement, in customary form, scope and substance, covering the matters customarily covered in opinions and negative assurance letters requested in sales of securities or public underwritten offerings, which opinions shall be reasonably satisfactory to such underwriters and their counsel.

(m) For a reasonable period prior to the filing of any Registration Statement and throughout the Effectiveness Period or the Shelf Period, as applicable, and in respect of any offering of Registrable Securities, the Company will make available upon reasonable notice at the Company’s principal place of business or such other reasonable place for inspection by any selling Holder of Registrable Securities covered by the applicable Registration Statement, by any managing underwriter or managing underwriters selected in accordance with this Agreement and by any attorney, accountant or other agent retained by such Holders or underwriter, such financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably requested by such Holders, underwriters, attorneys, accountants or agents (and in the case of counsel, not violate an attorney-client privilege in such counsel’s reasonable belief) to conduct a reasonable investigation within the meaning of the Securities Act.

 

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(n) The Company will (i) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by the applicable Registration Statement from and after a date not later than the effective date of such Registration Statement and provide and enter into any customary agreements with a custodian for the Registrable Securities and (ii) not later than the effective date of the applicable Registration Statement, provide a CUSIP number for all Registrable Securities included in such Registration Statement.

(o) The Company will cooperate with each Holder of Registrable Securities and each underwriter or agent participating in the disposition of Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA and in performance of any due diligence investigations by any underwriter.

(p) The Company will use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, the Trading Market, FINRA and any state securities authority, and make available to each Holder, as soon as reasonably practicable after the effective date of the Registration Statement, an earnings statement covering at least twelve (12) months which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158.

(q) The Company will use its commercially reasonable efforts to ensure that any Issuer Free Writing Prospectus utilized in connection with any Prospectus complies in all material respects with the Securities Act, is filed in accordance with the Securities Act to the extent required thereby, is retained in accordance with the Securities Act to the extent required thereby and, when taken together with the related Prospectus, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(r) In connection with any registration of Registrable Securities pursuant to this Agreement, the Company will take all commercially reasonable actions as are necessary or advisable in order to expedite or facilitate the disposition of Registrable Securities by such Holders, including furnishing to the selling Holders and/or any underwriters such further customary certificates, opinions and documents as they may reasonably request using commercially reasonable efforts to cause appropriate officers and employees to be available, on a customary basis and upon reasonable advance notice, to meet with prospective investors in presentations, meetings and road shows; provided , however that the Company shall not be required to participate in any marketing effort that is longer than two (2) Business Days or requires face to face meeting with investors more than once every ninety (90) days and no more than three (3) times in a twelve (12) month period.

(s) The Company shall use its commercially reasonable efforts to list the Company Common Stock and any other Registrable Securities of any class or series covered by a Registration Statement on the New York Stock Exchange or The Nasdaq Global Market or any successor national securities exchange. Following the listing of the Company Common Stock and any other Registrable Securities on the New York Stock Exchange or The Nasdaq Global Market or any successor national securities exchange, the Company will use its commercially reasonable efforts to maintain such listing.

(t) The Company shall, if for an underwritten offering is pursuant to a Registration Statement on Form S-3 or any similar short-form registration, include in such Registration Statement such additional information for marketing purposes as the managing underwriter(s) reasonably request(s).

(u) The Company shall use its commercially reasonable efforts to cooperate in a timely manner with any reasonable and customary request of the Holders in respect of any Alternative Transaction, including entering into customary agreements with respect to such Alternative Transactions (and providing customary representations, warranties, covenants and indemnities in such agreements) as well as providing other reasonable assistance in respect of such Alternative Transactions of the type applicable to a Public Offering subject to this Section 4 , to the extent customary for such transactions.

(v) Each Holder agrees by its acquisition of Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in clauses (ii) through (iv) and (vi) of Section 4(d) or the occurrence of a Suspension Period, such Holder will forthwith discontinue disposition of such Registrable

 

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Securities under the applicable Registration Statement until such Holder’s receipt of the copies of the supplemental Prospectus or amended Registration Statement or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. In the event the Company shall give any such notice, the period during which the applicable Registration Statement is required to be maintained effective shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement either receives the copies of the supplemented Prospectus or amended Registration Statement or is advised in writing by the Company that the use of the Prospectus may be resumed.

5. Registration Expenses . The Company shall bear all reasonable Registration Expenses incident to the Parties’ performance of or compliance with their respective obligations under this Agreement or otherwise in connection with any Demand Registration, Shelf Registration, Underwritten Shelf Takedown or Piggyback Registration (excluding any Selling Expenses), whether or not any Registrable Securities are sold pursuant to a Registration Statement.

Registration Expenses ” shall include, without limitation, (i) all registration, qualification and filing fees and expenses (including fees and expenses (A) of the Commission or FINRA, (B) incurred in connection with the listing of the Registrable Securities on the Trading Market, and (C) in compliance with applicable state securities or “Blue Sky” laws (including reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities)); (ii) printing expenses (including expenses of printing certificates for the Company’s shares and of printing prospectuses); (iii) analyst or investor presentation or road show expenses of the Company and the underwriters, if any; (iv) messenger, telephone and delivery expenses; (v) fees and disbursements of counsel (including any local counsel), auditors and accountants for the Company (including the expenses incurred in connection with “comfort letters” required by or incident to such performance and compliance); (vi) the reasonable fees and disbursements of underwriters to the extent customarily paid by issuers or sellers of securities (including, if applicable, the fees and expenses of any “qualified independent underwriter” (and its counsel) that is required to be retained in accordance with the rules and regulations of FINRA and the other reasonable fees and disbursements of underwriters (including reasonable fees and disbursements of counsel for the underwriters) in connection with any FINRA qualification; (vii) fees and expenses of any special experts retained by the Company; (viii) Securities Act liability insurance, if the Company so desires such insurance; (ix) reasonable fees and disbursements of one counsel (along with any reasonably necessary local counsel) representing all Holders participating in such registration mutually agreed by Holders of a Majority of Included Registrable Securities participating in such registration, up to an aggregate maximum amount of $50,000; and (x) fees and expenses payable in connection with any ratings of the Registrable Securities, including expenses relating to any presentations to rating agencies. In addition, the Company shall be responsible for all of its expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including expenses payable to third parties and including all salaries and expenses of the Company’s officers and employees performing legal or accounting duties), the expense of any annual audit and any underwriting fees, discounts, selling commissions and stock transfer taxes and related legal and other fees applicable to securities sold by the Company and in respect of which proceeds are received by the Company. Each Holder shall pay any Selling Expenses applicable to the sale or disposition of such Holder’s Registrable Securities pursuant to any Demand Registration Statement or Piggyback Registration Statement, or pursuant to any Shelf Registration Statement under which such selling Holder’s Registrable Securities were sold, in proportion to the amount of such selling Holder’s shares of Registrable Securities sold in any offering under such Demand Registration Statement, Piggyback Registration Statement or Shelf Registration Statement.

6. Indemnification .

(a) If requested by a participating Holder, the Company shall indemnify and hold harmless each underwriter, if any, engaged in connection with any registration referred to in Section 2 and provide representations,

 

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covenants, opinions and other assurances to such underwriter in form and substance reasonably satisfactory to such underwriter and the Company. Further, the Company shall indemnify and hold harmless each Holder, its partners, stockholders, equity holders, general partners, managers, members, and Affiliates and each of their respective officers and directors and any Person who controls any such Holder (within the meaning of the Securities Act or the Exchange Act) and any employee or Representative thereof (collectively, each, an “ Indemnified Person ” and collectively, “ Indemnified Persons ”), to the fullest extent permitted by law, from and against any and all losses, claims, damages, liabilities, joint or several, costs (including reasonable costs of preparation and reasonable attorneys’, accountants’ and experts’ fees) and expenses, judgments, fines, penalties, interest, settlements or other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any Indemnified Person may be involved, or is threatened to be involved, as a party or otherwise, under the Securities Act, the Exchange Act or otherwise (collectively, “ Losses ”), as incurred, arising out of, based upon, resulting from or relating to (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement under which any Registrable Securities were registered, Prospectus (including in any preliminary prospectus (if used prior to the effective date of such Registration Statement)), or in any summary or final prospectus or free writing prospectus or in any amendment or supplement thereto or in any documents incorporated or deemed incorporated by reference in any of the foregoing or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading, or (iii) any violation or alleged violation by the Company or any of its Subsidiaries 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 federal, state, foreign or common law rule or regulation in connection with such Registration Statement, disclosure document or related document or report or any offering covered by such Registration Statement, and the Company shall reimburse such Indemnified Person for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability, demand, action, suit or proceeding; provided , however , that the Company shall not be liable to any Indemnified Person to the extent that any such Losses arise out of, are based upon or results from an untrue or alleged untrue statement or omission or alleged omission made in such Registration Statement, such preliminary, summary or final prospectus or free writing prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Indemnified Person specifically for use therein.

(b) In connection with any Registration Statement filed by the Company pursuant to Section 2 hereof in which a Holder has registered for sale its Registrable Securities, each such selling Holder agrees (severally and not jointly) to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors and officers, employees, agents and each Person who controls the Company (within the meaning of the Securities Act or the Exchange Act) and any other Holder selling securities under such Registration Statement, its partners, stockholders, equity holders, general partners, managers, members, and Affiliates and each of their respective officers and directors and any Person who controls such other Holder (within the meaning of the Securities Act or the Exchange Act) and any employee or Representative thereof from and against any Losses resulting from (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Securities were registered or sold under the Securities Act, Prospectus (including in any preliminary prospectus (if used prior to the effective date of such Registration Statement)), or in any summary or final prospectus or free writing prospectus or in any amendment or supplement thereto or in any documents incorporated by reference in any of the foregoing, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading, or (iii) any violation or alleged violation by such Holder of any federal, state or common law rule or regulation relating to action or inaction in connection with any information provided by such Holder in such registration, disclosure document or related document or report in the case of clauses (i) and (ii) to the extent, but only to the extent, that such untrue statement or omission occurs in reliance upon and in conformity with any information furnished in writing by or on behalf of such selling Holder to the Company specifically for inclusion in such registration, disclosure document or related document or report and has not been corrected in a subsequent writing prior to the sale of the Registrable

 

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Securities thereunder, and the Holder will reimburse the Company for any legal or other expenses reasonably incurred by it in connection with investigating or defending such Losses. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder under the sale of Registrable Securities giving rise to such indemnification obligation less any amounts paid by such Holder in connection with such sale.

(c) Any Indemnified Person under paragraph (a) or (b) of this Section 6 shall (i) give prompt written notice to the indemnifying person under paragraph (a) or (b) of this Section 6 of any claim with respect to which it seeks indemnification ( provided that any delay or failure to so notify the indemnifying person shall not relieve the indemnifying party of its obligations hereunder except to the extent, if at all, that the indemnifying person’s ability to defend such claim (through the forfeiture of substantive rights or defenses) is actually and materially prejudiced by reason of such delay or failure) and (ii) permit such indemnifying person to assume the defense of such claim with counsel reasonably satisfactory to the Indemnified Person; provided , however , that any Indemnified Person shall have the right to select and employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (A) the indemnifying person has agreed in writing to pay such fees or expenses, (B) the indemnifying person shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Indemnified Person within a reasonable time after receipt of notice of such claim from the Indemnified Person, (C) the Indemnified Person has reasonably concluded (based upon advice of its counsel) that there may be legal defenses available to it or other Indemnified Persons that are different from or in addition to those available to the indemnifying person, or (D) in the reasonable judgment of any such Indemnified Person (based upon advice of its counsel) a conflict of interest may exist between such Indemnified Person and the indemnifying person with respect to such claims (in which case, if the Indemnified Person notifies the indemnifying person in writing that such Indemnified Person elects to employ separate counsel at the expense of the indemnifying person, the indemnifying person shall not have the right to assume the defense of such claim on behalf of such Indemnified Person). If any action is settled or if there be a final judgment for the plaintiff, the indemnifying person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No action may be settled without the written consent of the Indemnified Person (which consent shall not be unreasonably withheld, delayed or conditioned), provided that the consent of the Indemnified Person shall not be required if (A) such settlement includes an unconditional release of such Indemnified Person in form and substance satisfactory to such Indemnified Person from all liability on the claims that are the subject matter of such settlement; (B) such settlement provides for the payment by the indemnifying person of money as the sole relief for such action and (C) such settlement does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person. It is understood that the indemnifying person or persons shall not, except as specifically set forth in this Section 6(c ), in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements or other charges of more than one separate firm (in addition to any local counsel that is required to effectively defend against any such proceeding) for all Indemnified Persons and that all such fees and expenses shall be paid or reimbursed promptly.

(d) If the indemnification provided for in this Section 6 is held by a court of a competent jurisdiction to be unavailable to an Indemnified Person with respect to any loss, damage, claim or liability, the indemnifying party, in lieu of indemnifying such Indemnified Person thereunder, shall to the extent permitted by law, contribute to the amount paid or payable by such Indemnified Person as a result of such loss, damage, claim or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the Indemnified Person on the other in connection with the actions that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying person and of the Indemnified Person shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying person or Indemnified Person and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Parties agree that it would not be just and equitable if contribution pursuant to this Section 6(d ) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding sentences. Notwithstanding the provisions of this Section 6(d) , no selling Holder shall be

 

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required to contribute any amount in excess of the net proceeds (after deducting the underwriters’ discounts and commissions) received by such selling Holder in the offering. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Each selling Holder’s obligation to contribute pursuant to this Section 6(d ) is several in the proportion that the net proceeds of the offering received by such selling Holder bears to the total net proceeds of the offering received by all such selling Holders and not joint.

(e) The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity. The obligations of the Company and Holders under this Section 6 shall survive completion of any offering of Registrable Securities pursuant to a Registration Statement and the termination of this Agreement.

7. Facilitation of Sales Pursuant to Rule 144 . The Company shall use its commercially reasonable efforts to timely file the reports required to be filed by it under the Exchange Act or the Securities Act and the rules adopted by the Commission thereunder (including the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144), and shall take such further action as any Holder may reasonably request, all to the extent required from time to time to enable the Holders to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144. Upon the written request of any Holder in connection with that Holder’s sale pursuant to Rule 144, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements.

8. Miscellaneous .

(a) Remedies . In the event of a breach by the Company or a Holder of any of its obligations under this Agreement, any Party, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Parties agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate and shall waive any requirement for the posting of a bond. No failure or delay by any Person in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

(b) Amendment; Modification; Waivers . This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed by the Company and holders of a majority of the Registrable Securities then owned by the Holders and such amendment or waiver treats all holders of capital stock equally in all respects, which writing shall specifically reference this Agreement, specify the provision(s) hereof that it is intended to amend or waive and further specify that it is intended to amend or waive such provision(s). No amendment or waiver is permitted if such amendment or waiver would adversely affect a Holder relative to the other Holders without such Holder’s written consent.

(c) Notices . All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) upon delivery, if served by personal delivery upon the Person for whom it is intended, (b) on the third Business Day after the date mailed if delivered by registered or certified mail, return receipt requested, postage prepaid, (c) on the following Business Day if delivered by a nationally-recognized, overnight, air courier or (d) when delivered or, if sent after the Close of Business, on the following Business Day if sent by facsimile transmission or email with electronic confirmation, in each case, to the address set forth on the signature page of this Agreement or on Schedule I or to such other address as may be designated in writing, in the same manner, by such Person. If to any other Person who is then a Holder, to the address of such Holder as it appears on the signature pages hereto or such other address as may be designated in writing hereafter by such Person.

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without regard to principles of conflicts of laws. Each Party agrees that it shall bring any litigation with respect to any claim arising out of or related to this Agreement, exclusively in the Delaware Court of Chancery (and if jurisdiction in the Delaware Court of Chancery shall be unavailable, the Federal courts of the United States of America sitting in the State of Delaware) (together with the appellate courts thereof, the “ Chosen Courts ”), and solely in connection with claims arising under this Agreement (a) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (b) waives any objection to laying venue in any such action or proceeding in the Chosen Courts, (c) waives any objection that the Chosen Courts are an inconvenient forum or as not having jurisdiction over the relevant Party, (d) agrees that service of process in any such action or proceeding shall be effective if notice is given in accordance with Section 8(c ), although nothing contained in this Agreement shall affect the right to serve process in any other manner permitted by law and (e) agrees not to seek a transfer of venue on the basis that another forum is more convenient. Notwithstanding anything herein to the contrary, (i) nothing in this Section 8(d) shall prohibit any party from seeking or obtaining orders for conservatory or interim relief from any court of competent jurisdiction and (ii) each Party agrees that any judgment issued by a Chosen Court may be recognized, recorded, registered or enforced in any jurisdiction in the world and waives any and all objections or defenses to the recognition, recording, registration or enforcement of such judgment in any such jurisdiction.

(e) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, executors, administrators, successors, legal representatives, and Approved Transferees. The Company shall cause any successor or assign (whether by merger, consolidation, sale of assets or otherwise) to assume the obligations of the Company under this Agreement or enter into a new agreement with the Holders on terms substantially the same as this Agreement as a condition of any such transaction.

(f) Waiver of Venue . The Parties irrevocably and unconditionally waive, to the fullest extent permitted by applicable law, (i) any objection that they may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement in any court referred to in Section 8(d ) and (ii) the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(g) Waiver of Trial by Jury . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PERSON HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PERSON MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) SUCH PERSON UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) SUCH PERSON MAKES THIS WAIVER VOLUNTARILY, AND (iv) SUCH PERSON HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND EACH ANCILLARY AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

(h) Severability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision. Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction; provided, that, if any one or more of the provisions contained in this Agreement shall be determined to be excessively broad as to activity, subject, duration or geographic scope, it shall be

 

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reformed by limiting and reducing it to the minimum extent necessary, so as to be enforceable under applicable law.

(i) Business Days . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a day other than a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

(j) Entire Agreement . This Agreement constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all prior contracts or agreements with respect to the subject matter hereof and supersedes any and all prior or contemporaneous discussions, agreements and understandings, whether oral or written, that may have been made or entered into by or among any of the Parties or any of their respective Affiliates relating to the transactions contemplated hereby.

(k) Execution of Agreement . This Agreement may be executed and delivered (by facsimile, by electronic mail in Adobe Portable Document Format (.pdf) or otherwise) in any number of counterparts, each of which, when executed and delivered, shall be deemed an original, and all of which together shall constitute the same agreement.

(l) Determination of Ownership . In determining ownership of Company Common Stock hereunder for any purpose, the Company may rely solely on the records of the transfer agent for the Company Common Stock from time to time, or, if no such transfer agent exists, the Company’s stock ledger.

(m) No Recourse . Notwithstanding anything that may be expressed or implied in this Agreement, and notwithstanding the fact that certain of the Holders may be partnerships or limited liability companies, each Holder covenants, agrees and acknowledges that no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement shall be had against any of the Company’s or the Holder’s former, current or future direct or indirect equity holders, controlling persons, stockholders, directors, officers, employees, agents, Affiliates, members, financing sources, managers, general or limited partners or assignees (each, a “ Related Person ” and collectively, the “ Related Persons ”), in each case other than the Company, the Holders or any of their Permitted Assignees under this Agreement, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any of the Related Persons, as such, for any obligation or liability of the Company or the Holders under this Agreement or any documents or instruments delivered in connection herewith for any claim based on, in respect of or by reason of such obligations or liabilities or their creation; provided, however, nothing in this Section 8(m ) shall relieve or otherwise limit the liability of the Company or any Holder, as such, for any breach or violation of its obligations under this Agreement or such agreements, documents or instruments.

(n) Third-Party Beneficiaries . Nothing in this Agreement, express or implied, is intended to confer upon any Person other than a Party and their respective successors and permitted assigns any rights, benefits or remedies of any nature whatsoever.

(o) Recapitalizations, Exchanges, etc . The provisions of this Agreement shall apply to the full extent set forth herein with respect to (i) the Company Common Stock, (ii) any and all securities into which shares of Company Common Stock are converted, exchanged or substituted in any recapitalization or other capital reorganization by the Company and (iii) any and all equity securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in conversion of, in exchange for or in substitution of, the Company Common Stock and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof.

(p) Headings; Section References; Signatories . All heading references contained in this Agreement are for convenience purposes only and shall not be deemed to limit or affect any of the provisions of this Agreement. Each of the parties acknowledges and agrees that Invesco Asset Management Limited (“ IAML ”) (i) is acting at all times as agent for and on behalf of of its discretionary managed clients Invesco Perpetual High Income Fund and Invesco Perpetual Income Fund (the “ Funds ”) and (ii) shall have no liability as principal in respect of the Funds’ obligations under this Agreement.

 

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IN WITNESS WHEREOF, the Parties have executed this Registration Rights Agreement as of the date first written above.

 

[            ], INC.
By:                                                                                                   
Name:
Title:
    Address:
    with a copy (which shall not constitute notice) to:


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IN WITNESS WHEREOF, the Parties have executed this Registration Rights Agreement as of the date first written above.

 

HOLDER:
By:                                                                                                   
Name:                                                                                             
Title:                                                                                               
HOLDER:
By:                                                                                                   
Name:                                                                                             
Title:                                                                                               


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Annex B

October 16, 2017

Strategic Transactions Committee of the Board of Directors

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, California 92122

Ladies and Gentlemen:

You have requested our opinion as to the fairness, from a financial point of view, to Neothetics, Inc. (“Neothetics”) of the Merger Consideration (as defined below) to be paid by Neothetics pursuant to the terms of the proposed Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) to be entered into by and among Neothetics, Nobelli Merger Sub, Inc. (“Merger Sub”) and Evofem Biosciences, Inc. (the “Company”). Capitalized terms used herein have the respective meanings ascribed thereto in the October 12, 2017 draft of the Merger Agreement provided to us by the Company (the “Draft Merger Agreement”).

As more specifically set forth in the Merger Agreement, and subject to the terms, conditions and adjustments set forth therein, the Merger Agreement provides for the acquisition of the Company by Neothetics through the merger of Merger Sub with and into the Company with the Company as the surviving entity thereof (the “Merger”). By virtue of the Merger, each share of Company Common Stock (and each share of Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock and Company Series C-1 Preferred Stock on an as converted to Company Common Stock basis) issued and outstanding immediately prior to, and contingent upon the occurrence of, the Effective Time (excluding shares of Company Capital Stock held in the treasury of the Company and shares of Company Capital Stock owned by Neothetics or by any direct or indirect wholly owned Subsidiary of Neothetics (which will be cancelled in the Merger) and any Dissenting Shares) will be converted into such number of shares of validly issued, fully paid and nonassessable shares of common stock of Neothetics, $0.0001 par value per share (“Neothetics Common Stock”), as is equal to the Company Common Exchange Ratio. Each share of Company Series D Preferred Stock issued and outstanding immediately prior to, and contingent upon the occurrence of, the Effective Time (excluding shares of Company Capital Stock held in the treasury of the Company and shares of Company Capital Stock owned by Neothetics or by any direct or indirect wholly owned Subsidiary of Neothetics (which will be cancelled in the Merger) and any Dissenting Shares) will be converted into such number of shares of validly issued, fully paid and nonassessable shares of Neothetics Common Stock, as is equal to the Company Series D Exchange Ratio. Pursuant to the Merger Agreement, a total of 82,893,740 shares of Neothetics Common Stock will be issued upon conversion of Company Capital Stock in the Merger. Such shares of Neothetics Common Stock are referred to herein as the “Merger Consideration.”

The disclosure schedules to the Merger Agreement disclose, and for the purpose of this opinion, with your consent and without independent verification, we have assumed, that as a result of the Merger, the former holders of Company Capital Stock will own approximately 85.7% of the outstanding equity of Neothetics immediately following the Effective Time and the holders of the outstanding equity of Neothetics immediately prior to the Merger will own approximately 14.3% of the outstanding equity of Neothetics immediately following the Effective Time.

In addition to the Merger, the Merger Agreement contemplates that certain other transactions will occur in connection with the Merger. Pursuant to the Merger Agreement, the Company Series D Warrant will be assumed by Neothetics and amended and restated to be a warrant to purchase up to 12,000,000 shares of Neothetics Common Stock at a per share cash exercise price equal to the average of the closing sale prices of Neothetics Common Stock as quoted on NASDAQ CM for the thirty (30) consecutive trading days commencing with the first trading day immediately following the Effective Time (the “Warrant Assumption”). Also, pursuant to the terms of a Financing Agreement to be entered into by and among Neothetics, the Company and certain investors in connection with the Merger Agreement, such investors have agreed to purchase, immediately after the


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Effective Time, 9,672,550 shares of Neothetics Common Stock for an aggregate of $20 million, and the Company will issue to such investors, immediately prior to the Effective Time, warrants to purchase an aggregate of 158,999,271 shares of Company Common Stock (the “Warrant Shares”) at an exercise price of $0.01 per share that will be exercised in full immediately prior to the Effective Time such that the Warrant Shares will be converted into the right to receive shares of Neothetics Common Stock in the Merger (the “Additional Parent Funding”). We have not been engaged to, and have not, considered or rendered any opinion as to the fairness to Neothetics, from a financial point of view, of the Warrant Assumption and the Additional Parent Funding, except to the extent that the Warrant Shares are included in the percentage calculations referenced in the preceding paragraph.

In connection with our review of the proposed Merger, and in arriving at our opinion, we have: (i) reviewed the Draft Merger Agreement; (ii) reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of Neothetics and the Company and that were furnished to us by management of Neothetics and the Company, respectively; (iii) conducted discussions with members of senior management and representatives of Neothetics and the Company concerning the matters described in clause (ii); (iv) reviewed publicly available information relating to the respective businesses of Neothetics and the Company; (v) reviewed the pro forma ownership structure of the combined entity resulting from the Merger; (vi) discussed the past and current operations and financial condition and the prospects of Neothetics and the Company with members of senior management of Neothetics and of the Company, respectively; (vii) reviewed the financial terms of the Financing Agreement and, to the extent publicly available, of selected acquisition transactions and conducted comparable companies and discounted cash flow analyses; and (viii) performed such other analyses and considered such other factors as we deemed appropriate for the purpose of rendering our opinion.

We have assumed and relied upon, without verifying independently, the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available, to us or discussed with or reviewed by or for us for purposes of preparing this opinion. We have further assumed that the financial information provided has been prepared by the respective managements of Neothetics and the Company on a reasonable basis in accordance with industry practice, and that the managements of Neothetics and the Company are not aware of any information or facts that would make any information provided to us incomplete or misleading. Without limiting the generality of the foregoing, for the purpose of this opinion, we have assumed that the respective managements of Neothetics and the Company prepared reasonably the financial forecasts, estimates and other forward-looking information reviewed by us, based on assumptions reflecting their best currently available estimates and judgments as to the expected future results of operations and financial condition of Neothetics and the Company, respectively. We express no opinion as to any such financial forecasts, estimates or forward-looking information or the assumptions on which they were based.

In connection with our opinion, we have assumed and relied upon, without independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by us. Our opinion does not address any legal, regulatory, tax or accounting issues.

In arriving at our opinion, we have assumed that the executed Merger Agreement will be in all material respects identical to the Draft Merger Agreement reviewed by us. We have relied upon and assumed, without independent verification, that (i) the representations and warranties of all parties set forth in the Merger Agreement and all related documents and instruments that are referred to therein are true and correct, (ii) each party to the Merger Agreement will fully and timely perform all of the covenants and agreements required to be performed by such party, (iii) the Merger will be consummated pursuant to the terms of the Merger Agreement without amendments thereto, and (iv) all conditions to the consummation of the Merger will be satisfied without waiver by any party of any conditions or obligations thereunder. Additionally, we have assumed that all the necessary regulatory approvals and consents required for the Merger, including the approval of the stockholders of Neothetics, will be obtained in a manner that will not adversely affect Neothetics.


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In arriving at our opinion, we have not performed any appraisals or valuations of any specific assets or liabilities (fixed, contingent or other) of Neothetics or the Company, and have not been furnished or provided with any such appraisals or valuations. Without limiting the generality of the foregoing, we have undertaken no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Neothetics, the Company or any of their respective affiliates is a party or may be subject, and at your direction and with your consent, our opinion makes no assumption concerning, and therefore does not consider, the possible assertion of claims, outcomes or damages arising out of any such matters.

This opinion is necessarily based upon the information available to us and facts and circumstances as they exist and are subject to evaluation on the date hereof; events occurring after the date hereof could materially affect the assumptions used in preparing this opinion. We are not expressing any opinion herein as to the value of the Merger Consideration or the prices at which shares of Neothetics Common Stock may trade following announcement of the Merger or at any future time. We have not undertaken to reaffirm or revise this opinion or otherwise comment upon any events occurring after the date hereof and do not have any obligation to update, revise or reaffirm this opinion.

We have been engaged by Neothetics to act as its financial advisor, we received a fee from it at the time of our engagement and we will receive a fee from it for the provision of this opinion. An additional fee is contingent upon the successful consummation of the Merger. The Company has also agreed to indemnify us against certain liabilities and reimburse us for certain expenses in connection with our services. In the ordinary course of business, we and our affiliates may acquire, hold or sell, for our and our affiliates’ own accounts and for the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of Neothetics and the other parties to the Merger, and, accordingly, may at any time hold a long or a short position in such securities. We have not otherwise had a material relationship with, nor otherwise received fees from, Neothetics, the Company or any other parties to the Merger during the two years preceding the date hereof. In the future, we may provide financial advisory and investment banking services to Neothetics and its affiliates for which we would expect to receive compensation.

Consistent with applicable legal and regulatory requirements, Oppenheimer & Co. Inc. has adopted policies and procedures to establish and maintain the independence of our research departments and personnel. As a result, our research analysts may hold views, make statements or investment recommendations and/or publish research reports with respect to Neothetics, the Company and/or the Merger that differ from the views of our investment banking personnel.

This opinion has been prepared for the information of the Strategic Transactions Committee of the Board of Directors of Neothetics for its use in connection with its consideration of the Merger and is not intended to be and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote on any matter relating to the Merger or any other matter. Except with respect to the inclusion of this opinion in the proxy statement/prospectus/information relating to the Merger in accordance with our engagement letter with Neothetics, this opinion shall not be disclosed, referred to or published (in whole or in part), nor shall any public references to us be made, without our prior written approval. This opinion has been approved for issuance by the Oppenheimer & Co. Inc. Fairness Opinion Committee.

This opinion addresses only the fairness, from a financial point of view, to Neothetics of the proposed Merger Consideration and does not address the relative merits of the Merger or any alternatives to the Merger, Neothetics’ underlying decision to proceed with or effect the Merger, or any other aspect of the Merger. This opinion does not address the fairness of the Merger to the holders of any class of securities, creditors or other constituencies of Neothetics. This opinion is not a valuation of Neothetics or its assets or any class of its securities. We are not experts in, nor do we express an opinion on, legal, tax, accounting or regulatory issues. We do not express an opinion about the fairness of the amount or nature of any compensation payable or to be paid to any of the officers, directors or employees of Neothetics, whether or not relative to the Merger.


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Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Merger Consideration to be paid by Neothetics in the Merger is fair from a financial point of view to Neothetics.

Sincerely,

 

LOGO

Oppenheimer & Co. Inc.


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Annex C

SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

§262 Appraisal rights.

(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder’s shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word “stockholder” means a holder of record of stock in a corporation; the words “stock” and “share” mean and include what is ordinarily meant by those words; and the words “depository receipt” mean a receipt or other instrument issued by a depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title and, subject to paragraph (b)(3) of this section, § 251(h) of this title), § 252, § 254, § 255, § 256, § 257, § 258, § 263 or § 264 of this title:

(1) Provided, however, that, except as expressly provided in § 363(b) of this title, no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of the meeting of stockholders to act upon the agreement of merger or consolidation, were either: (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in § 251(f) of this title.

(2) Notwithstanding paragraph (b)(1) of this section, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 255, 256, 257, 258, 263 and 264 of this title to accept for such stock anything except:

a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of this section; or

d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a., b. and c. of this section.

(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 251(h), § 253 or § 267 of this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.

(4) In the event of an amendment to a corporation’s certificate of incorporation contemplated by § 363(a) of this title, appraisal rights shall be available as contemplated by § 363(b) of this title, and the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as practicable, with the word “amendment” substituted for the words “merger or consolidation,” and the word “corporation” substituted for the words “constituent corporation” and/or “surviving or resulting corporation.”


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(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the provisions of this section, including those set forth in subsections (d), (e), and (g) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in accordance with § 255(c) of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this section that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholder’s shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder’s shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or

(2) If the merger or consolidation was approved pursuant to § 228, § 251(h), § 253, or § 267 of this title, then either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice or, in the case of a merger approved pursuant to § 251(h) of this title, within the later of the consummation of the offer contemplated by § 251(h) of this title and 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder’s shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice or, in the case of a merger approved pursuant to § 251(h) of this title, later than the later of the consummation of the offer contemplated by § 251(h) of this title and 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder’s shares in accordance with this subsection.

An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the


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notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.

(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder’s written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) of this section hereof, whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition or request from the corporation the statement described in this subsection.

(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. If immediately before the merger or consolidation the shares of the class or series of stock of the constituent corporation as to which appraisal rights are available were listed on a national securities exchange, the Court shall dismiss the proceedings as to all holders of such shares who are otherwise entitled to appraisal rights unless (1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of the class or series eligible for appraisal, (2) the value of the consideration provided in the merger or consolidation for such total number of shares exceeds $1 million, or (3) the merger was approved pursuant to § 253 or § 267 of this title.

(h) After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its discretion determines otherwise for


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good cause shown, and except as provided in this subsection, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Court, and (2) interest theretofore accrued, unless paid at that time. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder’s certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court’s decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder’s demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this provision shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.

(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.


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Annex D

CERTIFICATE OF AMENDMENT TO THE

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF

NEOTHETICS, INC.

Neothetics, Inc., a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), hereby certifies as follows:

1. The Corporation’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on February 1, 2007 under the name Lipothera, Inc.

2. Article I of the Amended and Restated Certificate of Incorporation, as amended, of the Corporation is hereby amended to read in its entirety as follows:

“The name of the Corporation is Evofem Biosciences, Inc. (hereinafter, the “Corporation”).”

3. The following paragraph is hereby inserted after the first paragraph in Article IV of the Amended and Restated Certificate of Incorporation:

“Upon the close of trading on the NASDAQ Capital Market on [●], 2017 (the “Effective Time”), each [●] ([●]) shares of the Common Stock, par value $0.0001 per share, of the Corporation issued and outstanding or held in treasury at the Effective Time shall be reclassified as and changed into one (1) share of Common Stock, par value $0.0001 per share, of the Corporation, without any action by the holders thereof. In lieu of any fractional shares to which a holder of shares of Common Stock of the Corporation would be otherwise entitled, the Corporation shall pay in cash, without interest, an amount equal to such fractional interest (after taking into account and aggregating all shares of Common Stock then held by such holder) multiplied by the closing price of the Common Stock as last reported on the NASDAQ Capital Market on the day of the Effective Time (determined on a post-split basis).”

4. The following new paragraph is hereby inserted as Article XV:

“The Corporation shall not be governed by or subject to the provisions of Section 203 of the Delaware General Corporation Law.”

5. This Certificate of Amendment has been duly authorized and adopted by the Corporation’s Board of Directors in accordance with the provisions of Section 242 of the Delaware General Corporation Law.

( Signature page follows )


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IN WITNESS WHEREOF, Neothetics, Inc. has caused this Certificate of Amendment to be signed by Susan Knudson, a duly authorized officer of the Corporation, on                 , 201    .

 

 

 

Susan Knudson

Chief Financial Officer

[ Signature page to Certificate of Amendment ]


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Annex E

THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR UNDER ANY STATE SECURITIES LAWS (“BLUE SKY LAWS”), AND MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT, AND AS REQUIRED BY BLUE SKY LAWS IN EFFECT AS TO SUCH TRANSFER, UNLESS AN EXEMPTION FROM SUCH REGISTRATION UNDER STATE AND FEDERAL LAW IS AVAILABLE

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the “ Agreement ”) is deemed to be effective as of October 17, 2017 (the “ Effective Date ”), by and among Neothetics, Inc., a Delaware corporation (the “ Company ”), Evofem Biosciences, Inc., a Delaware corporation (“ Evofem ”), and Invesco Asset Management Limited (“ Invesco ”), acting as agent for and on behalf of its discretionary managed clients indicated on the signature page hereto (the “ Funds ”).

RECITALS

A. Reference is made to that certain Agreement and Plan of Merger and Reorganization (the “ Merger Agreement ”), dated as of October 17, 2017, by and among the Company, Evofem and Nobelli Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“ Merger Sub ”), pursuant to which, at the Effective Time, Merger Sub will be merged with and into Evofem with Evofem remaining as the surviving entity and as a wholly owned subsidiary of the Company (the “ Merger ”). Terms used herein but not otherwise defined will have the meanings set forth in the Merger Agreement.

B. Invesco desires to cause the Funds to purchase from the Company, and the Company desires to sell to the Funds, 9,672,550 shares of the Company’s Common Stock, par value $0.0001 per share (subject to adjustment as provided in Section 1.12(b) of the Merger Agreement) (such shares of the Company’s Common Stock, the “ Shares ”) in exchange for the payment of an aggregate purchase price of Twenty Million United States Dollars (US $20,000,000.00) and on the additional terms and conditions hereinafter set forth.

C. As a condition of, material inducement to, and consideration for the willingness of Invesco to enter into this Agreement and for the Funds to purchase the Shares, Evofem desires to issue to the Funds immediately prior to the Effective Time, and Invesco desires to cause the Funds to accept from Evofem immediately prior to the Effective Time, a warrant to purchase up to 158,999,371 shares of Evofem Common Stock, par value $0.001 per share (subject to adjustment as provided in Section 1.12(b) of the Merger Agreement), in substantially the form attached hereto as Exhibit A (such warrant, the “ Warrant ”; such shares of Evofem Common Stock issuable upon exercise of the Warrant in accordance with Section 1(b) below, the “ Warrant Shares ”).

D. The Warrant shall be fully exercised immediately prior to and contingent upon the completion of the Merger such that, immediately following such exercise, the Warrant Shares will be eligible to receive shares of Parent Common Stock in the Merger upon the Effective Time of the Merger.

1. Purchase and Sale of the Shares by the Company; Issuance and Exercise of the Warrant .


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a. Sale and Issuance of the Shares . Subject to the terms and conditions of this Agreement, Invesco agrees to cause the Funds to purchase at the Closing (as defined below), and the Company agrees to sell and issue the Funds at the Closing, the Shares in exchange for the aggregate purchase price of Twenty Million United States Dollars (US $20,000,000.00) (the “ Purchase Price ”).

b. Issuance and Exercise of the Warrant . Immediately prior to the Effective Time and subject to the terms and conditions of this Agreement, Evofem shall issue the Warrant to the Funds. Immediately following such issuance and immediately prior to the Effective Time, Invesco shall cause the Funds to exercise the Warrant by means of a cashless exercise as set forth therein.

c. Closing, Payment and Delivery of the Shares . Subject to fulfillment of the conditions set forth in Section 6 below, the consummation of the transactions contemplated herein (the “ Closing ”) shall take place at the offices of DLA Piper LLP, 4365 Executive Drive, Suite 1100, San Diego, CA 92121 (or remotely via the exchange of documents and signatures) on the Effective Date. Immediately after the issuance of the Warrants and immediately after the Effective Time, Invesco shall cause the Funds to purchase the Shares by making payment to the Company and/or the Company’s designee by wire transfer of immediately available funds of the Purchase Price in accordance with the letter of direction delivered by the Company to Invesco in the form set forth in Exhibit B hereto.

d. Required Information . Invesco shall provide any information as may be reasonably requested by the Company or Evofem to issue the Shares or the Warrant Shares.

e. Termination . This Agreement shall automatically terminate upon the earliest of (i) termination of the Merger Agreement in accordance with its terms and (ii) at Invesco’s written election, the filing of any action, suit or other legal proceeding before a court, in each case, by Evofem, the Company or the other Company Support Agreement Signatories, and in each case, against Invesco, or any of its Affiliates, arising from the Merger Agreement or the transactions contemplated by the Merger Agreement.

f. Business Days . For the purposes of this Agreement, “Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of New York or the City of London are authorized or obligated to close.

g. Delivery of Shares . At the Closing, the Company shall deliver to Invesco a copy of the irrevocable instructions to Philadelphia Stock Transfer, Inc., the current transfer agent of the Company, with a mailing address of 2320 Haverford Rd., Suite 230, Ardmore, PA 19003 (the “ Transfer Agent ”), instructing the Transfer Agent to deliver evidence of a book entry position evidencing the Shares purchased by the Funds hereunder and, pursuant to the Merger Agreement, the Merger Shares, in the names of the Funds or such nominee(s) as designated by Invesco. The Shares, the Warrant, the Warrant Shares and the Merger Shares are referred to herein collectively as the “ Securities ”.

2. Company’s Representations and Warranties . The Company hereby represents and warrants to Invesco as of the Effective Date and as of the Closing as follows, subject to the exceptions as are disclosed prior to the Effective Date in the Company’s reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act of 1933, as amended (the “ Securities Act ”) and the Exchange Act of 1934, as amended (the “ Exchange Act ”), including pursuant to Section 13(a) or 15(d) thereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “ SEC Reports ”), which SEC Reports as filed prior to the Effective Date shall be deemed a part hereof and shall qualify any representation or warranty otherwise made herein to the extent of the disclosure contained in the SEC Reports as filed prior to the Effective Date:

 

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a. Organization, Good Standing and Qualification . The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement and sell the Shares, and to carry out the provisions of this Agreement and to carry on its business as presently conducted. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business.

b. Authorization; Binding Obligations . All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization of this Agreement and the sale of the Shares, the performance of all obligations of the Company hereunder at the Closing, and the sale, issuance and delivery of the Shares pursuant hereto has been taken or will be taken prior to the Closing.

c. No Conflict . Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate or result in a breach of or constitute a default under any contract or agreement to which the Company is a party or by which it is bound, (ii) conflict with or result in a breach of or constitute a default under any provision of the certificate of incorporation or bylaws (or other charter documents) of the Company, or (iii) violate or result in a breach of or constitute a default under any judgment, order, decree, rule or regulation of any court or governmental agency to which the Company is subject.

d. SEC Reports; Financial Statements . The Company has filed all SEC Reports required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material). The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the U.S. Securities and Exchange Commission (the “ Commission ”) with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“ GAAP ”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

e. Capitalization . As of the Effective Date, the authorized capital stock of the Company and the issued and outstanding securities of the Company are set forth in Section 3.2 of the Merger Agreement. Immediately following the Merger and the consummation of the transactions contemplated herein, (i) the pro forma capitalization of the Company (assuming the Effective Time occurs in December 31, 2017 and after giving effect to the issuance of the Shares hereunder, but excluding the effect of the Post-Closing Series D Warrant) shall be as set forth in Exhibit C hereto, and (ii) the pro forma capitalization of the Company (assuming the Effective Time occurs on December 31, 2017 and after giving effect to the issuance of the Shares hereunder and the Post-Closing Series D Warrant) shall be as set forth on Exhibit D hereto.

f. Absence of Litigation . As of the Effective Date, neither the Company nor any of its directors is engaged in any litigation, administrative, mediation or arbitration proceedings or other proceedings or hearings before any statutory or governmental body, department, board or agency and is

 

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not the subject of any investigation, inquiry or enforcement proceedings by any governmental, administrative or regulatory body. As of the Effective Date, no such proceedings, investigation or inquiry are pending or, to the Company’s knowledge, threatened against the Company, and, to the Company’s knowledge, there are no circumstances likely to give rise to any such proceedings.

g. Intellectual Property . The Company has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or required for use in connection with its business and which the failure to so have could have a material adverse effect (collectively, the “ Intellectual Property Rights ”). The Company has not received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.

h. Valid Issuance . The Shares issued hereunder will be duly and validly issued, fully paid and non-assessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and under applicable state and federal securities laws.

3. Invesco Representations and Warranties . Invesco represents and warrants to the Company and Evofem that:

a. Requisite Power and Authority . Invesco has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and to carry out its provisions. All action on Invesco’s part required for the lawful execution and delivery of this Agreement has been or will be taken prior to the Closing.

b. Account of Funds . The Securities are being acquired for investment for the Funds’ accounts, and not with a view to, or for resale in connection with, any distribution thereof in the United States, and Invesco has no present intention of selling or distributing any Securities in the United States. Invesco understands that the Securities have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment as expressed herein. For the avoidance of doubt, this Section 3(b) is not intended to restrict the Funds’ ability to transfer the Securities outside the United States pursuant to Regulation S promulgated under the Securities Act. It is the parties’ understanding that the provisions of the Securities Act will not ordinarily restrict Invesco’s ability to transfer the Securities outside the United States pursuant to Regulation S promulgated under the Securities Act.

c. Access to Data . Invesco has had an opportunity to discuss the Company’s and Evofem’s business, management and financial affairs with the their respective management teams and to obtain any additional information which Invesco has deemed necessary or appropriate for deciding whether or not to purchase the Securities. Invesco acknowledges that no representations or warranties, oral or written, have been made by the Company, Evofem or any agent thereof with respect to the matters set forth herein except as set forth in this Agreement, the Merger Agreement and the Warrant.

d. No Fairness Determination . Invesco is aware that no federal, state or other agency has made any finding or determination as to the fairness of the investment, nor made any recommendation or endorsement of the Securities.

 

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e. Knowledge And Experience . Invesco has such knowledge and experience in financial and business matters, including investments in other start-up companies, that such entity or individual is capable of evaluating the merits and risks of the investment in the Securities and it is able to bear the economic risk of such investment. Invesco is an “accredited” investor as that term is defined under Regulation D promulgated under the Securities Act, and as set forth on Schedule I attached hereto. Further, Invesco has such knowledge and experience in financial and business matters such that it is capable of utilizing the information made available in connection with the offering of the Securities, of evaluating the merits and risks of an investment in the Securities and of making an informed investment decision with respect to the Securities. Neither Invesco, nor any person or entity with whom Invesco will share beneficial ownership of the Securities, is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act.

f. General Solicitation . Invesco is not, to Invesco’s knowledge, purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

g. Residence . Invesco’s principal place of business or residence is and its investment decisions are made in the jurisdiction identified in the address or other jurisdiction set forth on the signature page.

4. Evofem Representations and Warranties . Evofem hereby represents and warrants to Invesco as of the Effective Date and as of the Closing as follows, subject to the exceptions as set forth in the schedules set forth below:

a. Organization, Good Standing and Qualification . Evofem is a corporation duly organized and validly existing under the laws of the State of Delaware. Evofem has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, to carry on its business as presently conducted and, upon the requisite approval of Evofem’s stockholders of the Merger and the transactions contemplated herein, to carry out the provisions of this Agreement. Evofem is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on Evofem or its business.

b. Authorization; Binding Obligations . All corporate action on the part of Evofem, its officers, directors and stockholders necessary for the authorization of this Agreement, the performance of all obligations of Evofem hereunder, and the sale, issuance and delivery of the Warrant and Warrant Shares pursuant hereto has been taken or will be taken as of immediately prior to the Effective Time.

c. No Conflict . Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate or result in a breach of or constitute a default under any contract or agreement to which Evofem is a party or by which it is bound, (ii) conflict with or result in a breach of or constitute a default under any provision of the certificate of incorporation or bylaws (or other charter documents) of Evofem, or (iii) violate or result in a breach of or constitute a default under any judgment, order, decree, rule or regulation of any court or governmental agency to which Evofem is subject.

d. Capitalization . As of the Effective Date, the authorized capital stock of Evofem consists of (i) 157,836,540 shares of Evofem Common Stock, par value $0.001 per share, of which

 

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76,359,923 are issued and outstanding, (ii) 12,768,492 shares of Evofem Series A Preferred Stock, par value $0.001 per share of which 12,618,279 have been issued and are outstanding, (iii) 31,034,696 shares of Evofem Series B Preferred Stock, par value $0.001 per share, of which 13,801,318 shares are issued and outstanding, (iv) 5,037,784 shares of Company Series C Preferred Stock of which 5,037,784 shares are issued and outstanding, (v) 8,660,572 shares of Evofem C-1 Preferred Stock, par value $0.001 per share, of which 8,558,686 shares are issued and outstanding, (vi) 80 shares of Evofem Series D Preferred Stock, par value $0.001 per share, of which 75 are issued and outstanding. No shares of capital stock are held in Evofem’s treasury. All outstanding shares of capital stock of Evofem are duly authorized, validly issued, fully paid and non-assessable and were issued in compliance with all applicable federal and state securities laws. Immediately prior to the Effective Time of the Merger (assuming the Effective Time occurs on December 31, 2017 and after giving effect to the conversion of the Company Preferred Stock (other than the Company Series D Preferred Stock) and the exercise of the Warrant as contemplated by the Merger Agreement), Evofem’s capitalization shall be as set forth on Exhibit E hereto.

e. Absence of Litigation . As of the Effective Date, neither Evofem nor any of its directors is engaged in any litigation, administrative, mediation or arbitration proceedings or other proceedings or hearings before any statutory or governmental body, department, board or agency and is not the subject of any investigation, inquiry or enforcement proceedings by any governmental, administrative or regulatory body. As of the Effective Date, no such proceedings, investigation or inquiry are pending or, to Evofem’s knowledge, threatened against Evofem, and, to Evofem’s knowledge, there are no circumstances likely to give rise to any such proceedings.

f. Intellectual Property . Evofem has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as necessary or required for use in connection with its business and which the failure to so have could have a material adverse effect (collectively, the “ Evofem Intellectual Property Rights ”). Evofem has not received a notice (written or otherwise) that any of, the Evofem Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. To Evofem’s knowledge, all such Evofem Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.

g. Valid Issuance . The Warrant and the Warrant Shares issued hereunder will be duly and validly issued, fully paid and non-assessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and under applicable state and federal securities laws.

5. Restrictions on Transfer .

a. Each instrument evidencing the Shares, the Warrant and the Warrant Shares which may be purchased or acquired hereunder and any other securities issued upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event (unless no longer required in the opinion of the counsel for the Company or Evofem, as applicable) shall be imprinted with a legend substantially in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A

 

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TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS PURSUANT TO EXEMPTIONS IN THE VARIOUS JURISDICTIONS WHERE THEY ARE BEING SOLD.

b. Any book-entry evidence of the Shares or Merger Shares shall not contain any legend (including the legend set forth in Section 5(a) above), (i) while a registration statement covering the resale of such Securities is effective under the Securities Act, (ii) following any sale of such Securities pursuant to Rule 144, (iii) if such Securities are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Securities and without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the effective date of any registration statement if required by the Transfer Agent to effect the removal of the legend hereunder.

c. The Company will enter into the Registration Rights Agreement, attached as Exhibit G to the Merger Agreement (the “ Registration Rights Agreement ”), with Invesco (as agent for and on behalf of the Funds) and the other parties thereto, concurrently with the consummation of the Merger.

6. Conditions to Closing .

a. The obligation of Invesco to consummate the transactions contemplated herein at the Closing is subject to the satisfaction on or before the date of the Closing of the following conditions, all or any of which may be waived in writing by Invesco as to its obligation to consummate the transaction so contemplated:

i. Performance . The Company and Evofem shall have performed all obligations, covenants and agreements herein required to be performed by the Company and Evofem on or prior to the Closing.

ii. Proceedings . All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby to be consummated at or prior to the Closing and all instruments and documents incidental thereto or required to be delivered prior to or at the Closing will be reasonably satisfactory in form and substance to Invesco.

iii. Authorization of Issuance . The Company’s board of directors shall have authorized the issuance and sale by it to Invesco pursuant to this Agreement of the Shares and Evofem’s board of directors shall have authorized the issuance of the Warrant and Warrant Shares by it to Invesco pursuant to this Agreement.

iv. Consents and Approvals . The Company and Evofem shall have obtained any and all consents (including (A) all governmental or regulatory consents, approvals or authorizations and (B) all shareholder approvals, in each case as required in connection with the valid execution and delivery of this Agreement, including under NASDAQ rules and regulations), permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement.

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(A) decreases the amount or changes the form of the Merger Consideration or any other consideration otherwise payable with respect to the Company Options and/or Company Warrants beneficially owned by Invesco, (B) imposes any material restrictions on or additional conditions on the payment of the Merger Consideration or any other consideration otherwise payable with respect to the Company Options and/or Company Warrants beneficially owned by Invesco, (C) imposes any material restrictions or obligations on Invesco, or (D) otherwise amends the Merger Agreement in any material respect (in the case of this clause (D), with Invesco’s consent not to be unreasonably withheld).

vi. Certificates of the CEOs . With respect to Invesco’s exercise of the Warrant, (A) the Company shall have delivered to Invesco a written certificate executed by the Chief Executive Officer of the Company certifying that each of the conditions to the consummation of the Merger set forth in Sections 6.1 and 6.3 of the Merger Agreement, other than those conditions that by their nature or the terms of the Merger Agreement are to be satisfied at the consummation thereof, has been satisfied (the “ Company CEO Certificate ”), and (B) Evofem shall have delivered to Invesco a written certificate executed by the Chief Executive Officer of the Company certifying that each of the conditions to the consummation of the Merger set forth in Sections 6.1 and 6.2 of the Merger Agreement, other than those conditions that by their nature or the terms of the Merger Agreement are to be satisfied at the consummation thereof, has been satisfied (the “ Evofem CEO Certificate ”). With respect to Invesco’s obligation to pay the Purchase Price, the Merger shall have been consummated such that the Effective Time shall have occurred.

vii. Representations and Warranties . The representations and warranties of the Company and Evofem contained in this Agreement that are not qualified by materiality or similar qualification shall be true and correct in all material respects on and as of the Closing, except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date, and the representations and warranties of the Company and Evofem contained in this Agreement that are qualified by materiality or similar qualification shall be true and correct in all respects on and as of the Closing, except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct in all respects as of such earlier date.

viii. Compliance with Laws . The Company and Evofem shall have complied with all applicable laws and regulations, including (but not limited to) the Financial Conduct Authority’s regulatory rules and regulations on collective investment schemes (COLL Regulations).

ix. Registration Rights Agreement . The Registration Rights Agreement shall have been duly executed by the Company and delivered to Invesco.

b. The obligations of the Company and Evofem to consummate the transactions contemplated herein at the Closing are subject to the satisfaction on or before the date of the Closing of the following conditions, all or any of which may be waived in writing by the Company and Evofem as to their respective obligations to consummate the transaction so contemplated:

i. Performance . Invesco shall have performed all obligations, covenants and agreements herein required to be performed by Invesco on or prior to the Closing.

ii. Instruments and Documents . All instruments and documents required to carry out this Agreement or incidental thereto shall be reasonably satisfactory to the Company, Evofem and their respective counsels.

 

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iii. Representations and Warranties . The representations and warranties of Invesco contained in this Agreement that are not qualified by materiality or similar qualification shall be true and correct in all material respects on and as of the Closing, except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date, and the representations and warranties of Invesco contained in this Agreement that are qualified by materiality or similar qualification shall be true and correct in all respects on and as of the Closing, except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct in all respects as of such earlier date.

iv. Merger . With respect to Evofem’s obligations to issue the Warrant and the Warrant Shares, each of the conditions to the consummation of the Merger set forth in Sections 6.1 and 6.3 of the Merger Agreement, other than those conditions that by their nature or the terms of the Merger Agreement are to be satisfied at the consummation thereof, shall have been satisfied and the Merger to be consummated immediately after the issuance and exercise of the Warrant. With respect to the Company’s obligations to issue the Shares, the Merger shall have been consummated such that the Effective Time will have occurred.

7. Reliance . Invesco is aware that the Company and Evofem are relying on the accuracy of the representations and warranties set forth in Section 3 hereof to establish compliance with Federal and State securities laws. If any such warranties or representations are not true and accurate in any respect as of the Closing, Invesco shall so notify the Company and Evofem in writing immediately and such inaccuracy shall be cause for rescission by the Company at its sole election or by Evofem at its sole election.

8. Acknowledgement . Notwithstanding anything that may be expressed or implied in this Agreement or any document or instrument delivered in connection herewith, with respect to Invesco’s obligations hereunder, each of Evofem and the Company, by its acceptance of the benefits hereof, covenants, agrees and acknowledges that no person other than Invesco has any liability, obligation or commitment of any nature, known or unknown, whether due or to become due, absolute, contingent or otherwise, hereunder, whether based on contract, tort, strict liability or otherwise, and whether by or through attempted piercing of the corporate, limited liability or partnership veil or similar action, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute, regulation or applicable law, by or through a claim by or on behalf of Invesco or Evofem against Invesco or any Invesco Affiliate, or otherwise. For purposes of this Agreement, the term “Invesco Affiliate” means any former, current or future general or limited partner, investment manager or investment advisor, stockholder, holder of any equity, partnership or limited liability company interest, officer, member, manager, director, employee, agent, controlling person, assignee or Affiliate of Invesco of any of the foregoing (it being understood that the term Invesco Affiliate shall not include Invesco or Evofem). For the avoidance of doubt, neither Invesco nor any Invesco Affiliate is a party to, or has any obligations under, the Merger Agreement.

9. Miscellaneous .

a. Survival . The representations, warranties, covenants and agreements made herein shall survive the closing of the transactions contemplated hereby for a period of one year.

b. Successors and Assigns . Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. Nothing set forth in this Agreement shall be construed to confer upon or give to any person (including any direct or indirect creditors) any rights or remedies under or by reason of this Agreement or to confer upon or give to any person any rights or remedies

 

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against any person other than the undersigned under or by reason of this Agreement. The exercise of any right to enforce this Agreement does not in itself give rise to any other rights or remedies, monetary or otherwise. Neither the rights nor the obligations of Invesco, the Company or Evofem under this Agreement may be assigned or delegated, in whole or in part, directly or indirectly, by operation of law or otherwise, without the prior written consent of the Invesco, the Company and Evofem; provided , however , that the obligations of Invesco under this Agreement may be assigned by Invesco to one or more of its Affiliates (including to one or more investment funds that are Affiliates of Invesco or managed by Invesco) that agree to assume Invesco’s obligations hereunder, provided that Invesco shall remain obligated to perform its obligations hereunder to the extent not performed by such Affiliate(s).

c. Entire Agreement . This Agreement and the Exhibits and Schedules attached hereto (and, as between the Company and Evofem, the Merger Agreement) constitute the entire agreement and understanding between the parties with respect to the subject matters herein, and supersede and replace any prior agreements and understandings, whether oral or written between and among them with respect to such matters. The provisions of this Agreement may be waived, altered, amended or repealed, in whole or in part, only upon the written consent of the Company and Invesco.

d. Title and Subtitles . The titles of the Sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

e. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

f. Applicable Law . This Agreement shall be governed by and construed in accordance with laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles or conflicts of laws thereof.

g. Venue . Any action, arbitration, or proceeding arising directly or indirectly from this Agreement or any other instrument or security referenced herein shall be litigated or arbitrated, as appropriate, in the Court of Chancery of the State of Delaware or, if jurisdiction over the matter is vested exclusively in the federal courts, the United States District Court for the District of Delaware.

h. Authority; Signatories . The individual executing and delivering this Agreement on behalf of Invesco has been duly authorized and is duly qualified to execute and deliver this Agreement in connection with the Securities and the signature of such individual is binding upon Invesco. Each of the parties acknowledges and agrees that (a) Invesco is acting at all times as agent for and on behalf of the Funds; (b) Invesco shall have no liability to acquire the Shares allocated to the Funds under this Agreement; and (c) Invesco shall have no liability as principal in respect of the Funds’ obligations under this Agreement, including, but not limited to, the obligation to purchase the Shares from the Company.

i. Notices . All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed properly delivered, given and received: (a) if delivered by hand, when delivered; (b) if sent on a Business Day by email before 11:59 p.m. (recipient’s time), when transmitted; (c) if sent by email on a day other than a Business Day, or if sent by email after 11:59 p.m. (recipient’s time), on the Business Day following the date when transmitted; (d) if sent by registered, certified or first class mail, the third Business Day after being sent; and (e) if sent by overnight delivery via a national courier service, one Business Day after being sent, in each case to the address set forth on the signature page hereof for Invesco and with respect to the Company and Evofem at their respective principal places of business (or to such other address as such party shall have specified in a written notice given to the other parties hereto).

 

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(Signature Page to October 17, 2017, Securities Purchase Agreement)

IN WITNESS WHEREOF , the parties hereto have executed this Agreement effective as of the day and year first set forth above.

 

INVESCO

Invesco Asset Management Limited, as agent for and on behalf of the Invesco Perpetual High Income Fund, a sub fund of the Invesco Perpetual UK Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000231), and the Invesco Perpetual Income Fund, a sub fund of the Invesco Perpetual UK 2 Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000221)

By: /s/ Colin Fitzgerald                            

      (Signature)

Colin Fitzgerald - Director

(Print Name and Title)

Invesco, Perpetual Park Drive

Henley, RG9 1HH

(Address)


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(Signature Page to October 17, 2017, Securities Purchase Agreement)

IN WITNESS WHEREOF , the parties hereto have executed this Agreement effective as of the day and year first set forth above.

 

THE COMPANY
Neothetics, Inc.

By: /s/ Susan A. Knudson                    

Name: Susan A. Knudson

Title: Chief Financial Officer

Address:

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

Attn: Susan A. Knudson


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(Signature Page to October 17, 2017, Securities Purchase Agreement)

IN WITNESS WHEREOF , the parties hereto have executed this Agreement effective as of the day and year first set forth above.

 

EVOFEM
Evofem Biosciences, Inc.

By: /s/ Saundra Pelletier                    

Name: Saundra Pelletier

Title: Chief Executive Officer

Address:

Evofem Biosciences, Inc.

12400 High Bluff Drive

Suite 600

San Diego, CA 92130


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SCHEDULE I

Invesco is an “accredited investor” as that term is defined in Regulation D promulgated by the Securities and Exchange Commission. The term “Accredited Investor” under Regulation D refers to:

 

   

A person or entity who is a director or executive officer of the Company;

 

   

Any bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Exchange Act; any insurance company as defined in Section 2(a)(13) of the Securities Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Securities Act; Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decision made solely by persons that are accredited investors;

 

   

Any private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;

 

   

Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

 

   

Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000 (exclusive of his or her principal residence);

 

   

Any natural person who had an individual income in excess of $200,000 during each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

 

   

Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment; or

 

   

Any entity in which all of the equity owners are accredited investors.

As used in this Schedule I, the term “net worth” means the excess of total assets over total liabilities excluding any primary residence. As used in this Schedule I, “income” means actual economic income,


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which may differ from adjusted gross income for income tax purposes. Accordingly, the undersigned should consider whether it should add any or all of the following items to its adjusted gross income for income tax purposes in order to reflect more accurately its actual economic income: any amounts attributable to tax-exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depletion, contributions to an IRA or Keogh retirement plan, and alimony payments.


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Exhibit A

FORM OF WARRANT

THIS WARRANT AND THE SECURITIES UNDERLYING THIS WARRANT HAVE NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS PURSUANT TO EXEMPTIONS IN THE VARIOUS JURISDICTIONS WHERE THEY ARE BEING SOLD.

EVOFEM BIOSCIENCES, INC.

WARRANT TO PURCHASE COMMON STOCK

 

No.             

       , 20    

THIS CERTIFIES THAT , for value received,              (the Holder ), is entitled to subscribe for and purchase from Evofem Biosciences, Inc., a Delaware corporation, with its principal office at 12400 High Bluff Drive, Suite 600, San Diego, California 92130 ( Evofem ), the Exercise Shares at the Exercise Price (each subject to adjustment as provided herein) in accordance with provisions set forth herein.

This Warrant is being issued to Holder in accordance with the terms of that certain Securities Purchase Agreement, dated October 17, 2017, by and among Neothetics, Inc., a Delaware corporation (“ Neothetics ”), Evofem and Holder (the “ Securities Purchase Agreement ”)

1. DEFINITIONS . As used herein, the following terms shall have the following respective meanings. Terms not otherwise defined shall the meanings set forth in the Securities Purchase Agreement.

(a) Exercise Price shall mean $0.001 per Exercise Share subject to adjustment pursuant to Section 5 below.

(b) Exercise Shares shall mean [158,999,371] 1 shares of common stock of Evofem, par value $0.001 per share, issuable upon exercise of this Warrant (subject to adjustment as set forth in Section 1.12(b) of the Agreement and Plan of Merger, dated as of the date hereof, among Evofem, Neothetics and the other parties thereto (the “ Merger Agreement ”)).

2. EXERCISE OF WARRANT . Holder will be deemed to have exercised this Warrant on a cashless basis as set forth below in this Section 2, and the rights represented by this Warrant will be fully exercised, in each case contingent upon and immediately following the conversion of shares of

 

1  

Reflects total aggregate Exercise Shares to be issued pursuant to the Securities Purchase Agreement to all Funds.


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preferred stock of Evofem in connection with the Merger and immediately prior to the Effective Time (as defined in the Merger Agreement).

This Warrant will be deemed exercised on a net basis such that, without payment of any cash consideration, this Warrant will be surrendered in exchange for the number of Exercise Shares as is computed using the following formula:

X = Y-(A/(B/C))

Where:

 

   

X equals the number of Exercise Shares to be issued to the Holder;

 

   

Y equals the total number of Exercise Shares;

 

   

A equals the Aggregate Exercise Price (as adjusted to the date of such calculation);

 

   

B equals the value of the aggregate amount to be distributed to holders of shares of common stock of Evofem in the Merger (as such term is defined in the Merger Agreement) which, solely for the purposes of this Warrant, shall be deemed to be $86,108,822 (subject to adjustment as provided in Section 1.12(b) of the Merger Agreement);

 

   

C equals 275,375,361 shares of common stock of Evofem (subject to adjustment as provided in Section 1.12(b) of the Merger Agreement).

3. COVENANTS OF EVOFEM . Evofem covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. Evofem further covenants and agrees that Evofem will at all times following the date hereof and prior to the Effective Time, have authorized and reserved, free from preemptive rights, a sufficient number of shares of the series of equity securities comprising the Exercise Shares to provide for the exercise of the rights represented by this Warrant. If at any time following the date hereof and prior to the Effective Time the number of authorized but unissued shares of such series of Evofem’s equity securities shall not be sufficient to permit exercise of this Warrant, Evofem will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of such series of Evofem’s equity securities to such number of shares as shall be sufficient for such purposes.

4. REPRESENTATIONS OF HOLDER .

4.1 Acquisition of Warrant for Personal Account . The Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a view to or for sale or distribution of said Warrant or Exercise Shares or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only.

4.2 Securities Are Not Registered .

 

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(a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Securities Act on the basis that no distribution or public offering of the stock of Evofem is to be effected. Each instrument evidencing the Exercise Shares which Holder may hereunder and any other securities issued upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event (unless no longer required in the opinion of the counsel for or Evofem) shall be imprinted with a legend substantially in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS PURSUANT TO EXEMPTIONS IN THE VARIOUS JURISDICTIONS WHERE THEY ARE BEING SOLD.

(b) Any book-entry evidence of the Exercise Shares shall not contain any legend (including the legend set forth in Section 4.2(a) above), (i) while a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Exercise Shares pursuant to Rule 144, (iii) if such Exercise Shares are eligible for sale under Rule 144, without the requirement for Evofem to be in compliance with the current public information required under Rule 144 as to such Exercise Shares and without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission).

4.3 Accredited Investor Status . The Holder is an “accredited investor” as defined in Regulation D promulgated under the Securities Act.

5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF EXERCISE SHARES . In the event of changes in the series of equity securities of Evofem comprising the Exercise Shares by reason of stock dividends, splits, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of Exercise Shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same Aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. For purposes of this Section 5, the Aggregate Exercise Price shall mean the aggregate Exercise Price payable in connection with the exercise in full of this Warrant. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. When any such adjustment is required to be made, Evofem shall promptly notify the Holder of such event and of the number of shares of Evofem’s common stock or other securities or property thereafter purchasable upon exercise of this Warrant and any resulting changes to the Exercise Price.

6. FRACTIONAL SHARES . No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) to be issued upon exercise of this Warrant shall be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would

 

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result in the issuance of a fractional share, Evofem shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of one Exercise Share by such fraction.

7. NO STOCKHOLDER RIGHTS . This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of Evofem.

8. TRANSFER OF WARRANT . Subject to applicable laws, the restriction on transfer set forth on the first page of this Warrant, this Warrant and all rights hereunder are transferable by the Holder but solely to an affiliate or fund managed by Holder in person or by duly authorized attorney, upon delivery of the form of assignment attached hereto to any transferee designated by Holder. The transferee shall sign an investment letter in form and substance satisfactory to Evofem.

9. AMENDMENT . Any term of this Warrant may be amended or waived with the written consent of Evofem and Holder.

10. NOTICES, ETC . All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed properly delivered, given and received: (a) if delivered by hand, when delivered; (b) if sent on a Business Day by email before 11:59 p.m. (recipient’s time), when transmitted; (c) if sent by email on a day other than a Business Day, or if sent by email after 11:59 p.m. (recipient’s time), on the Business Day following the date when transmitted; (d) if sent by registered, certified or first class mail, the third Business Day after being sent; and (e) if sent by overnight delivery via a national courier service, one Business Day after being sent, in each case to the address set forth on the signature page hereof for Invesco and with respect to the Company and Evofem at their respective principal places of business (or to such other address as such party shall have specified in a written notice given to the other parties hereto).

11. ACCEPTANCE . Receipt of this Warrant or the Exercise Shares by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

12. GOVERNING LAW . This Warrant and all rights, obligations and liabilities hereunder shall be governed by and construed under the laws of the State of Delaware, made and to be performed entirely within the State of Delaware without giving effect to conflicts of law principles.

13. TERMINATION . This Warrant, and all rights, obligations and liabilities hereunder shall be automatically terminated upon the earlier of (i) the termination of the Merger Agreement in accordance with its terms, (ii) the termination of the Securities Purchase Agreement in accordance with its terms, and (iii) the Effective Time.

 

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IN WITNESS WHEREOF , Evofem has caused this Warrant to be executed by its duly authorized officer as of             , 2017.

 

EVOFEM BIOSCIENCES, INC.

By:

 

 

Name:

 

Saundra Pelletier

Title:

 

Chief Executive Officer


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ASSIGNMENT FORM

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED , the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:                                                       

(Please Print)

Address:                                                   

(Please Print)

Dated:                                 , 20            

Holder’s

Signature:                                                           

Holder’s

Address:                                                              

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.


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Exhibit B

Form of Letter of Direction

Dated:             , 2017

Invesco Asset Management Limited

 

 

 

 

 

Ladies and Gentlemen:

Reference is hereby made to (1) that certain Securities Purchase Agreement (the “ Securities Purchase Agreement ”), dated as of October 17, 2017, by and among Neothetics, Inc., a Delaware corporation (the “ Company ”), Evofem Biosciences, Inc., a Delaware corporation (“ Evofem ”), and Invesco Asset Management Limited, acting as agent for and on behalf of certain of its discretionary managed clients (“ Invesco ”), and (2) that certain Agreement and Plan of Merger and Reorganization (the “ Merger Agreement ”), by and among the Company, Evofem, and Nobelli Merger Sub, Inc., a Delaware corporation. Terms not otherwise defined, will have the meanings set forth in the Securities Purchase Agreement.

Pursuant to the terms of the Securities Purchase Agreement, Invesco will purchase or cause to be purchased the Shares immediately following the Effective Time (as defined in the Merger Agreement) in exchange for the payment of immediately available funds in the amount of $20,000,000 (the “ Purchase Price ”) to the Company.

The Company hereby irrevocably authorizes and directs Invesco to disburse or cause to be disbursed the Purchase Price directly to the Company pursuant to the following wire transfer instructions:

[COMPANY WIRE INSTRUCTIONS]

This Letter of Direction shall be governed by and construed in accordance with laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles or conflicts of law thereof.

[Signature Page Follows]


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Very truly yours,

NEOTHETICS, INC.

By:                                                                            

Name: Susan A. Knudson

Title: Chief Financial Officer


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PART II

INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT

Item 20. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.

As permitted by the Delaware General Corporation Law, Neothetics’ amended and restated certificate of incorporation contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:

 

    any breach of the director’s duty of loyalty to Neothetics or its stockholders;

 

    acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

 

    under Section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases); or

 

    any transaction from which the director derived an improper personal benefit.

As permitted by the Delaware General Corporation Law, Neothetics’ amended and restated bylaws provide that:

 

    Neothetics is required to indemnify its directors and executive officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions;

 

    Neothetics may indemnify its other employees and agents as set forth in the Delaware General Corporation Law;

 

    Neothetics is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and

 

    the rights conferred in the amended and restated bylaws are not exclusive.

Neothetics has entered into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of Neothetics for which indemnification is sought. The indemnification provisions in Neothetics’ amended and restated certificate of incorporation, amended and restated bylaws and the indemnification agreements entered into between Neothetics and each of its directors and executive officers may be sufficiently broad to permit indemnification of Neothetics’ directors and executive officers for liabilities arising under the Securities Act.

Neothetics currently carries liability insurance for its directors and officers.

One of Neothetics’ directors, Kim P. Kamdar, is also indemnified by her employers with regard to her service on Neothetics’ board of directors.


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Item 21. Exhibits and Financial Statement Schedules

 

Exhibit

Number

       

Filed

Herewith

  

Incorporated by Reference

  

Exhibit Title

     

Form

  

File No.

  

Date Filed

  2.1    Agreement and Plan of Merger and Reorganization, dated October  17, 2017, by and among Neothetics, Inc., Evofem Biosciences, Inc. and Nobelli Merger Sub, Inc. (included as Annex A to the proxy statement/prospectus/information statement forming a part of this Registration Statement).    X         
  3.1    Amended and Restated Certificate of Incorporation.       S-1    333-199449    10/17/2014
  3.2    Amended and Restated Bylaws.       S-1    333-199449    10/17/2014
  3.3    Third Amended and Restated Certificate of Incorporation of Evofem Biosciences, Inc.    X         
  3.4    Bylaws of Evofem Biosciences, Inc.    X         
  4.1    Form of Stock Certificate.       S-1/A    333-199449    11/10/2014
  4.2    Warrant to Purchase Stock, dated February 23, 2010, issued to Silicon Valley Bank.       S-1    333-199449    10/17/2014
  4.3    Warrant to Purchase Stock, dated March 30, 2012, issued to Silicon Valley Bank.       S-1    333-199449    10/17/2014
  4.4    Warrant to Purchase Stock, dated August 17, 2012, issued to Silicon Valley Bank.       S-1    333-199449    10/17/2014
  4.5    Warrant Agreement, dated June 11, 2014, by and between the Registrant and Hercules Technology III, L.P.       S-1    333-199449    10/17/2014
  4.6    Fourth Amended and Restated Investors’ Rights Agreement, dated September 22, 2014, by and between the Registrant and the investors listed therein.       S-1    333-199449    10/17/2014
  4.7    Warrant Modification Agreement, dated March 30, 2016, by and between the Registrant and Hercules Technology III, L.P.       10-Q    001-36754    05/12/2016
  4.8    Form of Amended and Restated Warrant to Purchase Common Stock of Neothetics.    X         


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Exhibit

Number

       

Filed

Herewith

  

Incorporated by Reference

 
  

Exhibit Title

     

Form

    

File No.

    

Date Filed

 
  4.9    Form of Warrant, by and between the Registrant and Invesco Asset Management Limited.    X         
  4.10    Form of Voting Agreement    X         
  5.1    Opinion of DLA Piper LLP (US) regarding the validity of the securities.    X         
  8.1    Opinion of DLA Piper LLP (US) regarding tax matters.    X         
  8.2    Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. regarding tax matters.    X         
10.1†    Technology Transfer Agreement, dated December 12, 2012, by and between the Registrant and Domain Russia Investments Limited.         S-1        333-199449        10/17/2014  
10.2†    Assignment and Assumption Agreement, dated December 12, 2012, by and among the Registrant, Domain Russia Investments Limited and NovaMedica LLC.         S-1        333-199449        10/17/2014  
10.3†    Clinical Development and Collaboration Agreement, dated July 2, 2013, by and between the Registrant and NovaMedica LLC.         S-1        333-199449        10/17/2014  
10.4†    Contract No. 0702/12, dated July 2, 2013, by and between the Registrant and NovaMedica LLC.         S-1        333-199449        10/17/2014  
10.5    Lease, dated July 3, 2008, by and between the Registrant WW&LJ Gateways, LTD.         S-1        333-199449        10/17/2014  
10.6    Ninth Amendment to Lease, dated April 21, 2014, by and between the Registrant and LJ Gateways Office LLC (as successor in interest to WW&LJ Gateways, LTD).         S-1        333-199449        10/17/2014  
10.7    Tenth Amendment, date January  20, 2015, by and between the Registrant and LJ Gateway Office, LLCS (as successor in interest to WW&LJ Gateways, LTD).         10-K        001-36754-161533653        03/29/2015  
10.8    Eleventh Amendment, dated as of January 31, 2017, by and between the Registrant and LJ Gateways Office LLC (as successor in interest to WW&LJ Gateways, LTD).         8-K        001-363754-17609634        02/14/2017  


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Exhibit

Number

       

Filed

Herewith

  

Incorporated by Reference

  

Exhibit Title

     

Form

  

File No.

  

Date Filed

10.9    Sublease, dated as of January 27, 2017, by and between Neothetics, Inc. and Abacus Data Systems, Inc.       8-K    001-363754-17609634    02/14/2017
10.10    Loan and Security Agreement, dated June 11, 2014, by and between the Registrant and Hercules Technology Growth Capital, Inc.       S-1    333-199449    10/17/2014
10.11    First Amendment to Loan and Security Agreement, dated October  21, 2014, by and between the Registrant and Hercules Technology Growth Capital, Inc.       S-1/A    333-199449    11/10/2014
10.12    Second Amendment to Loan and Security Agreement, date March 30, 2016, by and between the Registrant and Hercules Technology Growth Capital, Inc.       10-Q    001-36754-16164168    05/12/2016
10.13 D    Separation Agreement, dated January 21, 2016, by and between the Registrant and Lincoln Krochmal.       10-K    001-36754-161533653    03/29/2015
10.14 D    Separation Agreement, dated January 21, 2016, by and between the Registrant and George W. Mahaffey.       10-K    001-36754-161533653    03/29/2015
10.15 D    Executive Employment Agreement, dated October 15, 2014, by and between the Registrant and Susan Knudson.       S-1    333-199449    10/17/2014
10.16 D    Letter Agreement, dated July 3, 2014, by and between the Registrant and Martha J. Demski.       S-1    333-199449    10/17/2014
10.17 D    Form of Indemnification Agreement, by and between the Registrant and each of its directors and executive officers.       S-1    333-199449    10/17/2014
10.18 D    Amended and Restated 2007 Stock Plan, as amended.       S-1/A    333-199449    11/10/2014
10.19 D    Form of Stock Option Agreement under 2007 Stock Plan.       S-1    333-199449    10/17/2014
10.20 D    2014 Equity Incentive Plan.       S-1/A    333-199449    11/10/2014
10.21 D    Amendment to 2014 Equity Incentive Plan.       10-Q    001-36754-161823046    08/11/2016
10.22 D    Form of Stock Option Agreement under 2014 Equity Incentive Plan.       S-1/A    333-199449    11/10/2014
10.23 D    Form of Restricted Stock Units Agreement under the 2014 Equity Incentive Plan.       S-1/A    333-199449    11/10/2014


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Exhibit

Number

       

Filed

Herewith

    

Incorporated by Reference

  

Exhibit Title

     

Form

  

File No.

  

Date Filed

10.24 D    Form of Restricted Stock Agreement under the 2014 Equity Incentive Plan.       S-1/A    333-199449    11/10/2014
10.25 D    Form of Notice of Grant of Restricted Stock Units under the 2014 Equity Incentive Plan.       S-1/A    333-199449    11/10/2014
10.26 D    Form of Notice of Grant of Restricted Stock under the 2014 Equity Incentive Plan.       S-1/A    333-199449    11/10/2014
10.27 D    Form of Notice of Grant of Stock Option under the 2014 Equity Incentive Plan.       S-1/A    333-199449    11/10/2014
10.28 D    2014 Employee Stock Purchase Plan.       S-1/A    333-199449    11/10/2014
10.29 D    Non-Employee Director Compensation Policy.       S-1    333-199449    10/17/2014
10.30    Eleventh Amendment, dated as of January 31, 2017, by and between Neothetics, Inc. and LJ Gateway Office LLC, to the Lease dated July  3, 2008, as amended.       8-K    001-36754    02/14/2017
10.31    Sublease, dated as of January 27, 2017, by and between Neothetics, Inc. and Abacus Data Systems, Inc.       8-K    001-36754    02/14/2017
10.32    Form of Lock-Up Agreement.       8-K    001-36754    10/17/2017
10.33    Securities Purchase Agreement, dated October 17, 2017, by and among Neothetics, Inc., Evofem Biosciences, Inc. and the investors listed therein.       8-K    001-36754    10/17/2017
10.34    Form of Support Agreement, by and between Evofem Biosciences, Inc. and certain of its stockholders.       8-K    001-36754    10/17/2017
10.35    Stockholder Agreement, dated as of November 25, 2015, by and among Evofem Biosciences, Inc. and the stockholders of Evofem Biosciences, Inc. listed therein.      X           
10.36    First Amendment to Stockholder Agreement, dated as of July 13, 2016, by and among Evofem Biosciences, Inc. and the stockholders of Evofem Biosciences, Inc. listed therein.      X           


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Exhibit

Number

       

Filed

Herewith

  

Incorporated by Reference

  

Exhibit Title

     

Form

  

File No.

  

Date Filed

10.37    Second Amendment to Stockholder Agreement, dated as of July 28, 2017, by and among Evofem Biosciences, Inc. and the stockholders of Evofem Biosciences, Inc. listed therein.    X         
10.38    Registration Rights Agreement, dated as of November 25, 2015, by and among Evofem Biosciences, Inc. and the stockholders of Evofem Biosciences, Inc. listed therein.    X         
10.39    Consulting Agreement, dated as of April 1, 2017, by and between Evofem Biosciences, Inc. and Thomas Lynch.    X         
10.40 D    Severance Agreement, dated as of November 16, 2015, by and between Evofem Biosciences, Inc. and Justin J. File.    X         
10.41 D    Severance Agreement, dated as of April 27, 2015, by and between Evofem Biosciences, Inc. and Saundra Pelletier.    X         
10.42    Offer Letter, dated as of April 15, 2015, by and between Evofem Biosciences, Inc. and Kelly Culwell, M.D.    X         
10.43    Offer Letter, dated as of October 16, 2014, by and between Evofem Biosciences, Inc. and Saundra Pelletier.    X         
10.44    Offer Letter, dated as of March 8, 2015, as amended, by and between Evofem Biosciences, Inc. and Justin J. File.    X         
10.45    Amended Offer Letter, dated as of November 16, 2015, by and between the Evofem Biosciences, Inc. and Justin J. File.    X         
10.46    Form of Indemnification Agreement by and between Evofem Biosciences, Inc. and its officers and directors.    X         
10.47 D    Evofem Biosciences, Inc. Amended and Restated 2012 Equity Incentive Plan.    X         
10.48 D    Form of Notice of Option Grant and Option Agreement under the Evofem Biosciences, Inc. 2012 Equity Incentive Plan.    X         


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Exhibit

Number

       

Filed

Herewith

  

Incorporated by Reference

  

Exhibit Title

     

Form

  

File No.

  

Date Filed

10.49 D    Form of Grant of Restricted Stock Award under the Evofem Biosciences, Inc. 2012 Equity Incentive Plan.    X         
10.50†    Amended and Restated License Agreement, by and between Rush University Medical Center and Evofem Biosciences, Inc., dated March 27, 2014.    X         
10.51    Side Letter, dated as of October 11, 2017, by and between Evofem Biosciences, Inc. and Woodford Investment Management Limited.    X         
10.52    Consent to Sub-Sublease, dated as of January 30, 2015, by and among Evofem Biosciences, Inc., Kilroy Realty, L.P., Relational Investors LLC and WomanCare Global Trading, Inc.    X         
10.53    Sublease Guaranty, dated as of January 30, 2015, by and between Evofem Biosciences, Inc. and Relational Investors LLC.    X         
10.54    Office Sublease, dated as of January 30, 2015, by and between Evofem Biosciences, Inc. and Relational Investors LLC.    X         
10.55    First Amendment to Sublease, dated as of February 22, 2017, by and between Evofem, Inc. and WomanCare Global Trading Inc.    X         
10.56    Sublease, dated as of January 30, 2015, by and between Evofem, Inc. and WomanCare Global Trading, Inc.    X         
10.57    Series D Preferred Stock Purchase Agreement, dated as of July 13, 2016, by and between Evofem Biosciences, Inc. and the Evofem Biosciences, Inc. investors set forth therein.    X         
10.58    First Amendment to Series D Preferred Stock Purchase Agreement, dated as of July 28, 2017, by and between Evofem Biosciences, Inc. and the Evofem Biosciences, Inc. investors set forth therein.    X         


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Exhibit

Number

       

Filed

Herewith

  

Incorporated by Reference

  

Exhibit Title

     

Form

  

File No.

  

Date Filed

10.59    Restricted Stock Cancellation Agreement, dated as of October 17, 2017, by and between Evofem Biosciences, Inc. and Saundra Pelletier.    X         
10.60    Restricted Stock Cancellation Agreement, dated as of October 17, 2017, by and between Evofem Biosciences, Inc. and Justin J. File.    X         
10.61    Restricted Stock Cancellation Agreement, dated as of October 17, 2017, by and between Evofem Biosciences, Inc. and Kelly Culwell, M.D.    X         
10.62    Restricted Stock Unit Award Cancellation Agreement, dated as of October 17, 2017 by and between Evofem Biosciences, Inc. and Thomas Lynch.    X         
21.1    List of Neothetics Subsidiaries.    X         
21.2    List of Evofem Subsidiaries.    X         
23.1    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.    X         
23.2    Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.    X         
23.3    Consent of DLA Piper LLP (US) (included in Exhibit 5.1).    X         
23.4*    Consent of DLA Piper LLP (US) (included in Exhibit 8.1).            
23.5*    Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (included in Exhibit 8.2).            
24.1    Power of Attorney (included on the signature page hereto).    X         
99.1*    Form of Neothetics, Inc. Proxy Card.            
99.2    Opinion of Oppenheimer & Co. Inc., financial advisor to Neothetics, Inc. (included as Annex B to the proxy statement/prospectus/information statement forming a part of this Registration Statement).    X         
99.3    Consent of Oppenheimer & Co. Inc., financial advisor to Neothetics, Inc.    X         


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Exhibit

Number

       

Filed

Herewith

    

Incorporated by Reference

 
  

Exhibit Title

     

Form

    

File No.

    

Date Filed

 
99.4    Proposed Certificate of Amendment to Amended and Restated Certificate of Incorporation of Neothetics, Inc. (included as Annex D to the proxy statement/prospectus/ information statement forming a part of this Registration Statement).      X           
99.5*    Consent of [●] to serve as a director of Registrant.            

 

* To be filed by amendment
D Management Compensation Plan
Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933

(b) Financial Statements

The financial statements filed with this registration statement on Form S-4 are set forth on the Financial Statement Index and is incorporated herein by reference.

Item 22. Undertakings

(a) The undersigned registrant hereby undertakes as follows:

(1) That prior to any public reoffering of the securities registered hereunder through use of a proxy statement/prospectus/information statement which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering proxy statement/prospectus/information statement will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

(2) That every proxy statement/prospectus/information statement (i) that is filed pursuant to paragraph (a)(1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment 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.

(3) To respond to requests for information that is incorporated by reference into this proxy statement/prospectus/information statement pursuant to Item 4 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(4) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

(b) 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 Securities and Exchange Commission such indemnification is against


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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.


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SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the city of San Diego, State of California, on the 15 th  day of November, 2017.

 

NEOTHETICS, INC.
By:    

/s/ Susan A. Knudson

  Susan A. Knudson
  Chief Financial Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Susan A. Knudson as his/her true and lawful attorney-in-fact and agent, with full power to act alone, with full powers of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement on Form S-4, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or her substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

/s/ Susan A. Knudson

Susan A. Knudson

 

Chief Financial Officer

(Principal Executive, Financial and Accounting Officer)

  November 15, 2017

/s/ Martha J. Demski

Martha J. Demski

  Director   November 15, 2017

/s/ Maxim Gorbachev

Maxim Gorbachev

  Director   November 15, 2017

/s/ Kim P. Kamdar, Ph.D.

Kim P. Kamdar, Ph.D.

  Director   November 15, 2017

/s/ Jeffrey M. Nugent

Jeffrey M. Nugent

  Director  

November 15, 2017

Exhibit 3.3

THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

EVOFEM BIOSCIENCES, INC.

The undersigned, Jay File, hereby certifies that:

1.    He is the duly appointed and acting Chief Financial Officer of Evofem Biosciences, Inc., a Delaware corporation.

2.    The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on July 23, 2015 under the name Evofem Holdings, Inc. An Amended and Restated Certificate of Incorporation was filed with the Secretary of State of Delaware on October 30, 2015, a Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State of Delaware on July 15, 2016, and a Certificate Amendment to the Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State of Delaware on August 23, 2016.

3.    The Board of Directors of the Corporation duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of the Corporation, and that thereafter, pursuant to such resolutions of the Board of Directors of the Corporation, an action by written consent of stockholders was signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon would have been present and voted.

4.    Said amendment was duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law.

5.    The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows:

ARTICLE I

The name of the corporation is Evofem Biosciences, Inc. (the “ Corporation ”).

ARTICLE II

The address of the registered office of the Corporation in the State of Delaware is 251 Little Falls Drive, Wilmington, Delaware 19808, County of New Castle. The name of its registered agent at such address is Corporation Service Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law.

ARTICLE IV

(A)     Classes of Stock . The Corporation is authorized to issue two classes of stock to be designated, respectively, “ Common Stock ” and “ Preferred Stock .” The total number of shares which the Corporation is authorized to issue is Two Hundred Fifteen Million Three Hundred Thirty-Eight Thousand One Hundred Sixty-Four (215,338,164) shares, each with a par value of $ 0.001 per share. One Hundred Fifty-Seven Million Eight Hundred Thirty-Six Thousand Five Hundred Forty (157,836,540) shares shall


be Common Stock and Fifty-Seven Million Five Hundred One Thousand Six Hundred Twenty-Four (57,501,624) shares shall be Preferred Stock.

(B)     Rights, Preferences and Restrictions of Preferred Stock . The Preferred Stock authorized by this Third Amended and Restated Certificate of Incorporation (the “ Restated Certificate ”) may be issued from time to time in one or more series. The first series of Preferred Stock shall be designated “Series A Preferred Stock” and shall consist of Twelve Million Seven Hundred Sixty-Eight Thousand Four Hundred Ninety-Two (12,768,492) shares. The second series of Preferred Stock shall be designated as “Series B Preferred Stock” and shall consist of Thirty-One Million Thirty-Four Thousand Six Hundred Ninety-Six (31,034,696) shares. The third series of Preferred Stock shall be designated as “Series C Preferred Stock” and shall consist of Five Million Thirty-Seven Thousand Seven Hundred Eighty-Four (5,037,784) shares. The fourth series of Preferred Stock shall be designated as “Series C-1 Preferred Stock” and shall consist of Eight Million Six Hundred Sixty Thousand Five Hundred Seventy-Two (8,660,572) shares. The fifth series of Preferred Stock shall be designated as “Series D Preferred Stock and shall consist of Eighty (80) shares. The “ Series Preferred Stock ” when used herein shall mean the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock. The rights, preferences, privileges, and restrictions granted to and imposed on the Series Preferred Stock are as set forth below in this Article IV(B).

1.     Dividends . From and after the date of the issuance of any shares of Series D Preferred Stock, dividends at the rate per annum of $60,000 per share (which equates to 12% per annum of the Original Issue Price of the Series D Preferred Stock) shall accrue on such shares of Series D 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 D Preferred Stock) (the “ Accruing Dividends ”). Accruing Dividends shall accrue from day to day, whether or not declared; provided, however , that such Accruing Dividends shall be payable only upon a Liquidation Transaction as contemplated by Section 2(a) of this Article IV, upon redemption as contemplated by Section 3 of this Article IV, or upon a conversion of the Series D Preferred Stock as contemplated by Section 4(a) or 4(b) of this Article IV. 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 unless (in addition to the obtaining of any consents required elsewhere in the Restated Certificate) the holders of the Series D Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series D Preferred Stock in an amount at least equal to the amount of the aggregate Accruing Dividends then accrued on such share of Series D Preferred Stock and not previously paid.

2.     Liquidation .

(a)     Preference . In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, or upon a Liquidation Transaction: (a) first, the holders of the Series D Preferred Stock shall be entitled to receive on a pro rata pari passu basis, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share of Series D Preferred Stock equal to one (1) times (the “ Series D Multiplier ”) the sum of the Original Issue Price (as defined below) for the Series D Preferred Stock (as adjusted for stock splits, stock dividends, reclassification and the like) and all dividends accrued thereon pursuant to Section 1 of this Article IV, provided that in the case of a Liquidation Transaction, the “ Series D Multiplier ” shall be equal to two (2) times, (b) second, the holders of the Series C Preferred Stock shall be entitled to receive on a pro rata pari passu basis, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C-1 Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share of Series C Preferred Stock equal to the greater of: (i) the

 

2


Original Issue Price (as defined below) for the Series C Preferred Stock (as adjusted for stock splits, stock dividends, reclassification and the like), plus declared but unpaid dividends thereon, less declared and paid dividends thereon, or (ii) such amount as would have been payable had all shares of Series C Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution or winding up of the Corporation or such Liquidation Transaction, then (c) third, after payment of the aforesaid preferential amounts, the holders of the Series A Preferred Stock, Series B Preferred Stock and Series C-1 Preferred Stock shall be entitled to receive on a pro rata pari passu basis, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share of Series A Preferred Stock, Series B Preferred Stock or Series C-1 Preferred Stock, respectively, equal to the greater of: (i) the Original Issue Price (as defined below) for the Series A Preferred Stock, Series B Preferred Stock or Series C-1 Preferred Stock, respectively (as adjusted for stock splits, stock dividends, reclassification and the like) for each share of Series A Preferred Stock, Series B Preferred Stock or Series C-1 Preferred Stock, respectively, then held by such holder, plus declared but unpaid dividends, or (ii) such amount as would have been payable had all shares of Series A Preferred Stock, Series B Preferred Stock or Series C-1 Preferred Stock, respectively, been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution or winding up of the Corporation or such Liquidation Transaction. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series Preferred Stock, ratably in proportion to the preferential amount each such holder is otherwise entitled to receive; provided, however , and for the avoidance of doubt, such distribution shall be made in accordance with the prior sentence, such that the holders of Series D Preferred Stock shall receive payment in full of their aforesaid preferential amounts, prior to any distribution to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series C-1 Preferred Stock. The “ Original Issue Price ” of the Series A Preferred Stock shall be $1.9579445 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. The “Original Issue Price” of the Series B Preferred Stock shall be $3.2222 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. The “ Original Issue Price ” of the Series C Preferred Stock shall be $3.97 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. The “ Original Issue Price ” of the Series C-1 Preferred Stock shall be $3.97 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-1 Preferred Stock. The “ Original Issue Price ” of the Series D Preferred Stock shall be $500,000.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series D Preferred Stock.

(b)     Remaining Assets . Upon the completion of the distribution required by Section 2(a) above, if assets remain in the Corporation, the remaining assets of the Corporation shall be distributed solely to the holders of the Common Stock.

(c)     Certain Acquisitions .

(i)     Deemed Liquidation . For purposes of this Section 2, a liquidation, dissolution, or winding up of the Corporation shall be deemed to occur if the Corporation shall sell, license, convey or otherwise dispose of all or substantially all of its property or business or merge with or into or consolidate with any other corporation, limited liability company or other entity, in one or a series of transactions, unless the holders of at least a majority of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D

 

3


Preferred Stock, voting as a separate class, elect not to treat the transaction as a Liquidation Transaction for purposes of such Series of Preferred Stock (any such transaction, unless elected otherwise, a “ Liquidation Transaction ”).

(ii)     Valuation of Consideration . In the event of a deemed Liquidation Transaction as described in Section 2(c)(i) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value, which such value shall be determined in good faith by the Board of Directors of the Corporation. Any securities shall be valued as follows:

(A)    Securities not subject to an investment letter or other similar restrictions on free marketability:

(1)    If traded on a securities exchange the value shall be based on the formula specified in the definitive agreements for the Liquidation Transaction or, if no such formula exists, then the value of such securities shall be based on a formula approved in good faith by the Board of Directors and derived from the closing prices of the securities on such exchange over a specified time period;

(2)    If actively traded over-the-counter, the value shall be based on the formula specified in the definitive agreements for the Liquidation Transaction or, if no such formula exists, then the value of such securities shall be based on a formula approved in good faith by the Board of Directors and derived from the closing bid or sales prices (whichever is applicable) of such securities over a specified time period; and

(3)    If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors.

(B)    The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as specified above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.

(iii)     Notice of Liquidation Transaction . The Corporation shall give each holder of record of Series Preferred Stock written notice of any impending Liquidation Transaction not later than 10 days prior to the stockholders’ meeting called to approve such Liquidation Transaction, or 10 days prior to the closing of such Liquidation Transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such Liquidation Transaction. The first of such notices shall describe the material terms and conditions of the impending Liquidation Transaction and the provisions of this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. Unless such notice requirements are waived in writing, the Liquidation Transaction shall not take place sooner than 10 days after the Corporation has given the first notice provided for herein or sooner than 10 days after the Corporation has given notice of any material changes provided for herein. Notwithstanding the other provisions of this Restated Certificate, all notice periods or requirements in this Restated Certificate may be shortened or waived, either before or after the action for which notice is required, upon the written consent of the holders of a majority of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock, each voting as a separate class, that are entitled to such notice rights.

 

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(iv)     Effect of Noncompliance . In the event the requirements of this Section 2(c) are not complied with, the Corporation shall forthwith either cause the closing of the Liquidation Transaction to be postponed until the requirements of this Section 2 have been complied with, or cancel such Liquidation Transaction, in which event the rights, preferences, privileges and restrictions of the holders of Series Preferred Stock shall revert to and be the same as such rights, preferences, privileges and restrictions existing immediately prior to the date of the first notice referred to in Section 2(c)(iii).

3.     Redemption .

(a)     General . Unless prohibited by Delaware law governing distributions to stockholders, the shares of Series D Preferred Stock shall be redeemed by the Corporation at a price equal to the Original Issue Price per share for the Series D Preferred Stock, plus all dividends accrued thereon pursuant to Section 1 of this Article IV (the “ Redemption Price ”), in a single installment not more than ten (10) business days after receipt by the Corporation at any time on or after July 18, 2018, from the holders of at least a majority of the then outstanding shares of Series D Preferred Stock, of written notice requesting redemption of all shares of Series D Preferred Stock (the “ Redemption Request ”). Upon receipt of a Redemption Request, the Corporation shall apply all of its assets to any such redemption pursuant to the terms of this Section 3, and to no other corporate purpose, except to the extent prohibited by Delaware law governing distributions to stockholders. The date of such payment shall be referred to as the “ Redemption Date .” If on the Redemption Date Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of Series D Preferred Stock to be redeemed, the Corporation shall ratably redeem the maximum number of shares that it may redeem consistent with such law, and shall redeem the remaining shares as soon as it may lawfully do so under such law.

(b)     Surrender of Certificates; Payment . On or before the Redemption Date, each holder of shares of Series D Preferred Stock to be redeemed on such Redemption Date 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, 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 by the Corporation, 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.

(c)     Rights Subsequent to Redemption . If the Redemption Request shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the shares of Series D 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 in a timely manner, then notwithstanding that any certificates evidencing any of the shares of Series D Preferred Stock so called for redemption shall not have been surrendered, dividends with respect to such shares of Series D Preferred Stock shall cease to accrue after such Redemption 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 any such certificate or certificates therefor.

(d)     Redeemed or Otherwise Acquired Shares . Any shares of Series D 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 Series D Preferred Stock following redemption.

 

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(e)     No other Redemption Rights . Except as expressly set forth in this Section 3, the Series Preferred Stock is not redeemable.

4.     Conversion . The holders of the Series Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

(a)     Automatic Conversion of Series D Preferred Stock . At the closing of a transaction, or series of related transactions, in which the Corporation issues and sells equity securities (the “ Next Equity Financing ”), that results in gross proceeds to the Corporation equal to or exceeding Forty-Five Million Dollars ($45,000,000), the outstanding shares of Series D Preferred Stock shall automatically convert into fully paid and nonassessable shares of capital stock of the Corporation having the same rights, preferences and privileges as the Corporation’s equity securities issued in such Next Equity Financing (it being understood that the liquidation preference per share of such equity securities issued to each holder of Series D Preferred Stock shall be equal to the conversion price per share attributable to such conversion and not the price per share paid by the new investors in the Next Equity Financing) (the “ Next Equity Securities ”) as follows: the number of shares of such Next Equity Securities to be issued upon such conversion shall be equal to the quotient obtained by dividing: (i) the aggregate Original Issue Price for all shares of Series D Preferred Stock to be converted, plus all dividends accrued thereon pursuant to Section 1 of this Article IV as of the date of conversion, by (ii) the product of (a) the price per share of such Next Equity Securities sold to the investors in such Next Equity Financing multiplied by (b) 50% (0.50). The shares of Next Equity Securities to be issued upon conversion of the Series D Preferred Stock pursuant to this Section 4(a) shall be entitled to the same rights and subject to the same obligations provided in the purchase agreement and other financing documents entered into with the investors in the Next Equity Financing; provided, however , that the liquidation preference per share of the Next Equity Securities shall be equal to the conversion price per share attributable to such conversion after applying the fifty percent (50%) discount to the price paid by such investors in the Next Equity Financing referenced above. In addition, each holder of Series D Preferred Stock shall become a party to, and shall execute, all related Next Equity Financing documents, including, but not limited to, any definitive stock purchase agreement and any investors rights agreement.

(b)     Optional Conversion of Series D Preferred Stock . At the closing of the Next Equity Financing that results in gross proceeds to the Corporation of less than Forty-Five Million Dollars ($45,000,000), the outstanding Series D Preferred Stock shall be convertible, at the election of the holders holding not less than a majority of such shares of Series D Preferred Stock, into fully paid and nonassessable shares of Next Equity Securities. The Corporation shall provide at least ten (10) business days advance notice to the holders thereof of the expected closing date (the “ Expected Closing Date ”) of such Next Equity Financing. In order to convert the Series D Preferred Stock into Next Equity Securities at such a Next Equity Financing, the holder thereof must provide written notice thereof to the Corporation prior to the Expected Closing Date. The number of shares of such Next Equity Securities to be issued upon such conversion of Series D Preferred Stock shall be equal to the quotient obtained by dividing: (i) the aggregate Original Issue Price for all shares of Series D Preferred Stock to be converted, plus all dividends accrued thereon pursuant to Section 1 of this Article IV as of the date of conversion, by (ii) the product of (a) the price per share of such Next Equity Securities sold to the investors in such Next Equity Financing multiplied by (b) 50% (0.50). The shares of Next Equity Securities to be issued upon conversion of the Series D Preferred Stock pursuant to this Section 4(b) shall be entitled to the same rights and subject to the same obligations provided in the purchase agreement and other financing documents entered into with the investors in the Next Equity Financing; provided, however , that the liquidation preference per share of the Next Equity Securities shall be equal to the conversion price per share attributable to such conversion after applying the fifty percent (50%) discount to the price paid by such investors in the Next Equity Financing referenced above. In addition, each holder of the Series D

 

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Preferred Stock that is converted into Next Equity Securities in accordance with this Section 4(b) shall become a party to, and shall execute, all related Next Equity Financing documents, including, but not limited to, any definitive stock purchase agreement and any investors rights agreement.

(c)     Effect of Conversion .

(i)     Mechanics of Conversion; Holder of Record . At the closing of the Next Equity Financing that results in a conversion of Series D Preferred Stock into shares of Next Equity Securities pursuant to Section 4(a) or Section 4(b) hereof, the shares of Series D Preferred Stock so converted shall evidence solely the right to receive that number of Next Equity Securities as set forth in Section 4(a) or 4(b) above as the case may be (the “ Conversion Date ”). In addition, each holder of converted shares of Series D Preferred Stock acknowledges and agrees to return any certificate evidencing such shares of Series D Preferred Stock for cancellation promptly after receipt of notice of such conversion from the Corporation. The Corporation shall promptly issue and deliver to the holder a certificate or certificates for the number shares of Next Equity Securities to which the holder shall be entitled as a result of such conversion at such time as the certificate evidencing the shares of Series D Preferred Stock so converted is so returned to the Corporation for cancellation; provided, however , that each applicable holder shall be treated for all purposes as the record holder of such Next Equity Securities on the Conversion Date.

(ii)     Fractional Shares . No fractional shares shall be issued in connection with any conversion of Series D Preferred Stock; rather, the Corporation shall pay the holder cash in lieu of any fractional shares.

(d)     Right to Convert other Series Preferred Stock . Subject to Section 4(f), each share of Series Preferred Stock (other than Series D Preferred Stock which Conversion Rights attributable thereto are set forth in full in Section 4(a) and 4(b) above) shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of Series A Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Series A Preferred Conversion Rate (as defined below) then in effect by the number of shares of Series A Preferred Stock being converted. The conversion rate in effect at any time for conversion of the Series A Preferred Stock (the “ Series A Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Original Issue Price of the Series A Preferred Stock by the Series A Preferred Conversion Price (as defined below). The conversion price for the Series A Preferred Stock initially shall be the Original Issue Price of the Series A Preferred Stock (the “ Series A Preferred Conversion Price ”). The number of shares of Common Stock to which a holder of Series B Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Series B Preferred Conversion Rate (as defined below) then in effect by the number of shares of Series B Preferred Stock being converted. The conversion rate in effect at any time for conversion of the Series B Preferred Stock (the “ Series B Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Original Issue Price of the Series B Preferred Stock by the Series B Preferred Conversion Price (as defined below). The conversion price for the Series B Preferred Stock initially shall be the Original Issue Price of the Series B Preferred Stock (the “ Series B Preferred Conversion Price ”). The number of shares of Common Stock to which a holder of Series C Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Series C Preferred Conversion Rate (as defined below) then in effect by the number of shares of Series C Preferred Stock being converted. The conversion rate in effect at any time for conversion of the Series C Preferred Stock (the “ Series C Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Original Issue Price of the Series C Preferred Stock by the Series C Preferred Conversion Price (as defined below). The conversion price for the Series C Preferred Stock initially shall be the Original Issue Price of the

 

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Series C Preferred Stock (the “ Series C Preferred Conversion Price ”). The number of shares of Common Stock to which a holder of Series C-1 Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Series C-1 Preferred Conversion Rate (as defined below) then in effect by the number of shares of Series C-1 Preferred Stock being converted. The conversion rate in effect at any time for conversion of the Series C-1 Preferred Stock (the “ Series C-1 Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Original Issue Price of the Series C-1 Preferred Stock by the Series C-1 Preferred Conversion Price (as defined below). The conversion price for the Series C-1 Preferred Stock initially shall be the Original Issue Price of the Series C-1 Preferred Stock (the “ Series C-1 Preferred Conversion Price ”). The Series A Preferred Conversion Price, the Series B Preferred Conversion Price, the Series C Preferred Conversion Price and the Series C-1 Preferred Conversion Price are sometimes referred to herein, collectively, as the “ Series Preferred Conversion Price .” The Series A Preferred Conversion Rate, the Series B Preferred Conversion Rate, the Series C Preferred Conversion Rate and the Series C-1 Preferred Conversion Rate are sometimes referred to herein, collectively, as the “ Series Preferred Conversion Rate .” The Series Preferred Conversion Price shall be subject to adjustment as set forth in Section 4(g).

(e)     Automatic Conversion of Other Series Preferred Stock . Each share of Series Preferred Stock (other than Series D Preferred Stock which Conversion Rights attributable thereto are set forth in full in Sections 4(a) and 4(b) above) shall automatically be converted into a number of shares of Common Stock obtained by multiplying such share by the applicable Series Preferred Conversion Rate immediately upon the earlier of: (i) except as provided below in Section 4(g), the time immediately prior to the closing of the Corporation’s sale of its Common Stock in a firm commitment underwritten public offering of its Common Stock, or securities convertible into Common Stock, pursuant to an effective registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “ Securities Act ”), or the “completion date” with respect to the listing or admission of the Corporation’s Common Stock to a national securities exchange, including, without limitation, the Alternative Investment Market or the Main Market of the London Stock Exchange, pursuant to a similar disclosure document filed under a similar statute in a jurisdiction outside the United States , which results in a pre-money equity valuation of the Corporation of not less than Five Hundred Twenty Million Dollars ($520,000,000) and aggregate cash proceeds to the Corporation of not less than One Hundred Fifty Million Dollars ($150,000,000) (a “ Qualified IPO ”); (ii) immediately prior to the closing of a reverse merger of the Corporation with an entity (or a wholly owned subsidiary of such entity) that is subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended, or similar law or statute in a jurisdiction outside the United States; or (iii) the date specified by written consent or agreement of the holders of a majority of each of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C-1 Preferred Stock and Series C Preferred Stock, each voting as a separate class.

(f)     Mechanics of Conversion . With respect to the conversion of Series Preferred Stock other than Series D Preferred Stock: before any holder of such Series Preferred Stock shall be entitled to convert such Series Preferred Stock into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed (or a reasonably acceptable affidavit and indemnity undertaking in the case of a lost, stolen or destroyed certificate), at the office of the Corporation or of any transfer agent for such series of Series Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a certificate for the remaining number of shares of Series Preferred Stock if less than all of the Series

 

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Preferred Stock evidenced by the certificate were surrendered. Such conversion shall be deemed to have been made immediately prior to the close of business on: (i) the date of such surrender of the shares of Series Preferred Stock to be converted; or (ii) if applicable, the date of automatic conversion specified in Section 4(e) above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten public offering of securities registered pursuant to the Securities Act the conversion may, at the option of any holder tendering such Series Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event any persons entitled to receive Common Stock upon conversion of such Series Preferred Stock shall not be deemed to have converted such Series Preferred Stock until immediately prior to the closing of such sale of securities.

(g)     Conversion Price Adjustments of Series Preferred Stock for Certain Dilutive Issuances, Splits and Combinations . For the avoidance of doubt, Section 4(g), 4(h), 4(i) and 4(j) of this Article IV shall not apply to the Series D Preferred Stock, and any conversion price attributable to such Series D Preferred Stock shall not be adjusted or adjustable pursuant to the provisions of Sections 4(g), 4(h), 4(i) and 4(j) hereof. Subject to the foregoing sentence, the applicable Series Preferred Conversion Price shall be subject to adjustment from time to time as follows:

(i)     Issuance of Additional Stock below Original Issue Price. If the Corporation should issue, at any time after the date upon which any shares of Series Preferred Stock were first issued (an “ Original Issue Date ”), any Additional Stock (as defined below) without consideration or for a consideration per share less than the applicable Series Preferred Conversion Price in the case of the Series Preferred Stock, in each case in effect immediately prior to the issuance of such Additional Stock, the applicable Series Preferred Conversion Price in effect immediately prior to each such issuance shall automatically be adjusted as set forth in this Section 4(g)(i), unless otherwise provided in this Section 4(g)(i). Notwithstanding the foregoing, the consideration attributable to any Additional Stock issued upon conversion of the Series D Preferred Stock shall be the price per share of the Next Equity Securities sold in the Next Equity Financing as contemplated by subsections B(4)(a) or (b), as applicable, of this Article IV without giving effect to the fifty percent (50%) discount contemplated by subsections B(4)(a) or (b), as the case may be.

(A)     Adjustment Formula . Whenever the applicable Series Preferred Conversion Price is adjusted pursuant to this Section 4(g)(i), the new Series Preferred Conversion Price shall be determined by multiplying the applicable Series Preferred Conversion Price then in effect by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (the “ Outstanding Common ”) plus the number of shares of Common Stock that the aggregate consideration received by the Corporation for such issuance would purchase at such then-existing applicable Series Preferred Conversion Price in effect immediately prior to such issuance; and (y) the denominator of which shall be the number of shares of Outstanding Common plus the number of shares of such Additional Stock. For purposes of the foregoing calculation, the term “Outstanding Common” shall include shares of Common Stock deemed issued pursuant to Section 4(g)(i)(E) below.

(B)     Definition of “Additional Stock.” For purposes of this Section 4(g)(i), “Additional Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 4(g)(i)(E) below, deemed to be issued) by the Corporation after the Original Issue Date, other than:

(1)    Common Stock issued pursuant to a transaction described in subsection 4(g)(ii) hereof;

 

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(2)    shares of capital stock (or options therefor) issuable or issued to employees, consultants, advisors, officers or directors of the Corporation pursuant to a plan or plans approved by the Board;

(3)    shares of capital stock (or rights to acquire same) issued or issuable: (i) in a Qualified IPO; or (ii) upon exercise of warrants or rights granted to underwriters in connection with such Qualified IPO;

(4)    shares of capital stock (or rights to acquire same) issued in connection with any merger, consolidation, acquisition or similar business combination approved by the Board;

(5)    shares of capital stock or rights to acquire shares of capital stock issued in connection with equipment lease financing arrangements, credit agreements, debt financings with commercial lenders, or other commercial transactions; provided, however , that in each such case, such issuance is approved by the Board;

(6)    shares of capital stock or rights to acquire shares of capital stock issued in connection with strategic transactions involving the Corporation and other entities, including joint ventures, collaborations, technology transfer or development arrangements; provided, however , that in each such case, such issuance is approved by the Board;

(7)    shares of Common Stock issued upon conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series C-1 Preferred Stock or as a dividend or distribution on the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series C-1 Preferred Stock; or

(8)    shares of Series D Preferred Stock.

(C)     No Fractional Adjustments . No adjustment of the applicable Series Preferred Conversion Price shall be made in an amount less than one cent ($0.01) per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three years from the date of the event giving rise to the adjustment being carried forward.

(D)     Determination of Consideration . In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment.

(E)     Deemed Issuances of Common Stock . In the case of the issuance of securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (the “ Common Stock Equivalents ”), the following provisions shall apply for all purposes of this Section 4(g)(i):

(1)    The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (to the extent then convertible,

 

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exchangeable or exercisable) of any Common Stock Equivalents and subsequent conversion, exchange or exercise thereof shall be deemed to have been issued at the time such securities were issued or such Common Stock Equivalents were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related Common Stock Equivalents (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential antidilution adjustments) upon the conversion, exchange or exercise of any Common Stock Equivalents (the consideration in each case to be determined in the manner provided in Section 4(g)(i)(D)).

(2)    In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon conversion, exchange or exercise of any Common Stock Equivalents, other than a change resulting from the anti-dilution provisions thereof, the applicable Series Preferred Conversion Price, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the conversion, exchange or exercise of such Common Stock Equivalents.

(3)    Upon the termination or expiration of the convertibility, exchangeability or exercisability of any Common Stock Equivalents, the applicable Series Preferred Conversion Price, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Common Stock Equivalents that remain convertible, exchangeable or exercisable) actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(4)    The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Section 4(g)(i)(E)(1) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 4(g)(i)(E)(2) or 4(g)(i)(E)(3).

(F)     No Increased Conversion Price . Notwithstanding any other provisions of this Section 4(g)(i), except to the limited extent provided for in Sections 4(g)(i)(E)(2) and 4(g)(i)(E)(3), no adjustment of the applicable Series Preferred Conversion Price pursuant to this Section 4(g)(i) shall have the effect of increasing any Series Preferred Conversion Price above the applicable Series Preferred Conversion Price in effect immediately prior to such adjustment.

(ii)     Stock Splits and Dividends . In the event the Corporation should at any time after the applicable Original Issue Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or Common Stock Equivalents without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the applicable Series Preferred Conversion Price shall be appropriately 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 of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in Section 4(g)(i)(E).

(iii)     Reverse Stock Splits . If the number of shares of Common Stock outstanding at any time after the applicable Original Issue Date is decreased by a combination of

 

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the outstanding shares of Common Stock, then, following the record date of such combination, the applicable Series Preferred Conversion Price shall be appropriately 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 outstanding shares.

(h)     Other Distributions . In the event the Corporation shall declare a distribution (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in Section 4 or Section 2 of this Article IV(B)) payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4(g)(i) or 4(g)(ii), then, in each such case for the purpose of this Section 4(h), the holders of Series Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

(i)     Recapitalizations . If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in Section 4 or Section 2 of this Article IV(B)) provision shall be made so that the holders of the Series Preferred Stock shall thereafter be entitled to receive upon conversion of such Series Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of such Series Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the applicable Series Preferred Conversion Price then in effect and the number of shares purchasable upon conversion of such Series Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable.

(j)     No Fractional Shares and Certificate as to Adjustments .

(i)    No fractional shares shall be issued upon the conversion of any share or shares of the Series Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded down to the nearest whole share. The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of Series Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. If the conversion would result in any fractional share, the Corporation shall, in lieu of issuing any such fractional share, pay the holder thereof an amount in cash equal to the fair market value of such fractional share on the date of conversion, as determined in good faith by the Board of Directors.

(ii)    Upon the occurrence of each adjustment or readjustment of the applicable Series Preferred Conversion Price pursuant to this Section 4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Series Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the applicable Series Preferred Conversion Price at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of the Series Preferred Stock.

 

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(k)     Notices of Record Date . In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series Preferred Stock, at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

(l)     Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of such series of Series 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 such series of Series Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Restated Certificate.

(m)     Notices . Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

5.     Voting Rights . Except as expressly provided by this Restated Certificate or as provided by law, the holders of Series Preferred Stock shall have the same voting rights as the holders of Common Stock and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation, and the holders of Common Stock and the Series Preferred Stock shall vote together as a single class on all matters. Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held, each holder of Series Preferred Stock (other than the Series D Preferred Stock) shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series Preferred Stock could be converted and each holder of Series D Preferred Stock shall be entitled to one vote for each share of Series D Preferred Stock held, in each case as of the record date of such meeting. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half or more being rounded upward).

6.     Preferred Stock Protective Provisions . So long as any shares of Preferred Stock) remain outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of a majority of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock, and Series D Preferred Stock each voting as a separate class, including any approvals required by the Stockholder Agreement, dated as of even date herewith, by and among by the Corporation, the holders listed on Exhibit A thereto and such other persons who thereafter became parties to the Stockholder Agreement pursuant to the terms thereof, as amended from time to time (the “ Stockholder Agreement ”), take any action (or permit any subsidiary to take any such action) whether directly or indirectly through merger, consolidation, recapitalization or otherwise, to:

 

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(a)    create, allot, issue (or agree to create, allot or issue) any shares or securities in the Corporation, or grant any option, warrant or other right to subscribe for, convert into or otherwise require the creation, allotment or issue of any such shares or securities, whether conditional or not, other than pursuant to the Corporation’s equity incentive plan in existence as of the date hereof;

(b)    increase, repay, subdivide, consolidate, capitalize, redenominate or otherwise vary the share capital of the Corporation;

(c)    approve any merger, liquidation, dissolution or acquisition of the Corporation;

(d)    amend, alter, waive or repeal this Restated Certificate or the Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Preferred Stock;

(e)    undertake any Liquidation Transaction which results in an enterprise value to the Corporation of less than Five Hundred Twenty Million Dollars ($520,000,000);

(f)    purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on any shares of capital stock of the Corporation prior to the Preferred Stock other than repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

(g)    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, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Corporation, or 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)     (1) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Preferred Stock in respect of any such right, preference, or privilege or (2) reclassify, alter or amend any existing security of the Corporation that is junior to the Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Preferred Stock in respect of any such right, preference or privilege;

(i)    amend, modify, vary, alter or abrogate the rights, privileges or restrictions attaching to the Preferred Stock;

(j)    enter into any negotiations or reach any agreement for the Corporation to sell, transfer or otherwise dispose of any significant asset (excluding, for the avoidance of doubt, any sale or transfer in the ordinary course of business) or any material part of the Corporation’s business or undertaking, whether by a single transaction or series of transactions, whether related or not;

 

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(k)    establish any equity incentive plan or other employee benefit arrangement plan after the date hereof;

(l)    enter into any contract or arrangement with a related party that is not in the ordinary course of business and at arm’s length terms; or

(m)    enter into any agreement, commitment or arrangement to do any of the foregoing;

provided, however , that nothing herein shall prevent the Corporation from undertaking a reorganization transaction in which the Corporation is acquired by an affiliated entity (the “ Acquiror ”) in a reverse triangular merger whereby the Acquiror’s capital stock is issued to and owned by the same persons in the same proportions and with the same rights, preferences and privileges as the same persons who own the capital stock of the Corporation immediately prior to such transaction.

Upon request by any stockholder, a copy of the Stockholder Agreement will be provided by the Secretary of the Corporation free of charge.

7.     Status of Converted Stock . In the event any shares of Series Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be cancelled and shall not be issuable by the Corporation. This Restated Certificate shall be appropriately amended to effect the corresponding reduction in the Corporation’s authorized capital stock.

(C)     Common Stock .

1.     Dividend Rights . Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

2.     Liquidation Rights . Upon the liquidation, dissolution or winding up of the Corporation, or the occurrence of a Liquidation Transaction, the assets of the Corporation shall be distributed as provided in Section 2 of Article IV(B).

3.     Redemption . The Common Stock is not redeemable.

4.     Voting Rights . Each holder of Common Stock shall have the right to one vote per share of Common Stock, and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law.

ARTICLE V

In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized and empowered to adopt, amend or repeal the Bylaws of the Corporation.

ARTICLE VI

Unless and except to the extent the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.

 

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ARTICLE VII

Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware (the “ Court ”) may, on the application in a summary way of this Corporation or any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of section 279 of Title 8 of the Delaware Code, order a meeting of creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such a manner as such Court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, such compromise or arrangement and such reorganization shall, if sanctioned by the Court to which such application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

ARTICLE VIII

(A)     Indemnification . To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and agents of the Corporation (and any other persons to which the Delaware General Corporation Law (the “ DGCL ”) permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the DGCL.

(B)     Insurance . The Corporation may, to the fullest extent permitted by applicable law, at any time without further stockholder approval, 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 director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under applicable law.

(C)     Prospective Repeal or Amendment . Any repeal, modification or amendment of this Article VIII by the stockholders of the Corporation or by changes in applicable law shall, to the extent permitted by applicable law, be prospective only, and shall not adversely affect any right to indemnification or advancement of expenses of a director or officer of the Corporation existing at the time of such repeal, modification or amendment. In addition to the foregoing, the right to indemnification and advancement of expenses shall be to the fullest extent permitted by the DGCL or any other applicable law and all amendments to such laws as hereafter enacted from time to time.

ARTICLE IX

The personal liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent under applicable law. If the DGCL is amended 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 DGCL, as so amended. Any repeal or modification of this Article IX shall be prospective and shall not affect the rights

 

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under this Article IX in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.

ARTICLE X

All of the powers of this Corporation, insofar as the same may be lawfully vested by this Restated Certificate in the Board of Directors, are hereby conferred upon the Board of Directors of this Corporation.

[Remainder of Page Intentionally Left Blank]

 

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The foregoing Third Amended and Restated Certificate of Incorporation has been duly adopted by this corporation’s Board of Directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law.

IN WITNESS WHEREOF, the Third Amended and Restated Certificate of Incorporation has been signed under the seal of the Corporation this 28 th day of July, 2017.

 

/s/ Jay File

Jay File, Chief Financial Officer

 

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Table of Contents

Exhibit 3.4

BYLAWS

OF

EVOFEM BIOSCIENCES, INC.

 

 

(A DELAWARE CORPORATION)


Table of Contents

TABLE OF CONTENTS

 

         Page  

ARTICLE I OFFICES

     1  

Section 1.

  Registered Office      1  

Section 2.

  Other Offices      1  

ARTICLE II CORPORATE SEAL

     1  

Section 3.

  Corporate Seal      1  

ARTICLE III STOCKHOLDERS’ MEETINGS

     1  

Section 4.

  Place of Meetings      1  

Section 5.

  Annual Meeting      1  

Section 6.

  Special Meetings      3  

Section 7.

  Notice of Meetings      4  

Section 8.

  Quorum      4  

Section 9.

  Adjournment and Notice of Adjourned Meetings      4  

Section 10.

  Voting Rights      5  

Section 11.

  Joint Owners of Stock      5  

Section 12.

  List of Stockholders      5  

Section 13.

  Action Without Meeting      5  

Section 14.

  Organization      6  

ARTICLE IV DIRECTORS

     7  

Section 15.

  Number and Term of Office      7  

Section 16.

  Powers      7  

Section 17.

  Term of Directors      7  

Section 18.

  Vacancies      8  

Section 19.

  Resignation      8  

Section 20.

  Removal      8  

Section 21.

  Meetings      9  

Section 22.

  Quorum and Voting      10  

Section 23.

  Action Without Meeting      10  

Section 24.

  Fees and Compensation      10  

Section 25.

  Committees      10  

Section 26.

  Organization      11  

ARTICLE V OFFICERS

     11  

Section 27.

  Officers Designated      11  

Section 28.

  Tenure and Duties of Officers      12  

Section 29.

  Delegation of Authority      13  

Section 30.

  Resignations      13  

Section 31.

  Removal      13  

ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION

     13  

Section 32.

  Execution of Corporate Instruments      13  

Section 33.

  Voting of Securities Owned by the Corporation      13  

 

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ARTICLE VII SHARES OF STOCK

     14  

Section 34.

  Form and Execution of Certificates      14  

Section 35.

  Lost Certificates      14  

Section 36.

  Transfers      14  

Section 37.

  Fixing Record Dates      15  

Section 38.

  Registered Stockholders      15  

ARTICLE VIII OTHER SECURITIES OF THE CORPORATION

     16  

Section 39.

  Execution of Other Securities      16  

ARTICLE IX DIVIDENDS

     16  

Section 40.

  Declaration of Dividends      16  

Section 41.

  Dividend Reserve      16  

ARTICLE X FISCAL YEAR

     17  

Section 42.

  Fiscal Year      17  

ARTICLE XI INDEMNIFICATION

     17  

Section 43.

  Indemnification of Directors, Officers, Employees and Other Agents      17  

ARTICLE XII NOTICES

     19  

Section 44.

  Notices      19  

ARTICLE XIII AMENDMENTS

     20  

Section 45.

  Amendments      20  

ARTICLE XIV ANNUAL REPORT

     20  

Section 46.

  Annual Report      20  

 

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BYLAWS

OF

EVOFEM BIOSCIENCES, INC.

(A DELAWARE CORPORATION)

ARTICLE I

OFFICES

Section  1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. (Del. Code Ann., tit. 8, § 131)

Section  2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. (Del. Code Ann., tit. 8, § 122(8))

ARTICLE II

CORPORATE SEAL

Section  3. Corporate Seal. The Board of Directors may adopt a corporate seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, “Corporate Seal-Delaware.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8, § 122(3))

ARTICLE III

STOCKHOLDERS’ MEETINGS

Section  4. Place of Meetings. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (“DGCL”). (Del. Code Ann., tit. 8, § 211(a))

Section 5. Annual Meeting.

(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation’s notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5(c). (Del. Code Ann., tit. 8, § 211(b))

(b) During such time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law (the “CGCL”), in the event that there is a failure to hold an

 

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annual meeting of stockholders for a period of sixty (60) days after the date designated for such annual meeting, or if no date has been designated for a period of fifteen (15) months after the organization of the corporation or after its last annual meeting, then the Superior Court of the proper county may summarily order a meeting to be held upon the application of any stockholder after notice to the corporation giving it an opportunity to be heard. (CGCL § 600(c))

(c) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under the DGCL, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in this Section 5(c)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation’s voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “1934 Act”) and Rule 14a-4(d) thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation’s books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent, a “Solicitation Notice”).

 

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(d) Notwithstanding anything in the second sentence of Section 5(c) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the corporation.

(e) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.

(f) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders’ meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.

(g) For purposes of this Section 5, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.

Section 6. Special Meetings.

(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) by the holders of shares entitled to cast not less than twenty-five percent (25%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors shall fix.

(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. Nothing contained in this

 

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paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.

Section  7. Notice of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (Del. Code Ann., tit. 8, §§ 222, 229, 232)

Section  8. Quorum . At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series. (Del. Code Ann., tit. 8, § 216)

Section  9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any

 

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business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8, § 222(c))

Section  10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. (Del. Code Ann., tit. 8, §§ 211(e), 212(b))

Section  11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, § 217(b))

Section  12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law. (Del. Code Ann., tit. 8, § 219)

Section 13. Action Without Meeting.

(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, or by electronic transmission setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (Del. Code Ann., tit. 8, § 228)

(b) Every written consent or electronic transmission shall bear the date of signature of each stockholder who signs the consent, and no written consent or electronic transmission shall be

 

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effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents or electronic transmissions signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. (Del. Code Ann., tit. 8, § 228)

(c) 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 or by electronic transmission and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take action were delivered to the corporation as provided in Section 228(c) of the DGCL. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.

(d) A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in the state of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the board of directors of the corporation. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. (Del. Code Ann., tit. 8 § 228(d))

Section 14. Organization.

(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.

 

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(b) T he Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

ARTICLE IV

DIRECTORS

Section  15. Number and Term of Office . The authorized number of directors of the corporation shall be fixed by the Board of Directors from time to time. Directors need not be stockholders unless so required by these Bylaws or the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient. (Del. Code Ann., tit. 8, §§ 141(b), 211(b), (c))

Section  16. Powers . The powers of the corporation shall be exercised, its business conducted and its property controlled by resolution of the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. (Del. Code Ann., tit. 8, § 141(a))

Section 17. Term of Directors.

(a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

(b) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation is subject to Section 2115(b) of the CGCL. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholder’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder’s shares are otherwise entitled, or distribute the stockholder’s votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder’s votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder’s intention to cumulate such stockholder’s votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.

 

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Section 18. Vacancies.

(a) Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. (Del. Code Ann., tit. 8, § 223(a), (b))

(b) At any time or times that the corporation is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the total number of directors then in office, then:

(i) any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or

(ii) the Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of the stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL, the term of office of any director shall terminate upon that election of a successor. (CGCL § 305(c))

Section  19. Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective upon delivery. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8, §§ 141(b), 223(d))

Section 20. Removal.

(a) Subject to any limitations imposed by applicable law (and assuming the corporation is not subject to Section 2115 of the CGCL), the Board of Directors or any director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the corporation entitled to vote generally at an election of directors, or (ii) without cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the corporation, entitled to vote generally at an election of directors. (Del. Code Ann., tit. 8, § 141(k))

(b) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares

 

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entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director’s removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director’s most recent election were then being elected. (Del. Code Ann., tit. 8, § 141(k)(2))

(c) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, at the suit of stockholders holding at least ten percent (10%) of the outstanding shares of any class, the Superior County of the proper county may (i) remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation; and (ii) may bar from reelection any director so removed for a period prescribed by such court of competent jurisdiction. (CGCL § 304)

Section 21. Meetings.

(a) Regular Meetings Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, including a voice-messaging system or other system designated to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for a regular meeting of the Board of Directors. (Del. Code Ann., tit. 8, § 141(g))

(b) Special Meetings Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, Chief Executive Officer or any director. (Del. Code Ann., tit. 8, § 141(g))

(c) Meetings by Electronic Communications Equipment Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (Del. Code Ann., tit. 8, § 141(i))

(d) Notice of Special Meetings Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, postage prepaid at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (Del. Code Ann., tit. 8, § 229)

(e) Waiver of Notice The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the

 

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corporate records or made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, § 229)

Section 22. Quorum and Voting.

(a) Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed by these Bylaws in accordance with the Certificate of Incorporation; provided, however, at any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (Del. Code Ann., tit. 8, § 141(b))

(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, § 141(b))

Section  23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. (Del. Code Ann., tit. 8, § 141(f))

Section  24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. (Del. Code Ann., tit. 8, § 141(h))

Section 25. Committees.

(a) Executive Committee The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and 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 (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation. (Del. Code Ann., tit. 8, § 141(c))

(b) Other Committees The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8, § 141(c))

 

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(c) Term The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of this Section 25, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (Del. Code Ann., tit. 8, § 141(c))

(d) Meetings Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8, §§ 141(c), 229)

Section  26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.

ARTICLE V

OFFICERS

Section  27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of

 

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the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. (Del. Code Ann., tit. 8, §§ 122(5), 142(a), (b))

Section 28. Tenure and Duties of Officers.

(a) General All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (Del. Code Ann., tit. 8, § 141(b), (e))

(b) Duties of Chairman of the Board of Directors The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. (Del. Code Ann., tit. 8, § 142(a))

(c) Duties of President The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))

(d) Duties of Vice Presidents The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))

(e) Duties of Secretary The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))

(f) Duties of Chief Financial Officer The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall

 

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perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))

Section  29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.

Section  30. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. (Del. Code Ann., tit. 8, § 142(b))

Section  31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING

OF SECURITIES OWNED BY THE CORPORATION

Section 32. Execution of Corporate Instruments.

(a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. (Del. Code Ann., tit. 8, §§ 103(a), 142(a), 158)

(b) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.

(c) Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. (Del. Code Ann., tit. 8, §§ 103(a), 142(a), 158).

Section  33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by

 

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resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. (Del. Code Ann., tit. 8, § 123)

ARTICLE VII

SHARES OF STOCK

Section  34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. (Del. Code Ann., tit. 8, § 158)

Section  35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner’s legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. (Del. Code Ann., tit. 8, § 167)

Section 36. Transfers.

(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (Del. Code Ann., tit. 8, § 201, tit. 6, § 8- 401(1))

(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL. (Del. Code Ann., tit. 8, § 202(c))

 

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Section 37. Fixing Record Dates.

(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. 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. 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. (Del. Code Ann., tit. 8, § 213(a))

(b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (Del. Code Ann., tit. 8, § 213(b))

(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (Del. Code Ann., tit. 8, § 213(c))

Section  38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (Del. Code Ann., tit. 8, §§ 213(a), 219)

 

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ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

Section  39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.

ARTICLE IX

DIVIDENDS

Section  40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law. (Del. Code Ann., tit. 8, §§ 170, 173)

(b) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the corporation may pay a dividend to stockholders so long as:

(i) The amount of the retained earnings of the corporation immediately prior to the payment of the dividend equals or exceeds the amount of the proposed dividend; or

(ii) Immediately after giving effect to the payment of such dividend, the sum of the assets of the corporation (excluding any goodwill, capitalized research and development expenses and deferred charges) would be equal to one and one quarter (11/4) times the corporation’s liabilities (excluding any deferred taxes, deferred income and other deferred credits) and the current assets of the corporation would be at least equal to its current liabilities.

Section  41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. (Del. Code

 

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Ann., tit. 8, § 171)

ARTICLE X

FISCAL YEAR

Section  42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

ARTICLE XI

INDEMNIFICATION

Section 43. Indemnification of Directors, Officers, Employees and Other Agents.

(a) Directors and Officers The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or any other applicable law or (iv) such indemnification is required to be made under subsection (d). (Del. Code Ann., tit. 8, § 145)

(b) Employees and Other Agents The corporation shall have power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person to such officers or other persons as the Board of Directors shall determine. (Del. Code Ann., tit. 8, §§ 141, 145)

(c) Expenses The corporation shall advance to 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, by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding, provided, however, that, if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Section 44 or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation, in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of a quorum consisting of directors who were not parties to the proceeding, even if not a quorum, (ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, or (iii) if there are no such

 

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directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.

(d) Enforcement Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Bylaw to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Article XII or otherwise, shall be on the corporation.

(e) Non-Exclusivity of Rights The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL or any other applicable law.

(f) Survival of Rights The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

(g) Insurance To the fullest extent permitted by the DGCL, or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.

(h) Amendments Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence

 

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of any action or omission to act that is the cause of any proceeding against any agent of the corporation.

(i) Saving Clause If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. If this Section 44 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and officer to the full extent under applicable law.

(j) Certain Definitions For the purposes of this Bylaw, the following definitions shall apply:

(i) The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.

(ii) The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.

(iii) The term the “corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.

(iv) References to a “director,” “executive officer,” “officer,” “employee,” or “agent” of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.

(v) References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, 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 interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Bylaw.

ARTICLE XII

NOTICES

Section 44. Notices.

(a) Notice to Stockholders Written notice to stockholders of stockholder meetings

 

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shall be given as provided in Section 7 herein. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by United States mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means. (Del. Code Ann., tit. 8, §§ 222, 232)

(b) Notice to Directors Any notice required to be given to any director may be given by the method stated in subsection (a), or as provided for in Section 21 of these Bylaws. If such notice is not delivered personally, it shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.

(c) Affidavit of Mailing An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, § 222)

(d) Methods of Notice It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.

(e) Notice to Person with Whom Com munication Is Unlawful Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

ARTICLE XIII

AMENDMENTS

Section  45. Amendments. The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the corporation. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the corporation.

ARTICLE XIV

ANNUAL REPORT

Section 46. Annual Report.

 

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(a) During such time or times that the corporation is subject to Section 2115 of the CGCL and subject to the provisions of paragraph (b) of this Bylaw, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporation’s fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 stockholders of record of the corporation’s shares, as determined by Section 605 of the CGCL, additional information as required by Section 1501(b) of the CGCL shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the 1934 Act, the 1934 Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates.

(b) If and so long as there are fewer than 100 holders of record of the corporation’s shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived.

[Remainder of Page Intentionally Left Blank]

 

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CERTIFICATE OF SECRETARY

I DO HEREBY CERTIFY AS FOLLOWS:

That I am the duly elected, qualified and acting secretary of EVOFEM BIOSCIENCES, INC. The Bylaws immediately preceding this Certificate of Secretary are the Bylaws of the Corporation, unanimously adopted and approved by the Board of Directors of the Corporation on July 23, 2015.

IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of July, 2015.

 

/s/ Ellen Thomas
Ellen Thomas, Secretary

Exhibit 4.8

THIS WARRANT AND THE SECURITIES UNDERLYING THIS WARRANT HAVE NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS PURSUANT TO EXEMPTIONS IN THE VARIOUS JURISDICTIONS WHERE THEY ARE BEING SOLD.

Issued ___, 2017

AMENDED AND RESTATED WARRANT TO PURCHASE COMMON STOCK

OF

NEOTHETICS, INC.

This W ARRANT (the “ Warrant ”) is issued to [·] (the “ Holder ”), as agent for and on behalf of [ · ] (the “ Fund ”), or its registered assigns, by Neothetics, Inc., a Delaware corporation (the “ Company ”), pursuant to Section 1.6(f) of that certain Agreement and Plan of Merger and Reorganization, dated October 17, 2017, by and among Evofem Biosciences, Inc., a Delaware corporation (“ Evofem ”), Nobelli Merger Sub, Inc., a Delaware corporation, and the Company (the “ Merger Agreement ”). Capitalized terms used but not defined in this Warrant have the meanings assigned to such terms in the Merger Agreement. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange hereof as provided herein.

R ECITALS

A. The Holder acknowledges and agrees that one or more warrants to purchase shares of capital stock of Evofem were originally issued to Holder by Evofem pursuant to that certain Series D Preferred Stock Purchase Agreement, dated July 13, 2016, by and between Evofem and Holder as amended by that certain First Amendment to the Series D Preferred Stock Purchase Agreement, dated July 28, 2017, by and between Evofem and Holder (the “ Prior Warrants ”) and that the Prior Warrants were assumed by the Company pursuant to the Merger Agreement.

B. The parties now desire to amend and restate the Prior Warrants in their entirety as set forth herein.

C. The Warrant is being issued as a unit consisting of this Warrant and one share of the Company’s Common Stock (the “ Voting Share ”).

D. The Voting Share shall entitle the Holder to one (1) vote on all matters presented to the stockholders of the Company for a vote of the stockholders of the Company.


E. The Holder further acknowledges and agrees that, as of the date of this Warrant, the Prior Warrants shall no longer be of any further force or effect and are superseded and replaced in their entirety by this Warrant.

1. Warrant . Subject to the terms and conditions hereinafter set forth, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the Holder hereof in writing), to purchase up to [Twelve Million (12,000,000)] 1 shares of Common Stock of the Company, par value $0.0001 per share (such stock, the “ Common Stock ”; such shares, the “ Warrant Shares ”).

2. Exercise Period . Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, at any time after the date that is one (1) year after the date of this Warrant until the earlier of (a) the date that is four (4) years after the date of this Warrant and (b) immediately prior to the completion of an Acceleration Event (as defined below) (such period, the “ Exercise Period ”). For the purposes of clarity, the Exercise Period shall end and this Warrant shall no longer be exercisable and shall become null and void and of no further force or effect (except for the right to receive the cash, securities or other property to which the Holder would be entitled by virtue of exercising this Warrant immediately prior to the completion of such Acceleration Event) upon the consummation of an Acceleration Event. If the Company proposes to undertake an Acceleration Event, it shall provide written notice thereof to Holder not less than twenty (20) days prior to the expected completion date of such Acceleration Event. In the event this Warrant is not formally exercised by the Holder prior to the completion of an Acceleration Event, then this Warrant shall be deemed exercised automatically pursuant to Section 4(b) hereof immediately prior to the completion of such Acceleration Event. As used herein, “ Acceleration Event ” means (i) the closing of the sale, transfer or other disposition of all or substantially all of the Company’s assets, (ii) the consummation of the merger of the Company (directly or indirectly) with or into another entity (except a merger in which the holders of capital stock of the Company immediately prior to such merger continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring entity immediately after such merger), or (iii) a liquidation, dissolution or winding up of the Company.

3. Exercise Price . The exercise price per Warrant Share shall be equal to the average of the closing prices of Common Stock of the Company as quoted on the NASDAQ CM for the thirty (30) consecutive trading days commencing with the first trading day immediately following the Effective Time (as defined in the Merger Agreement).

4. Exercise of Warrant .

(a) The purchase rights represented by this Warrant are exercisable by the Holder in whole or in part at any time, or from time to time, as described above, by the surrender of this Warrant and delivery to the Company of an exercise notice in substantially the form attached hereto as Exhibit A (the “ Notice of Exercise ”) and upon payment: (i) in cash or by check or wire transfer of immediately available funds; (ii) by cancellation by the Holder of indebtedness or other obligations owed by the Holder to the Company; or (iii) by combination of (i) and (ii), of the purchase price of the Warrant Shares to be purchased.

(b) Net Issuance . In lieu of payment of the Exercise Price in accordance with Section 4(a), the Holder may, in accordance with and pursuant to the Notice of Exercise, elect to receive,

 

1  

NTD: To be adjusted proportionately for each fund.

 

2


without the payment by the Holder of any additional consideration, such number of fully paid and nonassessable Warrant Shares as is computed using the following formula:

 

where:

  

X = Y (A – B)

    A 

 

  X = the number of shares to be issued to the Holder pursuant to this Section 4(b)

 

  Y = the number of shares covered by the Warrant in respect of which the net issuance election is made pursuant to this Section 4(b)

 

  A = the fair market value of one share of Warrant Shares, as determined in accordance with the provisions of this Section 4(b)

 

  B = the Exercise Price in effect at the time the net issuance election is made pursuant to this Section 4(b)

For purposes of this Section 4(b), the “ fair market value ” shall mean, on any given day (the “ Determination Date ”): (A) if the class of Warrant Shares is exchange-traded, the average of the closing sales prices per share of the class of Warrant Shares for the ten (10) consecutive trading days ending on the day that is two (2) trading days prior to the Determination Date; or (B) if the class of Warrant Shares is not listed or admitted to trading on any securities exchange but is regularly traded in any over-the-counter market, then the average of the bid and ask prices per share of the class of Warrant Shares for the ten (10) consecutive trading days ending on the day that is two (2) trading days prior to the applicable date of determination of fair market value; or (C) if the class of Warrant Shares is not sold or traded as described in clauses (A) or (B), then the per share fair market value of the class of Warrant Shares as determined in good faith by the Company’s Board of Directors.

(c) Mechanics of Exercise . Following the Company’s receipt of a completed Notice of Exercise and the surrender of this Warrant, Certificates for Warrant Shares purchased hereunder shall be transmitted by the Company’s transfer agent for its Common Stock to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“ DWAC ”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant is being exercised via cashless exercise and Rule 144 is available. If DWAC delivery is not available, the Warrant Shares will be delivered in certificated form by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is three (3) trading days after the latest of (A) the delivery to the Company of the Notice of Exercise, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise Price as set forth above (including by cashless exercise, if permitted). The Warrant Shares shall be deemed to have been issued, and the Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted). If this Warrant shall have been exercised in part, the Company shall, at the request of the Holder and upon surrender of this Warrant, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

5. Replacement of Warrant . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery or an indemnity agreement reasonably satisfactory in form and substance to the

 

3


Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at the Holder’s expense, shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

6. No Stockholder Rights; Voting Rights . Prior to exercise of the Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the Warrant Shares, including (without limitation) the right to (a) receive dividends or other distributions thereon, and (b) the Holder shall not be entitled to any notice or other communication concerning the business or affairs of the Company with respect to such Warrant Shares, except as otherwise provided herein.

7. Transferability; Unit Characteristics; Cancellation of the Voting Share .

(a) Subject to Section 7(b) below, this Warrant together with the rights, interests and obligations hereunder may be assigned or transferred in whole by the Holder to any person or entity so long as: (i) all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are requested by the Company), have been complied with, and (ii) the assignee agrees to be bound by the terms and conditions set forth herein, including, without limitation, executing the applicable agreements upon exercise of this Warrant. In order to effect such a transfer the Holder must provide the Company with advance written notice of such transfer together with the identity of the transferee.

(b) The Holder acknowledges and agrees that this Warrant has been issued as a unit consisting of this Warrant and the Voting Share. Notwithstanding anything to the contrary herein, to the extent a valid transfer of the Warrant is proposed pursuant to Section 7(a) above, then the Voting Share must also be validly transferred or assigned to such transferee or assignee in order for the transfer of the Warrant to be valid, it being understood that this Warrant and the Voting Share constitute a unit. Holder agrees to execute and deliver to the Company an assignment separate from certificate to effect any such transfer of the Voting Share and no transfer of the Warrant will be valid unless and until the Voting Share is transferred to the same transferee.

(c) The requirements set forth in Section 7(b) shall cease to be in effect at such time as this Warrant is fully exercised.

8. Amendments .

(a) Any term of this Warrant may be amended or waived with the written consent of the Company and the Holder.

(b) No waivers of, or exceptions to, any term, condition or provision of this Warrant, 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.

9. Adjustment of Exercise Price and Number of Shares . The number of and kind of securities purchasable upon exercise of the Warrant and the exercise price shall be subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances . If the Company shall at any time prior to the expiration of the Warrant subdivide the class of securities that includes the Warrant Shares, by split-up or otherwise, or combine or reverse split the class of securities that includes the Warrant Shares, or issue additional shares of the class of securities that includes the Warrant Shares as a

 

4


dividend with respect to the class of securities that includes the Warrant Shares, the number of Warrant Shares issuable on the exercise of the Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination or reverse split. Appropriate adjustments shall also be made to the exercise price payable per share, but the aggregate exercise price payable for the total number of shares of the Company’s capital stock purchasable under the Warrant (as adjusted) shall remain the same. Any adjustment under this Section 9(a) shall become effective at the close of business on the date the subdivision, split, combination or reverse split, or whatever the case may be, becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

(b) Reclassification, Reorganization and Consolidation . Except for an Acceleration Event which shall be governed by Section 2 hereof, in case of any other merger, reclassification, capital reorganization, or change in the Company’s capital stock (other than as a result of an Acceleration Event or a subdivision, combination, or stock dividend provided for in Section 9(a) above) then, as a condition of such merger, reclassification, reorganization, or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder with respect to this Warrant, so that the Holder shall have the right at any time prior to the expiration of the Exercise Period to purchase, at a total price equal to that payable upon the full exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such merger, reclassification, reorganization, or change by a holder of the same number of Warrant Shares as were purchasable by the Holder pursuant to the Warrant immediately prior to such merger, reclassification, reorganization, or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per share payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c) Notice of Adjustment . When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of shares of the Company’s capital stock or other securities or property thereafter purchasable upon exercise of the Warrant and any resulting changes to the Exercise Price.

(d) No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor.

10. Miscellaneous .

(a) Governing Law . This Agreement and the rights and obligations of the parties set forth herein shall be governed by, construed and interpreted in accordance with the internal laws of the State of Delaware (including its Uniform Commercial Code), but without giving effect to its laws or rules relating to conflicts of laws.

(b) Successors and Assigns . The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the respective successors and permitted assigns of the parties. Nothing in this Warrant, express or implied, in intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Warrant, except as expressly provided in this Warrant.

 

5


(c) Severability . If any provision of this Warrant is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible. If such clause or provision cannot be so enforced, such provision shall be stricken from this Warrant and the remainder of this Warrant shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Warrant.

(d) Notice . All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed properly delivered, given and received: (a) if delivered by hand, when delivered; (b) if sent on a business day by email before 11:59 p.m. (recipient’s time), when transmitted; (c) if sent by email on a day other than a business day, or if sent by email after 11:59 p.m. (recipient’s time), on the business day following the date when transmitted; (d) if sent by registered, certified or first class mail, the third business day after being sent; and (e) if sent by overnight delivery via a national courier service, one business day after being sent, in each case to the person and address set forth on the signature page hereof for Holder and with respect to the Company at their principal place of business to the attention of the Company’s chief financial officer as set forth in the SEC Reports (or to such other address as such party shall have specified in a written notice given to the other parties hereto).

[ Signature page follows ]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as of the date first set forth above by its duly authorized officer.

 

THE COMPANY:
Neothetics, Inc.,
a Delaware corporation
By:    
Name:  
Title:  

 

ACKNOWLEDGED AND AGREED:
HOLDER:
By:    
Name:    
Title:    
Address:    

S IGNATURE P AGE TO W ARRANT


EXHIBIT A

NOTICE OF EXERCISE

TO: [NORMANDY], INC.

(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of that certain Amended and Restated Warrant to Purchase Common Stock attached hereto 2 , and tenders herewith payment of the exercise price in full.

(2) Payment shall take the form of (check applicable box):

☐ in lawful money of the United States; or

☐ the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 4(b), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in Section 4(b).

(3) Please register said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

                                                             

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

 

                                                             

 

                                                             

 

                                                             

 

[SIGNATURE OF HOLDER]
 
Name:    
Title:    

 

 

2   Original Warrant should be attached to this form and delivered to the Company for each exercise.

Exhibit 4.9

FORM OF WARRANT

THIS WARRANT AND THE SECURITIES UNDERLYING THIS WARRANT HAVE NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS PURSUANT TO EXEMPTIONS IN THE VARIOUS JURISDICTIONS WHERE THEY ARE BEING SOLD.

EVOFEM BIOSCIENCES, INC.

WARRANT TO PURCHASE COMMON STOCK

 

No.             

       , 20    

THIS CERTIFIES THAT , for value received,              (the Holder ), is entitled to subscribe for and purchase from Evofem Biosciences, Inc., a Delaware corporation, with its principal office at 12400 High Bluff Drive, Suite 600, San Diego, California 92130 ( Evofem ), the Exercise Shares at the Exercise Price (each subject to adjustment as provided herein) in accordance with provisions set forth herein.

This Warrant is being issued to Holder in accordance with the terms of that certain Securities Purchase Agreement, dated October 17, 2017, by and among Neothetics, Inc., a Delaware corporation (“ Neothetics ”), Evofem and Holder (the “ Securities Purchase Agreement ”)

1. DEFINITIONS . As used herein, the following terms shall have the following respective meanings. Terms not otherwise defined shall the meanings set forth in the Securities Purchase Agreement.

(a) Exercise Price shall mean $0.001 per Exercise Share subject to adjustment pursuant to Section 5 below.

(b) Exercise Shares shall mean [158,999,371] 1 shares of common stock of Evofem, par value $0.001 per share, issuable upon exercise of this Warrant (subject to adjustment as set forth in Section 1.12(b) of the Agreement and Plan of Merger, dated as of the date hereof, among Evofem, Neothetics and the other parties thereto (the “ Merger Agreement ”)).

2. EXERCISE OF WARRANT . Holder will be deemed to have exercised this Warrant on a cashless basis as set forth below in this Section 2, and the rights represented by this Warrant will be fully exercised, in each case contingent upon and immediately following the conversion of shares of

 

1  

Reflects total aggregate Exercise Shares to be issued pursuant to the Securities Purchase Agreement to all Funds.


preferred stock of Evofem in connection with the Merger and immediately prior to the Effective Time (as defined in the Merger Agreement).

This Warrant will be deemed exercised on a net basis such that, without payment of any cash consideration, this Warrant will be surrendered in exchange for the number of Exercise Shares as is computed using the following formula:

X = Y-(A/(B/C))

Where:

 

   

X equals the number of Exercise Shares to be issued to the Holder;

 

   

Y equals the total number of Exercise Shares;

 

   

A equals the Aggregate Exercise Price (as adjusted to the date of such calculation);

 

   

B equals the value of the aggregate amount to be distributed to holders of shares of common stock of Evofem in the Merger (as such term is defined in the Merger Agreement) which, solely for the purposes of this Warrant, shall be deemed to be $86,108,822 (subject to adjustment as provided in Section 1.12(b) of the Merger Agreement);

 

   

C equals 275,375,361 shares of common stock of Evofem (subject to adjustment as provided in Section 1.12(b) of the Merger Agreement).

3. COVENANTS OF EVOFEM . Evofem covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. Evofem further covenants and agrees that Evofem will at all times following the date hereof and prior to the Effective Time, have authorized and reserved, free from preemptive rights, a sufficient number of shares of the series of equity securities comprising the Exercise Shares to provide for the exercise of the rights represented by this Warrant. If at any time following the date hereof and prior to the Effective Time the number of authorized but unissued shares of such series of Evofem’s equity securities shall not be sufficient to permit exercise of this Warrant, Evofem will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of such series of Evofem’s equity securities to such number of shares as shall be sufficient for such purposes.

4. REPRESENTATIONS OF HOLDER .

4.1 Acquisition of Warrant for Personal Account . The Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a view to or for sale or distribution of said Warrant or Exercise Shares or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only.

4.2 Securities Are Not Registered .

 

2


(a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Securities Act on the basis that no distribution or public offering of the stock of Evofem is to be effected. Each instrument evidencing the Exercise Shares which Holder may hereunder and any other securities issued upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event (unless no longer required in the opinion of the counsel for or Evofem) shall be imprinted with a legend substantially in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS PURSUANT TO EXEMPTIONS IN THE VARIOUS JURISDICTIONS WHERE THEY ARE BEING SOLD.

(b) Any book-entry evidence of the Exercise Shares shall not contain any legend (including the legend set forth in Section 4.2(a) above), (i) while a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Exercise Shares pursuant to Rule 144, (iii) if such Exercise Shares are eligible for sale under Rule 144, without the requirement for Evofem to be in compliance with the current public information required under Rule 144 as to such Exercise Shares and without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission).

4.3 Accredited Investor Status . The Holder is an “accredited investor” as defined in Regulation D promulgated under the Securities Act.

5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF EXERCISE SHARES . In the event of changes in the series of equity securities of Evofem comprising the Exercise Shares by reason of stock dividends, splits, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of Exercise Shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same Aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. For purposes of this Section 5, the Aggregate Exercise Price shall mean the aggregate Exercise Price payable in connection with the exercise in full of this Warrant. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. When any such adjustment is required to be made, Evofem shall promptly notify the Holder of such event and of the number of shares of Evofem’s common stock or other securities or property thereafter purchasable upon exercise of this Warrant and any resulting changes to the Exercise Price.

6. FRACTIONAL SHARES . No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) to be issued upon exercise of this Warrant shall be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would

 

3


result in the issuance of a fractional share, Evofem shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of one Exercise Share by such fraction.

7. NO STOCKHOLDER RIGHTS . This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of Evofem.

8. TRANSFER OF WARRANT . Subject to applicable laws, the restriction on transfer set forth on the first page of this Warrant, this Warrant and all rights hereunder are transferable by the Holder but solely to an affiliate or fund managed by Holder in person or by duly authorized attorney, upon delivery of the form of assignment attached hereto to any transferee designated by Holder. The transferee shall sign an investment letter in form and substance satisfactory to Evofem.

9. AMENDMENT . Any term of this Warrant may be amended or waived with the written consent of Evofem and Holder.

10. NOTICES, ETC . All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed properly delivered, given and received: (a) if delivered by hand, when delivered; (b) if sent on a Business Day by email before 11:59 p.m. (recipient’s time), when transmitted; (c) if sent by email on a day other than a Business Day, or if sent by email after 11:59 p.m. (recipient’s time), on the Business Day following the date when transmitted; (d) if sent by registered, certified or first class mail, the third Business Day after being sent; and (e) if sent by overnight delivery via a national courier service, one Business Day after being sent, in each case to the address set forth on the signature page hereof for Invesco and with respect to the Company and Evofem at their respective principal places of business (or to such other address as such party shall have specified in a written notice given to the other parties hereto).

11. ACCEPTANCE . Receipt of this Warrant or the Exercise Shares by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

12. GOVERNING LAW . This Warrant and all rights, obligations and liabilities hereunder shall be governed by and construed under the laws of the State of Delaware, made and to be performed entirely within the State of Delaware without giving effect to conflicts of law principles.

13. TERMINATION . This Warrant, and all rights, obligations and liabilities hereunder shall be automatically terminated upon the earlier of (i) the termination of the Merger Agreement in accordance with its terms, (ii) the termination of the Securities Purchase Agreement in accordance with its terms, and (iii) the Effective Time.

 

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IN WITNESS WHEREOF , Evofem has caused this Warrant to be executed by its duly authorized officer as of             , 2017.

 

EVOFEM BIOSCIENCES, INC.

By:

 

 

Name:

 

Saundra Pelletier

Title:

 

Chief Executive Officer


ASSIGNMENT FORM

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED , the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

Name:                                                       

(Please Print)

Address:                                                   

(Please Print)

Dated:                                 , 20            

Holder’s

Signature:                                                           

Holder’s

Address:                                                              

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

Exhibit 4.10

V OTING A GREEMENT

This V OTING A GREEMENT (this “ Agreement ”) is entered into as of [·], by and between Evofem Biosciences, Inc., a Delaware corporation formerly known as Neothetics, Inc. (the “ Company ”), and [·] (“ Manager ”), acting as agent for and on behalf of its discretionary managed clients identified on Annex A hereto (the “ Funds ”).

R ECITALS

A. As of the date of this Agreement, the Funds are the record owner[s] or “beneficial owner[s]” (as defined under Rule 13d-3 under the Exchange Act) of shares of capital stock of the Company (all such shares of capital stock, the “ Owned Shares ,” and together with any New Shares (as defined below), the “ Shares ”). For purposes of this Agreement, “ New Shares ” shall mean such shares a Fund acquires beneficial ownership of (as defined in Rule 13d-3 under the Exchange Act) after the date of this Agreement, including by reason of any additional investment, stock split, stock dividend, reclassification, recapitalization or other similar transaction or pursuant to the exercise of options or warrants to purchase such shares or the conversion of any debt.

B. This Agreement is being entered into in connection with the issuance of shares of the Company’s Common Stock to the Funds pursuant to the consummation of the transactions contemplated by that certain Agreement and Plan of Merger and Reorganization, dated as of October 17, 2017, by and among the Company, Nobelli Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“ Merger Sub ”), and Evofem Biosciences Operations, Inc., a Delaware corporation previously known as Evofem Biosciences, Inc. (“ Evofem Subsidiary ”), pursuant to which Merger Sub merged with and into Evofem Subsidiary with Evofem Subsidiary surviving such merger as a wholly owned subsidiary of the Company.

N OW , T HEREFORE , in consideration of the promises and the covenants and agreements set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

A GREEMENT

1. Agreement with Respect to Voting Certain Shares . Concurrently with the execution and delivery of this Agreement, Manager shall cause each applicable Fund to deliver to the Company a duly executed proxy in the form attached hereto as Exhibit A (the “ Proxy ”). Such Proxy is coupled with an interest sufficient in law to support an irrevocable proxy, and, so long as such Fund holds Shares in excess of 19.5% of the then issued and outstanding voting stock of the Company (the “ Threshold ”), the Proxy shall be irrevocable to the fullest extent permitted by law, with respect to each and every meeting of the stockholders of the Company or action or approval by written resolution or consent of the stockholders of the Company covering all of the Shares held by such Fund in excess of the Threshold (the “ Proxy Shares ”) in respect of which a Fund is entitled to vote at any such meeting or in connection with any such written consent. Upon the execution of this Agreement by Manager, (i) Manager hereby revokes any and all prior proxies (other than the Proxy) given by Manager or any Fund with respect to the Proxy Shares, and (ii) Manager shall not grant any subsequent proxies, or cause any Fund to grant any subsequent proxies, with respect to the Proxy Shares, or enter into any agreement or understanding with any individual, firm, corporation, partnership, association, limited liability company, trust or any other entity (a “ Person ”) to vote or give instructions with respect to the Proxy Shares in any manner inconsistent with the terms of the Proxy, from and after the date hereof and prior to the termination of the Proxy in accordance with this Agreement. Any vote, written consent or other action executed or taken by


the holder(s) of the Proxy in accordance with the terms thereof, shall prevail and supersede any vote, written consent or other action executed or taken by Manager or any Fund to the contrary.

2. Miscellaneous .

(a) Notices . All notices and other communications hereunder shall be in writing and shall be deemed duly delivered: (i) upon receipt if delivered personally; (ii) three (3) business days after being mailed by registered or certified mail, postage prepaid, return receipt requested; (iii) one (1) business day after it is sent by commercial overnight courier service; or (iv) upon transmission if sent via facsimile with confirmation of receipt to the parties at the following address (or at such other address for a party as shall be specified upon like notice):

 

  (i) if to the Company, to:

Evofem Biosciences, Inc.

12400 High Bluff Drive

Suite 600

San Diego, California 92130

Attention: Chief Financial Officer

Telephone No.: 858-550-1900

Facsimile No.: 844-828-2010

 

  (ii) if to Stockholder, to the address set forth for Stockholder on the signature page hereof.

(b) Interpretation . When a reference is made in this Agreement to sections or exhibits, such reference shall be to a section of or an exhibit to this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” The phrases “the date of this Agreement,” “the date hereof,” and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date first above written. Unless the context of this Agreement otherwise requires: (i) words of any gender include each other gender, (ii) words using the singular or plural number also include the plural or singular number, respectively, and (iii) the terms “hereof,” “herein,” “hereunder” and derivative or similar words refer to this entire Agreement.

(c) Specific Performance; Injunctive Relief . The parties hereto acknowledge that the Company will be irreparably harmed and that there will be no adequate remedy at law for a violation of any of the covenants or agreements of Stockholder set forth herein. Therefore, it is agreed that, in addition to any other remedies that may be available to the Company upon any such violation of this Agreement, the Company shall have the right to enforce such covenants and agreements by specific performance, injunctive relief or by any other means available to the Company at law or in equity and Stockholder hereby waives any and all defenses that could exist in his, her or its favor in connection with such enforcement and waives any requirement for the security or posting of any bond in connection with such enforcement.

(d) Counterparts . This Agreement may be executed in counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties hereto, which

 

2


counterparts may be executed and delivered electronically; it being understood that all parties need not sign the same counterpart.

(e) Entire Agreement; Nonassignability . This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof. Neither this Agreement nor any of the rights, interests, or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise, by Manager without the prior written consent of the Company, and any such assignment or delegation that is not consented to shall be null and void; provided , however , that Manager may, without the prior written consent of the Company, assign or delegate, in whole or in part, this Agreement and any rights, interests or obligations hereunder, to any affiliate of Manager (including to one or more investment funds that are affiliates of Manager) that acquires any of the Owned Shares, which assignment or delegation shall not relieve Stockholder of its obligations hereunder.

(f) Severability . In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement shall continue in full force and effect and the application of such provision to other Persons or circumstances shall be interpreted so as reasonably to effect the intent of the parties hereto. The parties hereto further agree to use their commercially reasonable efforts to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that shall achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.

(g) Remedies Cumulative . Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party shall be deemed cumulative (but without duplication) with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy shall not preclude the exercise of any other remedy.

(h) Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to such state’s principles of conflict of laws.

(i) Termination . This Agreement may not be terminated by Manager so long as any Fund holds shares in excess of the Threshold. This Agreement shall terminate and shall have no further force or effect as of the date that Manager delivers to the Company notice that no Fund holds shares in excess of the Threshold and that Manager desires to terminate this Agreement and revoke the Proxy.

(j) Amendment . Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by each of the parties hereto, or in the case of a waiver, by the party against which the waiver is to be effective. Notwithstanding the foregoing, no failure or delay by any party hereto in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any right hereunder.

(k) Rules of Construction . The parties hereto agree that they have been (or have had the opportunity to be) represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction

 

3


providing that ambiguities in an agreement or other document shall be construed against the party drafting such agreement or document.

(l) Additional Documents, Etc . Manager shall execute and deliver, or cause any applicable Fund to execute and deliver, any additional documents or proxies reasonably necessary or desirable (without adverse consequences to Manager or the applicable Fund) to carry out the purpose and intent of this Agreement.

(m) Acknowledgement . Manager acknowledges that it has had the opportunity to consult with his, her or its own counsel.

[Signature Page Follows]

 

4


IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be executed as of the date first above written.

 

EVOFEM BIOSCIENCES, INC.:
By:    
Name:   Saundra Pelletier
Title:   Chief Executive Officer


IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be executed as of the date first above written.

 

MANAGER:
 

 

(Signature)
 

 

(Print Name and Title)
 

 

(Address)
 

 

 

 

(Telephone Number)


A NNEX A

[·]


EXHIBIT A

IRREVOCABLE PROXY

TO VOTE STOCK OF

EVOFEM BIOSCIENCES, INC.

The undersigned equity holder (the, “ Stockholder ”) of Evofem Biosciences, Inc., a Delaware corporation (the “ Company ”), hereby irrevocably (to the fullest extent permitted by applicable law) appoints the Chief Executive Officer and Chief Financial Officer of the Company, and each of them, or any other designee of the Company, as the sole and exclusive attorneys and proxies of the undersigned, with full power of substitution and resubstitution, to represent the undersigned and to vote at any annual, special or adjourned meeting of the stockholders of the Company or any class thereof (including by executing and delivering written consents pursuant to the Delaware General Corporation Law) and exercise all voting and related rights (to the fullest extent that the undersigned is entitled to do so) with respect to all of the shares of common stock of the Company that now are or hereafter may be beneficially owned by the undersigned that are in excess of 19.5% of the then outstanding common stock of the Company (collectively, the “ Proxy Shares ”) in the same proportion as the shares voted by all other stockholders (excluding the Stockholder) voting on or consenting to such matters and otherwise in accordance with the terms of this Irrevocable Proxy. Upon the undersigned’s execution of this Irrevocable Proxy, any and all prior proxies (other than this Irrevocable Proxy) given by the undersigned with respect to the Proxy Shares are hereby revoked and the undersigned agrees not to grant any subsequent proxies with respect to the Proxy Shares, or enter into any agreement or understanding with any individual, firm, corporation, partnership, association, limited liability company, trust or any other entity to vote or give instructions with respect to the Proxy Shares in any manner inconsistent with the terms of this Irrevocable Proxy.

So long as Stockholder holds shares in excess of 19.5% of the then outstanding common stock of the Company, this Irrevocable Proxy is irrevocable (to the fullest extent permitted by applicable law), is coupled with an interest sufficient in law to support an irrevocable proxy, is granted pursuant to the Voting Agreement, dated as of the date hereof, and is granted in consideration of and in connection with the consummation of the transactions contemplated by the Agreement and Plan of Merger, dated as of October 17, 2017, by and among the Company, Nobelli Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“ Merger  Sub ”), and Evofem Biosciences Operations, Inc., a Delaware corporation previously known as Evofem Biosciences, Inc. (“ Evofem Subsidiary ”), pursuant to which Merger Sub merged with and into Evofem Subsidiary with Evofem Subsidiary surviving such merger as a wholly owned subsidiary of the Company.

The attorneys and proxies named above, and each of them, are hereby authorized and empowered by the undersigned, at any time following the time this Irrevocable Proxy becomes effective in accordance with the first paragraph hereof and prior to the date the Irrevocable Proxy is revoked, to act as the undersigned’s attorney and proxy to represent the undersigned and vote the Proxy Shares, and to exercise all voting and similar rights of the undersigned with respect to the Shares (including the power to execute and deliver written consents pursuant to the Delaware General Corporation Law), at every annual, special or adjourned meeting of the stockholders of the Company and in every written consent in lieu of such meeting in the same proportions as the shares voted by all other Company stockholders voting or consenting to such matters.

The attorneys and proxies named above may not exercise this Irrevocable Proxy on any Shares held by Stockholder that represent 19.5% or less of the then outstanding voting stock of the Company (the “ Stockholder Voting Shares ”). The undersigned Stockholder may vote the Stockholder Voting Shares, in its sole discretion, on all matters.


The provision of this Irrevocable Proxy shall attach to the Proxy Shares held by Stockholder, all authority herein conferred shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned.

[Signature Page Follows]


This Irrevocable Proxy is coupled with an interest as aforesaid and is irrevocable. This Irrevocable Proxy may not be amended or otherwise modified without the prior written consent of the Company.

Dated: ______________

 

STOCKHOLDER:

 

______________________________

 

 

(Signature)
 

 

(Print Name and Title)
 

 

(Address)
 

 

 

 

(Telephone Number)

Exhibit 5.1

DLA Piper LLP (US)

4365 Executive Drive

San Diego, California 92121-2133

T 858.677.1400

F 858.677.1401

November 15, 2017

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

Ladies and Gentlemen:

We have acted as counsel to Neothetics, Inc., a Delaware corporation (the “ Company ”), in connection with its filing with the Securities and Exchange Commission (the “ Commission ”) of a Registration Statement on Form S-4 (the “ Registration Statement ”) in connection with the registration pursuant to the Securities Act of 1933, as amended (the “ Act ”), of the Shares (as defined below). The Registration Statement relates to the registration by the Company of 84,900,000 shares (the “ Shares ”) of the Company’s common stock, $0.0001 par value per share (the “ Common Stock ”), to be issued in connection with the merger contemplated by the Agreement and Plan of Merger and Reorganization dated as of October 17, 2017, by and among the Company, Nobelli Merger Sub, Inc., and Evofem Biosciences, Inc. (the “ Merger Agreement ”), which Merger Agreement is described in the Registration Statement and filed as an exhibit thereto.

In connection with this opinion, we have examined and relied upon the Registration Statement and the originals or copies certified to our satisfaction of such other documents, records, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below. With your consent, we have relied upon certificates and other assurances of officers of the Company as to factual matters without having independently verified such factual matters. We have assumed the genuineness and authenticity of all documents submitted to us as originals, and the conformity to originals of all documents submitted to us as copies thereof.

This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement, other than as expressly stated herein with respect to the issue of the Shares. Our opinion is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated. Our opinion herein is expressed solely with respect to the federal laws of the United States and the General Corporation Law of the State of Delaware. Our opinion is based on these laws as in effect on the date hereof, and we disclaim any obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which may alter, affect or modify the opinion expressed herein.

Subject to the foregoing and the other matters set forth herein, we are of the opinion that the Shares, when issued in accordance with the Merger Agreement, will be validly issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the above-referenced Registration Statement and to the use of our name wherever it appears in the Registration Statement and in the proxy statement/prospectus/information statement included therein. In giving such consent, we do not believe that we are “experts” within the meaning of such term as used in the Act or the rules and regulations of the Commission issued thereunder with respect to any part of the Registration Statement, including this opinion as an exhibit.

Very truly yours,

/s/ DLA Piper LLP (US)

Exhibit 8.1

 

LOGO

 

DLA Piper LLP (US)

4365 Executive Drive, Suite 1100

San Diego, California 92121-2133

www.dlapiper.com

November 15, 2017

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

Ladies and Gentlemen:

We have acted as counsel to Neothetics, Inc., a Delaware corporation (“ Neothetics ”), and Nobelli Merger Sub, Inc., a Delaware corporation (“ Merger Sub ”), in connection with the preparation and execution of the Agreement and Plan of Merger and Reorganization, dated as of October 17, 2017, by and among Neothetics, Merger Sub and Evofem Biosciences, Inc., a Delaware corporation (“ Evofem ”) (the “ Agreement ”).

Pursuant to the Agreement, Merger Sub will merge with and into Evofem, with Evofem continuing as the surviving entity and as a wholly owned subsidiary of Neothetics (the “ Merger ”). The Merger and certain other matters contemplated by the Agreement are described in the Registration Statement on Form S-4 (the “ Registration Statement ”) of Neothetics, which includes the proxy statement/prospectus/information statement relating to the Merger (the “ Proxy Statement-Prospectus ”). This opinion is being rendered pursuant to the requirements of Item 601(b)(8) of Regulation S-K under the Securities Act of 1933, as amended. Unless otherwise indicated, any capitalized terms used herein and not otherwise defined have the meaning ascribed to them in the Agreement or the Registration Statement.

In connection with this opinion, we have examined and are familiar with the Agreement, the Registration Statement, and such other presently existing documents, records and matters of law as we have deemed necessary or appropriate for purposes of our opinion. In addition, we have assumed, without any independent investigation or examination thereof, (i) that the Merger will be consummated in accordance with the provisions of the Agreement and in the manner contemplated by the Proxy Statement-Prospectus and will be effective under applicable state law, and that the parties have complied with and, if applicable, will continue to comply with, the covenants, conditions and other provisions contained in the Agreement without any waiver, breach or amendment thereof; (ii) the continuing truth and accuracy at all times through the Effective Time of the statements, representations and warranties made by Neothetics, Merger Sub and Evofem in the Agreement or the Proxy Statement-Prospectus; (iii) the continuing truth and accuracy at all times through the Effective Time of the certificates of representations provided to us by Neothetics, Merger Sub and Evofem on the date hereof; (iv) that any such statements, representations or warranties made “to the knowledge” or based on the belief or intention of Neothetics, Merger Sub and Evofem or similarly qualified are true and accurate, and will continue to be true and accurate at all times through the Effective Time, without such qualification; and (v) that the total fair market value of all consideration other than Neothetics common stock transferred to Evofem stockholders in the Merger (including cash in lieu of fractional shares of Neothetics common stock and cash transferred to any Evofem stockholders exercising dissenters’ rights) will not equal or exceed that amount as would cause the Merger to fail to constitute a “reorganization” within the meaning of Section 368(a) of the Code.


 

LOGO

Neothetics, Inc.

November 15, 2017

Page 2

 

Based upon and subject to the foregoing, we hereby confirm that, subject to the qualifications and limitations described herein and therein, the disclosure contained in the Registration Statement under the caption “Material U.S. Federal Income Tax Consequences of the Merger,” constitutes our opinion as to the material U.S. federal income tax consequences of the Merger.

We express our opinion herein only as to those matters specifically set forth above and no opinion should be inferred as to the tax consequences of the Merger under any state, local or foreign law, or with respect to other areas of U.S. federal taxation. There can be no assurance that changes in the law will not take place that could affect the U.S. federal income tax consequences of the Merger, or that contrary positions may not be taken by the Internal Revenue Service. In the event any of the facts, statements, descriptions, covenants, representations, warranties, or assumptions upon which we have relied is incorrect, our opinion might be adversely affected and may not be relied upon.

We hereby consent to the filing of this opinion as Exhibit 8.1 to the Registration Statement. We also consent to the reference to our firm name wherever appearing in the Registration Statement with respect to the discussion of the material U.S. federal income tax consequences of the Merger, including the Proxy Statement-Prospectus constituting a part thereof, and any amendment thereto. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder, nor do we thereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term “experts” as used in the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder.

Very truly yours,

/s/ DLA Piper LLP (US)

DLA Piper LLP (US)

Exhibit 8.2

 

LOGO

  

One Financial Center

Boston, MA 02111

617-542-6000

617-542-2241 fax

www.mintz.com

November 15, 2017

Evofem Biosciences, Inc.

12400 High Bluff Drive

Suite 600

San Diego, CA 92130

Ladies and Gentlemen:

We have acted as counsel to Evofem Biosciences, Inc., a Delaware corporation (“ Evofem ”), in connection with the transactions described in the Registration Statement on Form S-4 originally filed with the Securities and Exchange Commission on November 15, 2017 as amended through the date hereof (the “ Registration Statement ”) of which this exhibit is a part. All section references, unless otherwise indicated, are to the United States Internal Revenue Code of 1986, as amended (the “ Code ”). Capitalized terms not defined herein have the meanings set forth in the Registration Statement.

In preparing this opinion, we have examined and relied upon the Registration Statement, including the Prospectus included therein, the Agreement and Plan of Merger and Reorganization dated as of October 17, 2017 (the “ Reorganization Agreement ”) by and among Neothetics, Inc. (“ Neothetics ”), Nobelli Merger Sub, Inc., a Delaware corporation (“ Merger Sub ”) and Evofem, and such other documents as we have deemed necessary or appropriate in order to enable us to render this opinion. In our examination of documents, we have assumed the authenticity of original documents, the accuracy of copies, the genuineness of signatures, and the legal capacity of signatories. We have also assumed that the transactions described in the Registration Statement will be consummated in accordance with the description in the Registration Statement.

In rendering this opinion, we have assumed without investigation or verification that the facts and statements set forth in the Registration Statement and the Reorganization Agreement are true, correct and complete in all material respects; that the merger will be completed in accordance with the Registration Statement and the Reorganization Agreement; that the representations and covenants contained in tax representation letters delivered to us by Evofem and by Merger Sub and Neothetics are true and accurate; that there is no change in applicable law between the date hereof and the effective time of the merger; that any representation in any of the documents referred to herein that is made “to the best of the knowledge and belief” (or similar qualification) of any person or party is true, correct and complete without such qualification; and that, as to all matters for which a person or entity has represented that such person or entity is not a party to, does not have, or is not aware of, any plan, intention, understanding or agreement, there is no such plan, intention, understanding or agreement. Any inaccuracy in, or breach of, any of the aforementioned statements, representations or assumptions could adversely affect our opinion.

 

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

B OSTON | L ONDON | L OS A NGELES | N EW Y ORK | S AN D IEGO | S AN F RANCISCO | S TAMFORD | W ASHINGTON


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

November 15, 2017

Page 2

 

Our opinion is based on existing provisions of the Code, Treasury Regulations, judicial decisions, and rulings and other pronouncements of the Internal Revenue Service as in effect on the date of this opinion, all of which are subject to change (possibly with retroactive effect) or reinterpretation. No assurances can be given that a change in the law on which our opinion is based or the interpretation thereof will not occur or that such change will not affect the opinion expressed herein. We undertake no responsibility to advise of any such developments in the law.

Based on our examination of the foregoing items and subject to the limitations, qualifications, assumptions and caveats set forth herein, we confirm that the statements in the Registration Statement under the heading “The Merger — Material U.S. Federal Income Tax Consequences of the Merger,” subject to the limitations and qualifications described therein, insofar as they relate to matters of United States federal income tax law, constitute our opinion of the material United States federal income tax consequences of the merger discussed in the Registration Statement.

No opinion is expressed as to any matter not discussed herein.

We hereby consent to the use of our name under the heading “The Merger — Material U.S. Federal Income Tax Consequences of the Merger,” and “Legal Matters” in the Registration Statement and to the filing of this opinion as an exhibit to the Registration Statement.

 

Very truly yours,
/s/   Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

MINTZ, LEVIN, COHN, FERRIS,

GLOVSKY and POPEO, P.C.

Exhibit 10.35

EVOFEM HOLDINGS, INC.

STOCKHOLDER AGREEMENT

THIS STOCKHOLDER AGREEMENT (the “ Agreement ”) is made and entered into as of November 25, 2015, by and among Evofem Holdings, Inc., a Delaware corporation (the “ Company ”) and the holders of the Company’s outstanding capital stock listed on Exhibit A hereto and such other persons who shall hereafter become parties to this Agreement pursuant to the terms of this Agreement, at which time Exhibit A shall be amended to include any such persons and such persons shall execute the Joinder Agreement set forth on Exhibit C (individually, a “ Stockholder ” and collectively, the “ Stockholders ”). This Agreement has been entered into with respect to the following facts:

RECITALS

WHEREAS, each Stockholder owns the number of shares of Stock indicated on Exhibit A , attached hereto;

WHEREAS, the Stockholders and the Company believe it is important to the success and stability of the Company that the Stockholders’ Stock be subject to certain rights and other limitations and rights set forth herein;

WHEREAS, the Stockholders and the Company are parties to the Series C Preferred Stock Purchase Agreement of even date herewith (the “ Purchase Agreement ”); and

WHEREAS, in order to induce the Company to enter into the Purchase Agreement and to induce the Stockholders to invest funds in the Company pursuant to the Purchase Agreement, the Stockholders and the Company hereby agree that this Agreement shall govern the rights of the Stockholders 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, in consideration of these premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

AGREEMENT

1.     Definitions . For purposes of this Agreement, capitalized terms utilized herein and not otherwise defined herein shall, unless the context clearly indicates otherwise, have the definitions ascribed to such terms as follows:

1.1.    “ Affiliate ” shall mean any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified party. For purposes of the preceding sentence, the term “control” shall mean (a) the power, direct or indirect, to direct or cause the direction of the management and policies of a Person through voting securities, by contract or otherwise; or (b) the ownership, directly or indirectly, of at least fifty percent (50%) (or, if less, the maximum ownership interest permitted by law) of the voting securities or other ownership interest of a Person.

1.2.    “ Applicable Laws ” shall mean, with respect to any Person, all statutes, laws, rules, regulations, ordinances, judgments, decrees and injunctions affecting such Person, such Person’s assets or other securities of such Person, whether now or hereafter enacted and in force, including,


without limitation, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

1.3.    “ Change in Control ” shall mean (a) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; or (b) the sale, transfer or other disposition of all or substantially all of the Company’s assets. A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

1.4.    “ Darden ” shall mean Thomas F. Darden, II.

1.5.    “ Founders ” shall mean Pike and Darden.

1.6.    “ Investor Group ” shall mean, in relation to any corporate Stockholder, that Stockholder and its associated companies from time to time.

1.7.    “ Invesco ” shall mean Invesco Asset Management Limited, as agent for and on behalf of the Invesco Funds.

1.8.    “ Invesco Funds ” shall mean the Invesco Perpetual High Income Fund, a sub fund of the Invesco Perpetual UK Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000231), and the Invesco Perpetual Income Fund, a sub fund of the Invesco Perpetual UK 2 Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000221).

1.9.    “ Person ” shall mean and include any individual, corporation, partnership, limited liability company, trust, unincorporated organization, government or any department or agency thereof, or any entity similar to any of the foregoing.

1.10.    “ Pike ” shall mean Joseph D. Pike.

1.11.    “ Qualified IPO ” shall mean a firm commitment underwritten public offering of the Company’s common stock, or securities convertible into common stock, pursuant to an effective registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the listing or admission of the Company’s common stock to a national securities exchange, including, without limitation, the Alternative Investment Market or the Main Market of the London Stock Exchange, pursuant to a similar disclosure document filed under a similar statute in a jurisdiction outside the United States, which results in a pre-money valuation of the Company of not less than Five Hundred Twenty Million Dollars ($520,000,000) and aggregate cash proceeds to the Company of not less than One Hundred Fifty Million Dollars ($150,000,000).

1.12.    “ Series C Preferred Stock ” shall mean the Series C Preferred Stock in the Company.

1.13.    “ Special Holders ” shall mean Woodford and Invesco, collectively.

1.14.    “ Stock ” shall refer to (a) all shares of capital stock of the Company now owned or hereafter acquired by a Stockholder; and (b) all shares of stock issued or to be issued by the Company


upon a stock split, stock dividend or combination thereof, the exercise of stock options (if any), warrants (if any), and/or any other securities of the Company convertible into Stock.

1.15.    “ Transfer ” means, with respect to any shares of Stock, a sale, conveyance, exchange, assignment, pledge, encumbrance, gift, bequest, hypothecation or other transfer or disposition by any other means, whether for value or no value and whether voluntary or involuntary (including, without limitation, by operation of law), or an agreement to do any of the following.

1.16.    “ WEIF ” CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund.

1.17.    “ Woodford ” Woodford Investment Management LLP, as agent for and on behalf of the Woodford Funds.

1.18.    “ Woodford Funds ” collectively WEIF and WPCT.

1.19.    “ WPCT ” Woodford Patient Capital Trust Plc.

2.     Restrictions on the Transfer of the Stock .

2.1.     Transfers Restricted .

(a)    Except as otherwise expressly provided in this Section 2 (and subject to compliance with Sections 3, 4 and 5), each Stockholder may, directly or indirectly, freely Transfer all of the Stock of such Stockholder, subject to compliance with all applicable securities laws. Any Transfer that does not comply with the terms of this Agreement, is void and transfers no right, title or interest in or to such Stock, or any of them to the purported transferee, buyer, assignee, pledgee or encumbrance holder and the Company shall not be obligated to treat the purported transferee, buyer, assignee, pledgee or encumbrance holder as a stockholder of the Company.

(b)    No Transfer of any Stock shall be effective until such date as all applicable requirements of this Section 2 have been satisfied and, if any consent, approval or waiver is required by the Company, the receipt thereof has been confirmed in writing by the Company.

(c)    Prior to the Transfer of any Stock, the transferee of such Stock shall sign a counterpart signature page to this Agreement and thereby agree to be bound by the terms and conditions hereof.

(d)    Upon compliance with the requirements of this Section 2, the Stock Transferred by a Stockholder in accordance with this Section 2 shall be registered on the books of the Company.

(e)    Notwithstanding the foregoing, the Stockholders hereby agree not to Transfer all or any portion of such Stockholder’s Stock in the Company to a direct competitor of the Company without the prior written consent of the Board.

2.2.     Stock Legend . Each certificate representing the Stock shall have conspicuously endorsed on its face or reverse side the following statement:

“The ownership, sale, transfer, assignment or hypothecation of the Stock represented by this certificate is restricted by the provisions of that certain Stockholder Agreement by


and among the Company and its stockholders dated [            ], 2015, a copy of which may be inspected at the principal office of the Company upon written request to the Secretary of the Company, and all the provisions of which are incorporated by reference in this certificate. Any sale or other transfer of the Stock in violation of such agreement shall be void.”

“The shares of Stock represented hereby have not been registered under the Securities Act of 1933, as amended, and may not be sold, pledged, or otherwise transferred without an effective registration thereof under such act or an opinion of counsel, satisfactory to the Company and its counsel, that such registration is not required.”

2.3.     Permitted Transfers for the Special Holders . For the avoidance of doubt, and without limiting the effect of the foregoing, each Special Holder may Transfer any Stock held by it to:

(a)    any member of its Investor Group;

(b)    any body corporate or other entity controlled by such Special Holder or any member of its Investor Group or any investment manager or adviser of such Special Holder or any member or which immediately following the transfer of Stock concerned will be such a body corporate;

(c)    any investment fund, trust, partnership or mandate controlled, managed, advised (in an investment adviser capacity) or promoted by (i) such Special Holder or (ii) any member of its Investor Group or (iii) any investment manager or advisor of such Special Holder and/or any such group member;

(d)    any trustee, manager, beneficiary, shareholder, partner, investor, unitholder or other participant in or of such Special Holder or any investment fund, trust, partnership or mandate referred to in paragraph (c) above;

(e)    any directors or employees of such Special Holder or any of its Investor Group or any trust, carried interest or similar partnership in which they or any of them participate; or

(f)    a nominee or custodian for any of the above.

3.     Tag-Along Rights .

3.1.    If any Founder, directly or indirectly, at any time or from time to time wishes to Transfer (in a single transaction or series of transactions) any Stock, then such Founder (a “ Tag-Along Selling Person ”) shall notify the Special Holders (in such context, a “ Tag-Along Stockholder ”) in writing (the “ Tag-Along Notice ”) of such proposed Transfer and its terms and conditions (including the identity of the buyer (the “ Tag-Along Buyer ”) and the total shares of Stock to be Transferred by the Tag-Along Selling Person subject to the Tag-Along Right (as defined below).

3.2.    Within thirty (30) days of receipt of a Tag-Along Notice, each Tag-Along Stockholder shall notify the Tag-Along Selling Person if it elects to participate in such Transfer (“ Tag-Along Right ”) and shall state the shares of Stock that the Tag-Along Stockholder elects to Transfer. Each Tag-Along Stockholder shall have the right to Transfer Stock held by such Tag-Along Stockholder determined by multiplying (a) the total shares of Stock held by such Tag-Along Stockholder by (b) a fraction, the numerator of which is the total shares of Stock then proposed to be Transferred directly or indirectly by the Tag-Along Selling Person(s) and the denominator of which is the total shares of Stock then held by the Tag-Along Stockholder and the Tag-Along Selling Person, directly or indirectly.


(a)    No Tag-Along Selling Person shall complete or permit the Transfer of Stock proposed to be Transferred by the Tag-Along Selling Person unless the Tag-Along Buyer contemporaneously purchases the shares of Stock the Tag-Along Stockholder has elected to sell in accordance with Section 3.2.

(b)    If any Person transfers any shares of Stock in contravention of the Tag-Along Right set forth in this Section 3.2, or if the Tag-Along Buyer is unwilling to purchase the full number of shares of Stock proposed to be sold by a Tag-Along Stockholder, as required hereunder (collectively, a “ Prohibited Transfer ”), such Stockholder may, by delivery of written notice to the Tag-Along Selling Person (a “ Put Notice ”) within ten (10) days after the date on which all other Members become aware of the Prohibited Transfer, require the Tag-Along Selling Person to purchase from all other Stockholders for cash or such other consideration as the Tag-Along Selling Person received in the Prohibited Transfer that number of shares of Stock held by all other Stockholders having a purchase price equal to the aggregate purchase price that all other Stockholders would have received in the closing of such Prohibited Transfer if all other Stockholders have exercised his, her or its Tag Along Right with respect thereto. The closing of such sale between all other Stockholders and the Tag-Along Selling Person shall occur within seven (7) days after the date of receipt of the Put Notice by the Tag-Along Selling Person.

3.3.    Upon electing to participate, each Tag-Along Stockholder shall be obligated to Transfer, at the same price and on the same terms as the Tag-Along Selling Person, the portion of its Stock determined in accordance with Section 3.2; provided, however, that the sale of the Stock contained in the Tag-Along Notice is completed within ninety (90) days of delivery of the latest notice by a Tag-Along Stockholder evidencing such Stockholder’s election to exercise its Tag-Along Right. Each participating Tag-Along Stockholder shall enter into a purchase agreement substantially in the same form as the Tag-Along Selling Person pursuant to which the Tag-Along Stockholder shall be required only to make customary representations as to its ownership of its Stock to be purchased and the absence of liens or encumbrances thereon. If the sale is not consummated within such ninety (90) day period, then each Tag-Along Stockholder shall no longer be obligated but shall continue to have the right to sell its Stock pursuant to such Tag-Along Right and shall have the rights under, and remain subject to, the provisions of this Section 3 with respect to any subsequent proposed transfer described in this Section 3.2. If any sale by the Tag-Along Selling Person is not consummated within such ninety (90) day period, then the restrictions provided for herein shall again become effective, and no transfer of Stock may be made thereafter by the Tag-Along Selling Person without first complying with this Section 3.2.

4.     Drag-Along Right .

4.1.     Definitions . A “ Sale of the Company ” shall mean either: (a) a transaction or series of related transactions in which a Person, or a group of related Persons, acquires from Stockholders shares representing more than fifty percent (50%) of the outstanding voting power of the Company (a “ Stock Sale ”); or (b) a transaction that qualifies as a “ Liquidation Transaction ” as defined in the Restated Certificate.

4.2.     Actions to be Taken . In the event that (i) the holders of more than 50% of the shares of Common Stock then issued or issuable upon conversion of the shares of Preferred Stock (as defined in the Restated Certificate), excluding shares of Stock held by the Special Holders and (ii) the Special Holders (collectively, the “ Electing Holders ”) approve a Sale of the Company, then each Stockholder and the Company hereby agree:

(a)    if such transaction requires Stockholder approval, with respect to all shares that such Stockholder owns or over which such Stockholder otherwise exercises voting power, to


vote (in person, by proxy or by action by written consent, as applicable) all such shares in favor of, and adopt, such Sale of the Company (together with any related amendment to the Restated Certificate required in order to implement such Sale of the Company) and to vote in opposition to any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Sale of the Company;

(b)    if such transaction is a Stock Sale, to sell the same proportion of shares of capital stock of the Company beneficially held by such Stockholder as is being sold by the Electing Holders to the Person to whom the Electing Holders propose to sell their shares, and, except as permitted in Section  4.3 below, on the same terms and conditions as the Electing Holders;

(c)    to execute and deliver all related documentation and take such other action in support of the Sale of the Company as shall reasonably be requested by the Company or the Electing Holders in order to carry out the terms and provision of this Section  4 , including, without limitation, executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, indemnity agreement, escrow agreement, consent, waiver, governmental filing, share certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances), and any similar or related documents;

(d)    not to deposit, and to cause their Affiliates not to deposit, except as provided in this Agreement, any shares of the Company owned by such party or Affiliate in a voting trust or subject any shares to any arrangement or agreement with respect to the voting of such shares, unless specifically requested to do so by the acquiror in connection with the Sale of the Company;

(e)    to refrain from exercising any dissenters’ rights or rights of appraisal under applicable law at any time with respect to such Sale of the Company;

(f)    if the consideration to be paid in exchange for the shares pursuant to this Section  4 includes any securities and due receipt thereof by any Stockholder would require under applicable law (x) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any Stockholder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D promulgated under the Securities Act, the Company may cause to be paid to any such Stockholder in lieu thereof, against surrender of the shares which would have otherwise been sold by such Stockholder, an amount in cash equal to the fair value (as determined in good faith by the Company) of the securities which such Stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the shares; and

(g)    in the event that the Electing Holders, in connection with such Sale of the Company, appoint a stockholder representative (the “ Stockholder Representative ”) with respect to matters affecting the Stockholders under the applicable definitive transaction agreements following consummation of such Sale of the Company, (x) to consent to (i) the appointment of such Stockholder Representative, (ii) the establishment of any applicable escrow, expense or similar fund in connection with any indemnification or similar obligations, and (iii) the payment of such Stockholder’s pro rata portion (from the applicable escrow or expense fund or otherwise) of any and all reasonable fees and expenses to such Stockholder Representative in connection with such Stockholder Representative’s services and duties in connection with such Sale of the Company and its related service as the representative of the Stockholders, and (y) not to assert any claim or commence any suit against the Stockholder Representative or any other Stockholder with respect to any action or inaction taken or failed to be taken by the Stockholder Representative in connection with its service as the Stockholder Representative, absent fraud or willful misconduct.


4.3.     Exceptions . Notwithstanding the foregoing, a Stockholder will not be required to comply with Section  4.2 above in connection with any proposed Sale of the Company (the “ Proposed Sale ”), unless:

(a)    any representations and warranties to be made by such Stockholder in connection with the Proposed Sale are limited to representations and warranties related to authority, ownership and the ability to convey title to such shares, including, but not limited to, representations and warranties that (i) the Stockholder holds all right, title and interest in and to the shares such Stockholder purports to hold, free and clear of all liens and encumbrances, (ii) the obligations of the Stockholder in connection with the transaction have been duly authorized, if applicable, (iii) the documents to be entered into by the Stockholder have been duly executed by the Stockholder and delivered to the acquirer and are enforceable against the Stockholder in accordance with their respective terms; and (iv) neither the execution and delivery of documents to be entered into in connection with the transaction, nor the performance of the Stockholder’s obligations thereunder, will cause a breach or violation of the terms of any agreement, law or judgment, order or decree of any court or governmental agency;

(b)    the Stockholder shall not be liable for the inaccuracy of any representation or warranty made by any other Person in connection with the Proposed Sale, other than the Company (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any Stockholder of any of identical representations, warranties and covenants provided by all Stockholders);

(c)    the liability for indemnification, if any, of such Stockholder in the Proposed Sale and for the inaccuracy of any representations and warranties made by the Company or its Stockholders in connection with such Proposed Sale, is several and not joint with any other Person (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any Stockholder of any of identical representations, warranties and covenants provided by all Stockholders), and is pro rata in proportion to, and does not exceed, the amount of consideration paid to such Stockholder in connection with such Proposed Sale;

(d)    liability shall be limited to such Stockholder’s applicable share (determined based on the respective proceeds payable to each Stockholder in connection with such Proposed Sale in accordance with the provisions of the Restated Certificate) of a negotiated aggregate indemnification amount that applies equally to all Stockholders but that in no event exceeds the amount of consideration otherwise payable to such Stockholder in connection with such Proposed Sale, except with respect to claims related to fraud by such Stockholder, the liability for which need not be limited as to such Stockholder;

(e)    upon the consummation of the Proposed Sale (i) each holder of each class or series of Stock will receive the same form of consideration for their shares of such class or series as is received by other holders in respect of their shares of such same class or series of Stock, (ii) each holder of a series of Preferred Stock will receive the same amount of consideration per share of such series of Preferred Stock as is received by other holders in respect of their shares of such same series, (iii) each holder of Common Stock will receive the same amount of consideration per share of Common Stock as is received by other holders in respect of their shares of Common Stock, and (iv) the aggregate consideration receivable by all holders of the Preferred Stock and Common Stock shall be allocated among the holders of Preferred Stock and Common Stock on the basis of the relative liquidation preferences to which the holders of each respective series of Preferred Stock and the holders of Common Stock are entitled in a Liquidation Transaction (assuming for this purpose that the Proposed Sale is a


Liquidation Transaction) in accordance with the Company’s Certificate of Incorporation in effect immediately prior to the Proposed Sale; and

(f)    subject to clause (e) above, requiring the same form of consideration to be available to the holders of any single class or series of Stock, if any holders of any Stock of the Company are given an option as to the form and amount of consideration to be received as a result of the Proposed Sale, all holders of such Stock will be given the same option; provided , however , that nothing in this Section  4.3(f) shall entitle any holder to receive any form of consideration that such holder would be ineligible to receive as a result of such holder’s failure to satisfy any condition, requirement or limitation that is generally applicable to the Stockholders.

5.     Pre-Emptive Rights .

5.1.    Subject to the terms and conditions of this Section 5 and applicable securities laws, if the Company proposes to offer or sell any new Stock (other than with respect to issuances described in Section 5.6, below) (the “ New Securities ”), the Company shall first offer such New Securities to each of the Founders and the Special Holders (each, a “ Pre-Emptive Stockholder ”). Each Pre-Emptive Stockholder shall be entitled to apportion the right of first offer hereby granted to it among its Affiliates in such proportions as it deems appropriate.

5.2.    The Company shall give notice (the “ Offer Notice ”) to each Pre-Emptive Stockholder, stating (a) its bona fide intention to offer New Securities, (b) the number of New Securities to be offered, and (c) the price and terms, if any, upon which it proposes to offer such New Securities.

5.3.    By notification to the Company within thirty (30) days after the Offer Notice is given, each Pre-Emptive Stockholder may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to such Pre-Emptive Stockholder’s Pro Rata Portion of such New Securities. For purposes hereof, a Pre-Emptive Stockholder’s “ Pro Rata Portion ” is equal to the percentage obtained by dividing (i) the number of shares of Stock then held by such Pre-Emptive Stockholder, by (ii) the number of shares of Stock of the Company then outstanding.

5.4.    At the expiration of the thirty (30) day period referenced in Section 5.3, the Company shall promptly notify each Pre-Emptive Stockholder that elects to purchase or acquire all the New Securities available to it (each, a “ Fully Exercising Stockholder ”) of any other Pre-Emptive Stockholder’s failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Stockholder may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares of New Securities specified above, up to such Fully Exercising Stockholders Overallotment Pro Rata Portion of the New Securities for which Pre-Emptive Stockholders were entitled to subscribe but that were not subscribed for by the Pre-Emptive Stockholders. For purposes hereof, a Fully Exercising Stockholder’s “ Overallotment Pro Rata Portion ” is equal to the percentage obtained by dividing (i) the number of shares of Stock then held by such Fully Exercising Stockholder, by (ii) the number of shares of Stock then held by all Fully Exercising Stockholders who wish to purchase such unsubscribed shares of Stock. The closing of any sale pursuant to Sections 5.3 and 5.4 shall occur within sixty (60) days of the date that the Offer Notice is given.

5.5.    If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Sections 5.3 and 5.4, the Company may, during the ninety (90) day period following the expiration of the periods provided in Sections 5.3 and 5.4, 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 sixty (60) 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 Pre-Emptive Stockholders in accordance with this Section 5.

5.6.    The provisions of Section 5, above, shall not apply to the securities excluded from the definition of “Additional Stock,” as set forth in Section 4(d)(i)(B) of Article IV(B) of the Restated Certificate.

6.     Financial and Other Information .

6.1.     Company Books and Records . The Company shall at all times prepare and maintain at its principal office, or its designated finances office, accurate and complete accounting and other financial books and records of the Company.

6.2.     Financial Information Rights . The Company shall deliver to the Founders and the Special Holders, provided that the Board has not reasonably determined that such Person is a competitor of the Company:

(a)    As soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, the Company’s audited (i) balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and (iii) statement of Stockholders’ equity as of the end of such year, all prepared in accordance with generally accepted accounting principles in the United States (“ 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); and

(b)    As soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, the Company’s unaudited statements of income and of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal 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).

6.3.     Inspection; Access to Records . The Company shall permit each Stockholder and any of their authorized representatives at the expense of such Stockholder, to visit and inspect the properties of the Company, including its corporate books and records, and to discuss the Company’s business and finances with officers of the Company, in each case for any purpose reasonably related to such Stockholder’s interest in the Company, during normal business hours following reasonable notice and as often as may be reasonably requested; provided that any such access provided pursuant to this Section 6.3 shall not unduly interfere with the operations of conduct of the business of the Company. The Company shall supply all such other information as such Stockholder may reasonably request for the purpose of enabling such Stockholder to comply with any reporting or compliance requirements imposed by any statute, rule, regulation or otherwise by any governmental agency or authority.

6.4.     Board Information Rights . The Company shall give the Founders and Special Holders (i) copies of all information and materials that are distributed to the Board in connection with each meeting of the Board at the same time or promptly following such time as given to the Board, and (ii) promptly following each meeting of the Board, copies of the minutes of such meeting.

7.     Voting Provisions Regarding Board of Directors .


7.1.     Board of Directors . The Company shall be governed by a Board of Directors (the “ Board ”) consisting of up to nine (9) members. Except as specifically provided otherwise hereunder, the Board, acting as a group, shall have full, complete and exclusive authority, power and discretion to manage and control the business, property and affairs of the Company in such a manner as they deem necessary or appropriate and to make all decisions regarding those matters.

7.2.     Size of the Board . Each Stockholder agrees to vote, or cause to be voted, all Stock owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that the size of the Board shall be set and remain at seven (7) directors, subject to the Special Holders’ rights as set forth in Section 7.3(c) and 7.3(d) below.

7.3.     Board Composition . Each Stockholder agrees to vote, or cause to be voted, all Stock owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders, the following persons shall be elected to the Board:

(a)    Four (4) persons designated by Joseph D. Pike (the “ Initial Directors ”) who shall initially be: (i) Thomas F. Darden, II; (ii) Saundra Pelletier; and (iii) Colin Rutherford, with the one other seat initially being vacant.

(b)    Subject to the provisions of Section 7.4 hereof, three (3) persons designated by a majority in interest of the Stockholders (each, an “ Independent Nominee ”) who shall initially be: (i) Simon Best; (ii) Natalie Douglas; and (iii) Thomas Lynch. Thomas Lynch shall serve as the Chairman of the Board.

(c)    Woodford shall have the right to increase the size of the Board to by one (1) director and designate one (1) person (the “ Woodford Nominee ”) to fill the vacancy created by such increase to the size of the Board. For so long as Woodford has designated a Woodford Nominee pursuant to this Section 7.3(c), and for the purposes of determining whether a quorum of the Board has been met for any meeting of the Board, a quorum shall include the Woodford Nominee.

(d)    Invesco shall have the right to increase the size of the Board to by one (1) director and designate one (1) person (the “ Invesco Nominee ”) to fill the vacancy created by such increase to the size of the Board. For so long as Invesco has designated an Invesco Nominee pursuant to this Section 7.3(d), and for the purposes of determining whether a quorum of the Board has been met for any meeting of the Board, a quorum shall include the Invesco Nominee.

To the extent that any of clauses (a) through (d) above shall not be applicable, any member of the Board who would otherwise have been designated in accordance with the terms thereof shall instead be voted upon by all the stockholders of the Company entitled to vote thereon in accordance with, and pursuant to, the Company’s Amended and Restated Certificate of Incorporation (the “ Restated Certificate ”).

7.4.     Removal; Vacancies .

(a)    Each Stockholder agrees to vote all of his, her or its Stock for the removal of any director upon the request of the Persons entitled to nominate such director as set forth in this Section 7 and for the election to the Board of a substitute nominated by such parties in accordance with the provisions hereof and of the Restated Certificate. Each Stockholder further agrees to vote all of


his, her or its Stock in such manner as shall be necessary or appropriate to: (i) ensure that any vacancy on the Board occurring for any reason shall be filled only in accordance with the provisions of this Section 7; and (ii) to remove any director not selected or approved in accordance with the provisions of this Agreement. Notwithstanding the foregoing, in connection with any vacancy caused by the removal or resignation of any Independent Nominee, a replacement Independent Nominee shall not be appointed or otherwise elected to fill such vacancy and such seat shall remain vacant.

(b)    All Stockholders agree to execute any written consents required to perform the obligations of this Agreement, and the Company agrees at the request of any party entitled to designate directors to call a special meeting of Stockholders for the purpose of electing directors. If the Stockholders of the Company are entitled to cumulative voting, if less than the entire Board is to be removed, no director may be removed without cause if the votes cast against his or her removal would be sufficient to elect such director if then cumulatively voted at an election of the entire Board.

7.5.     No Liability for Election of Recommended Directors . No Stockholder, nor any Affiliate of any Stockholder, shall have any liability as a result of designating a person for election as a director for any act or omission by such designated person in his or her capacity as a director of the Company, nor shall any Stockholder have any liability as a result of voting for any such designee in accordance with the provisions of this Agreement.

7.6.     Observer Rights . During the periods described in this Section 7.6, each of Woodford and Invesco shall, by giving notice to the Company, have a separate right to appoint a representative to attend each meeting of the Board as a non-voting observer (with respect to Woodford, the “ Woodford Observer ” and with respect to Invesco, the “ Invesco Observer ” each an “ Observer ”), whether such meeting is conducted in person or by teleconference. The Company shall give each Observer: (a) notice of each regular meeting of the Board at the same time as notice is given to the Board, which notice shall be given at least five days prior to each such meeting, (b) notice of each special or emergency meeting of the Board at the same time as notice is given to the Board, which notice shall be given as is reasonably necessary under the circumstances to enable each Observer to attend each special or emergency meeting of the Board, (c) all information and materials that are distributed to the directors of the Board in connection with each meeting of the Board at the same time as given to the Board, and (d) following each meeting of the Board and at the same time as given to the Board, copies of the minutes of such meeting. With respect to any Special Holder, the right to appoint an Observer, and the rights of such Observer described in this Section 7.6, shall exist so long as (i) such Special Holder retains ownership of at least 50% of the Stock that such Special Holder owns as of the date hereof and (ii) such Special Holder has not designated its respective nominee pursuant to Section 7.3(c) or 7.3(d), as applicable. Each Special Holder’s rights described in this Section 7.6 shall expire and have no force or effect upon the Transfer by such Special Holder of any shares of Stock.

7.7.     Voting Restrictions . Each share of Stock will entitle the holder to one vote; provided that if at any time WEIF owns, in the aggregate, Stock constituting more than Nineteen and One-Half Percent (19.5%) of the total voting share capital of the Corporation, then the Stock held by WEIF shall be limited, in the aggregate, to Nineteen and One-Half Percent (19.5%) of the total number of votes, such votes to be split equally on a fractional basis amongst such shares; provided further that for so long as WPCT is the holder of any Stock and any provision would result in WPCT being able to exercise more than 49% of the votes capable of being exercised at any particular meeting, then the number of votes attaching to all Stock held by WPCT shall, so long as this situation pertains, be restricted such that the votes conferred on WPCT in respect of all Stock held by it shall represent 49% of the votes capable of being exercised; provided further that if at any time Invesco owns, in the aggregate, Stock constituting more than Nineteen and One-Half Percent (19.5%) of the total voting share capital of the Corporation, then the Stock held by Invesco shall be limited, in the aggregate, to Nineteen and One-Half Percent


(19.5%) of the total number of votes, such votes to be split equally on a fractional basis amongst such shares.

8.     Restrictions on Company Actions . Without the prior written consent of each of the Special Holders, the Company agrees to not take any of the actions specified in Section 6 of Article IV(B) of the Restated Certificate.

9.     Termination . This Agreement, and all the rights and obligations set forth herein, shall terminate automatically, and without any further act required of any party hereto, on:

9.1.    The dissolution of the Company;

9.2.    At such time as only one Stockholder remains;

9.3.    Upon the closing of a Qualified IPO; or

9.4.    Upon a Change in Control.

10.     Additional Stockholders; Transferees . In the event that after the date of this Agreement, the Company issues shares of Stock to any third party, the Company shall, as a condition to such issuance, cause such recipient to execute a counterpart signature page hereto in the form attached hereto as Exhibit C as a Stockholder, and such person shall thereby be bound by, and subject to, all the terms and provisions of this Agreement applicable to a Stockholder. In addition, any successor or permitted transferee or assignee of any Stockholder who purchases shares of Stock in accordance with the terms hereof, shall deliver to the Company, as a condition to any transfer or assignment, a counterpart signature page hereto pursuant to which such successor or permitted transferee or assignee shall confirm their agreement to be subject to and bound by all of the provisions set forth in th.is Agreement that were applicable to the predecessor, transferor or assignor of such successor or permitted transferee or assignee.

11.     Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflict of laws that direct the application of the laws of another jurisdiction.

12.     Real Property Holding Corporation . The Company represents and warrants that neither it nor any of its subsidiaries is or has ever been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Internal Revenue Code of 1986, as amended (the “ Code ”), at any time during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code.

13.     Lock-Up Agreements . In connection with its execution of this Agreement, the Company shall deliver to Invesco and WIM a lock-up agreement executed by each of Saundra Pelletier, John Fair, Jay File, Joseph D. Pike and Thomas F. Darden II, substantially in the form attached hereto as Exhibit D .


14.     Miscellaneous .

14.1.     Joinder . In the event any person becomes an owner, directly or indirectly, of any shares of Stock, then the Company shall use its reasonable best efforts to cause such person to sign a counterpart signature page to this Agreement in the form set forth on Exhibit C and become bound by the terms of this Agreement.

14.2.     Spousal Consent . As applicable, the spouse of each individual Stockholder shall execute a Spousal Consent, substantially in the form attached hereto as Exhibit  B and incorporated herein by this reference, agreeing to be bound by the terms and conditions of this Agreement. Stock of the Company shall be deemed to be owned exclusively by the owner of record, and any transfer by dissolution of marriage to a Stockholder’s spouse shall be subject to the provisions of this Agreement. In the event the spouse of a Stockholder shall predecease such Stockholder, all of the Stock then owned by such Stockholder’s spouse or a trust in which he or she is a trustee or a beneficiary, will be subject to the transfer restrictions provisions of this Agreement.

14.3.     Further Assurances . Each party hereto shall, from time to time at and after the date first set forth above, execute and deliver such instruments, documents and assurances and take such further actions as any other party may reasonably request to carry out the provisions of this Agreement.

14.4.     Specific Performance . The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to a party hereto or to their heirs, personal representatives, or assigns by reason of a failure to perform any of the obligations under this Agreement and agree that the terms of this Agreement shall be specifically enforceable. If any party hereto or its/his/her heirs, personal representatives, or assigns institutes any action or proceeding to specifically enforce the provisions hereof, any person against whom such action or proceeding is brought hereby waives the claim or defense therein that such party or such personal representative bas an adequate remedy at law, and such person shall not offer in any such action or proceeding the claim or defense that such remedy at law exists.

14.5.     Amendment or Waiver . This Agreement may be amended or modified (or provision of this Agreement waived) only upon the written consent of (i) the Company, and (ii) Stockholders holding no less than fifty percent (50%) of the shares of Series C Preferred Stock subject to this Agreement; provided, however, that no amendment or modification to the rights granted to the Founders or Special Holders may be made without the written consent of the Founders or Special Holders, as applicable. Any amendment or waiver so effected shall be binding upon the Company, each of the parties hereto and any assignee of any such party.

14.6.     Severability . In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

14.7.     Successors and Assigns . The provisions hereof shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors, assigns, heirs, executors and administrators and other legal representatives.

14.8.     Counterparts . This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together shall constitute one instrument. This Agreement may be executed via facsimile or pdf with the same validity as if it were an ink-signed document.


14.9.     Waiver . No waivers of any breach of this Agreement extended by any party hereto to any other party shall be construed as a waiver of any rights or remedies of any other party hereto or with respect to any subsequent breach.

14.10.     Attorneys’ Fees . In the event that any suit or action is instituted under or in relation to this Agreement, including without limitation to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

14.11.     Notices . All notices required in connection with 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; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written notification of receipt. All communications shall be sent to the holder appearing on the books of the Company or at such address as such party may designate by ten (10) days advance written notice to the other parties hereto.

14.12.     Legal Counsel . K&L Gates LLP has served as counsel to the Company in the preparation of this Agreement, which includes the terms as agreed by the parties. Each of the undersigned Stockholders has either been advised by legal counsel of its/his/her own choosing as to the effect of this Agreement or has freely chosen not to seek such advice.

14.13.     Woodford as Agent .    Each of the parties hereto acknowledge and agree that: (i) Woodford is acting at all times as agent for and on behalf of the Woodford Funds; and (ii) Woodford has no liability as principal in respect of the Woodford Funds’ obligations under this Agreement. As a result of the forgoing, references to “Stockholder” under this Agreement shall not include Woodford.

14.14.     Invesco as Agent .    Each of the parties hereto acknowledge and agree that: (i) Invesco is acting at all times as agent for and on behalf of the Invesco Funds; and (ii) Invesco has no liability as principal in respect of the Invesco Funds’ obligations under this Agreement. As a result of the forgoing, references to “Stockholder” under this Agreement shall not include Invesco.

14.15.     Entire Agreement . This Agreement and the Exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and no party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein. Each party expressly represents and warrants that it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


I N W ITNESS W HEREOF , this S TOCKHOLDER A GREEMENT shall be deemed effective as of the date first above written.

 

COMPANY:
EVOFEM HOLDINGS, INC.,
a Delaware corporation
By:  

/s/ Saundra Pelletier

  Saundra Pelletier, Chief Executive Officer

 

S TOCKHOLDER A GREEMENT S IGNATURE P AGE


I N W ITNESS W HEREOF , this S TOCKHOLDER A GREEMENT shall be deemed effective as of the date first above written.

 

Woodford Investment Management LLP, as agent for and on behalf of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund
By:  

/s/ illegible

Name:  

 

Title:  

 

Woodford Investment Management LLP, as agent for and on behalf of Woodford Patient Capital Trust Plc
By:  

/s/ illegible

Name:  

 

Title:  

 

Invesco Asset Management Limited, as agent for and on behalf of the Invesco Perpetual High Income Fund, a sub fund of the Invesco Perpetual UK Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000231), and the Invesco Perpetual Income Fund, a sub fund of the Invesco Perpetual UK 2 Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000221)
By:  

/s/ Graeme Proudfoot

Name:   Graeme Proudfoot
Title:   Managing Director - EMEA

 

S TOCKHOLDER A GREEMENT S IGNATURE P AGE


I N W ITNESS W HEREOF , this S TOCKHOLDER A GREEMENT shall be deemed effective as of the date first above written.

 

Brickhaven II, L.L.C.
By:  

/s/ Thomas F. Darden, II

Name:   Thomas F. Darden, II
Title:   Managing Member
The Joseph D. Pike Family Trust
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee
Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust I dated March 14, 2012
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee
Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust II dated March 14, 2012
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee
Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust III dated March 14, 2012
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee


EXHIBIT A

LIST OF STOCKHOLDERS

 

Name    Number of Shares

1.      CF Woodford Equity Income Fund

  

1,007,557 Series C Preferred Stock

20,298,778 Common Stock

2.      Woodford Patient Capital Trust Plc

   1,511,335 Series C Preferred Stock

3.      Brickhaven II, L.L.C.

  

707,557 Series C Preferred Stock

8,179,897 Common Stock

4.      The Joseph D. Pike Family Trust

  

1,239,295 Series C Preferred Stock

14,062,263 Common Stock

5.      Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust I dated March 14, 2012

  

190,680 Series C Preferred Stock

2,164,270 Common Stock

6.      Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust II dated March 14, 2012

  

190,680 Series C Preferred Stock

2,164,270 Common Stock

7.      Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust III dated March 14, 2012

  

190,680 Series C Preferred Stock

2,164,270 Common Stock

8.      Invesco Perpetual High Income Fund

  

6,881,299 Series A Preferred Stock

7,526,461 Series B Preferred Stock

4,667,426 Series C-1 Preferred Stock

13,839,099 Common Stock

9.      Invesco Perpetual Income Fund

  

4,987,144 Series A Preferred Stock

5,454,717 Series B Preferred Stock

3,382,664 Series C-1 Preferred Stock

10,029,729 Common Stock

 


EXHIBIT B

SPOUSAL CONSENT

I,                     , spouse of                     , do hereby certify, acknowledge, and agree as follows:

That I have read and approve of each of the provisions set forth in the Stockholder Agreement to which this Consent of Spouse is attached (the “Agreement”).

I accept and agree to be bound by the Agreement in all respects and in connection with any interest I may have in Evofem Holdings, Inc. (the “Company”), whether that interest may be community property or quasi-community property under any Applicable Laws relating to marital property in effect in the state of our residence as of the date of signing of the Agreement and this Consent of Spouse.

I hereby appoint my spouse as my attorney-in-fact with respect to the exercise of any and all rights, including, without limitation, voting rights, that my spouse and I may have as husband and wife as community property under the Agreement.

I hereby ratify and consent to any documents, including, without limitation, any and all amendments to the Agreement, that have or will be consented to or executed by my spouse, as attorney-in-fact for my spouse and I as husband and wife, with respect to our interest in the Company.

Dated:              , 201  

 

 

[Signature of Spouse]

 

[Printed Name of Spouse]


EXHIBIT C

JOINDER AGREEMENT

This Joinder Agreement (this “Joinder Agreement”) is executed on                     , by the undersigned (the “Holder”) pursuant to the terms of the Stockholder Agreement, dated [            ], 2015 (the “Agreement”), by and among Evofem Holdings, Inc., a Delaware corporation (the “Company”) and certain of its Stockholders, as such Agreement may be amended or amended and restated hereafter. Capitalized terms used but not defined in this Joinder Agreement shall have the respective meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Holder agrees as follow.

1.1    Acknowledgement. Holder acknowledges that Holder is acquiring certain shares of Stock.

1.2    Agreement. Holder hereby (a) agrees that the Stock shall be bound by and subject to the terms of the Agreement, including for the avoidance of doubt Sections 3 and 4 of the Agreement, and (b) adopts the Agreement with the same force and effect as if Holder were originally a party thereto.

1.3    Notice. Any notice required or permitted by the Agreement shall be given to Holder at the address or facsimile number listed below Holder’s signature hereto.

 

      ACCEPTED AND AGREED:
HOLDER     EVOFEM HOLDINGS, INC.
By:  

 

    By:  

                                          

Name:  

 

    Name:  

 

Title:  

 

    Title:  

 

Address:  

 

     

 

     


EXHIBIT D

LOCK-UP AGREEMENT

[ see attached ]


Form of Lock-Up Agreement

            , 2015

As an inducement to Woodford Investment Management LLP (“Woodford”) and Invesco Asset Management Limited (“ Invesco ”) to execute the Evofem Holdings, Inc. Stockholder Agreement, dated [            ], 2015, by and among Evofem Holdings, Inc. (the “ Company ”) and the holders of the Company’s outstanding capital stock listed on Exhibit A thereto (the “ Stockholder Agreement ”), the undersigned hereby agrees that without, in each case, the prior written consent of each of Woodford and Invesco, during the period specified in the second succeeding paragraph (the “ Lock-Up Period ”), the undersigned will not: offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any equity security or membership interest in, or any security convertible into any equity security or membership interest in, the Company (collectively, the “ Lock-Up Securities ”).

The undersigned agrees that the foregoing restrictions preclude the undersigned from engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of the Lock-Up Securities even if the Lock-Up Securities would be disposed of by someone other than the undersigned. Such prohibited hedging or other transactions would include without limitation any short sale or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to any of the Lock-Up Securities or with respect to any security that includes, relates to, or derives any significant part of its value from the Lock-Up Securities.

The Lock-Up Period will commence on the date of this Lock-Up Agreement and will terminate upon the earlier of (i) the closing of a Qualified IPO (as defined in the Company’s Amended and Restated Certificate of Incorporation) or (ii) the date that is two (2) years after the date of the Stockholder Agreement.

Notwithstanding the foregoing, the undersigned may transfer any of the Lock-Up Securities (i) as a bona fide gift or gifts or charitable contribution(s), (ii) to an immediate family member of the undersigned or any trust or family limited liability company for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, (iii) if the undersigned is a corporation, partnership, limited liability company, investment fund, trust or other business entity (1) to another corporation, partnership, limited liability company, investment fund, trust or other business entity that is a direct or indirect Affiliate (as defined in the Stockholder Agreement) of the undersigned or (2) in connection with distributions of shares of Common Stock or any security convertible into or exercisable for Common Stock to limited partners, limited liability company members or stockholders of the undersigned, (iv) if the undersigned is a trust, to the beneficiary of such trust or (v) by testate succession or intestate succession. For purposes of this Lock-Up Agreement, “immediate family” shall mean any relationship by blood, marriage, domestic partnership or adoption not more remote than first cousin.


In addition, the foregoing restrictions shall not apply to:

(i)    the exercise (including by means of a “net” or “cashless” exercise) of stock options granted pursuant to the Company’s equity incentive plans or warrants;

(ii)    the transfer upon a termination of employment of any of the Lock-Up Securities in connection with the repurchase of any of the Lock-Up Securities issued pursuant to an employee benefit plan or pursuant to the agreements pursuant to which such shares were issued;

(iii)    the conversion of the outstanding shares of preferred stock into shares of Common Stock, provided it shall apply to any Lock-Up Securities received upon such conversion; or

(iv)    the transfer of any of the Lock-Up Securities by operation of law to a spouse, former spouse, domestic partner, former domestic partner, child or other dependent pursuant to a qualified domestic order or in connection with a divorce settlement.

The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Lock-Up Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.

This Lock-Up Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.

 

Very truly yours,

 

Printed Name of Holder
By:  

 

Exhibit 10.36

FIRST AMENDMENT TO

STOCKHOLDER AGREEMENT

This FIRST AMENDMENT TO STOCKHOLDER AGREEMENT (this “ Amendment ”) is made and entered into as of July 13, 2016, by and among Evofem Holdings, Inc., a Delaware corporation (the “ Company ”), Joseph D. Pike (“ Pike ”), Thomas F. Darden, II (“ Darden ”), Woodford Investment Management LLP, as agent for and on behalf of each of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund, and Woodford Patient Capital Trust Plc (“ WIM ”) and Invesco Asset Management Limited, as agent for and on behalf of each of the Invesco Perpetual High Income Fund, a sub fund of the Invesco Perpetual UK Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000231) (the “ IPHI Fund ”), and the Invesco Perpetual Income Fund, a sub fund of the Invesco Perpetual UK 2 Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000221) (the “ IPI Fund ” and together with the IPHI Fund, “ Invesco ”), and amends that certain Stockholder Agreement (as amended, the “ Stockholder Agreement ”), dated as of November 25, 2015, by and between the Company and the Stockholders listed on Exhibit A thereto (collectively, the “ Stockholders ”). The Company, Pike, Darden, WIM and Invesco are sometimes referred to herein collectively as the “ Parties .”

RECITALS

WHEREAS, the Parties desire to amend the Stockholder Agreement, pursuant to Section 14.5 thereof, to clarify that the voting restriction set forth in Section 7.7: (i) is intended to apply to each of the IPHI Fund and the IPI Fund individually, as set forth below, and (ii) applies to Stock owned by WIM and Invesco on an as-converted basis;

WHEREAS , WIM holds fifty percent (50%) of the shares of Series C Preferred Stock of the Company subject to the Stockholder Agreement; and

WHEREAS , WIM and Invesco are Special Holders for purposes of Section 14.5 of the Stockholder Agreement.

NOW, THEREFORE , for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged and agreed, the Parties hereby agree as follows:

AGREEMENT

1.     Amendment of Section  1.8 . Section 1.8 of the Stockholder Agreement is hereby amended and restated in its entirety as follows:

“1.8    “ Invesco Funds ” shall mean the IPHI Fund and the IPI Fund.”

2.     Amendment of Section  1 . Section 1 of the Stockholder Agreement is hereby amended to add the following definitions as Sections 1.9 and 1.10:

“1.9    “ IPHI Fund ” shall mean Invesco Perpetual High Income Fund, a sub fund of the Invesco Perpetual UK Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000231).”

“1.10    “ IPI Fund ” shall mean the Invesco Perpetual Income Fund, a sub fund of the Invesco Perpetual UK 2 Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000221).”


Further, Sections 1.9 through 1.19 of the Stockholder Agreement shall be renumbered as Sections 1.11 through 1.21.

3.     Amendment of Section  7.7 . Section 7.7 of the Stockholder Agreement is hereby amended and restated in its entirety as follows:

Voting Restrictions . Each share of Stock will entitle the holder to one vote; provided that if at any time WEIF owns, in the aggregate, Stock constituting more than Nineteen and One-Half Percent (19.5%) of the total voting share capital of the Corporation, on an as-converted basis, then the Stock held by WEIF shall be limited, in the aggregate, to Nineteen and One-Half Percent (19.5%) of the total number of votes, on an as-converted basis, such votes to be split equally on a fractional basis amongst such shares; provided further that for so long as WPCT is the holder of any Stock and any provision would result in WPCT being able to exercise more than 49% of the votes capable of being exercised at any particular meeting, on an as-converted basis, then the number of votes attaching to all Stock held by WPCT shall, so long as this situation pertains, be restricted such that the votes conferred on WPCT in respect of all Stock held by it shall represent 49% of the votes capable of being exercised, on an as-converted basis; provided further that if at any time the IPHI Fund owns, in the aggregate, Stock constituting more than Nineteen and One-Half Percent (19.5%) of the total voting share capital of the Corporation, on an as-converted basis, then the Stock held by the IPHI Fund shall be limited, in the aggregate, to Nineteen and One-Half Percent (19.5%) of the total number of votes, on an as-converted basis, such votes to be split equally on a fractional basis amongst such shares; provided further that if at any time the IPI Fund owns, in the aggregate, Stock constituting more than Nineteen and One-Half Percent (19.5%) of the total voting share capital of the Corporation, on an as-converted basis, then the Stock held by the IPI Fund shall be limited, in the aggregate, to Nineteen and One-Half Percent (19.5%) of the total number of votes, on an as-converted basis, such votes to be split equally on a fractional basis amongst such shares.”

4.     Amendment and Ratification . The parties agree that the Stockholder Agreement is hereby amended in accordance with the foregoing provisions of this Amendment. Except as specifically amended hereby, all terms, conditions, covenants, representations and warranties contained in the Stockholder Agreement shall remain in full force and effect, and shall be binding upon each party to the Stockholder Agreement.

5.     Counterparts . This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. This Amendment may be executed on signature pages exchanged by facsimile or electronic mail, which copies shall be equally as effective as delivery of an original executed counterpart of this Amendment.

[Remainder of page intentionally left blank].

 

2


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

EVOFEM HOLDINGS, INC.
By:  

/s/ Jay File

Name:   Jay File
Title:   Chief Financial Officer

 

S IGNATURE P AGE TO F IRST A MENDMENT TO S TOCKHOLDER A GREEMENT


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
By:  

/s/ Thomas F. Darden, II

Name:   Thomas F. Darden, II
Woodford Investment Management LLP, as agent for and on behalf of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund
By:  

/s/ Simon Osborne

Name:   Simon Osborne
Title:   Authorised Signatory
Woodford Investment Management LLP, as agent for and on behalf of Woodford Patient Capital Trust Plc
By:  

/s/ Simon Osborne

Name:   Simon Osborne
Title:   Authorised Signatory
Invesco Asset Management Limited, as agent for and on behalf of the Invesco Perpetual High Income Fund, a sub fund of the Invesco Perpetual UK Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000231), and the Invesco Perpetual Income Fund, a sub fund of the Invesco Perpetual UK 2 Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000221)
By:  

/s/ Sybille Hofmann

Name:   Sybille Hofmann
Title:   Director

 

S IGNATURE P AGE TO F IRST A MENDMENT TO S TOCKHOLDER A GREEMENT

Exhibit 10.37

SECOND AMENDMENT TO

STOCKHOLDER AGREEMENT

This SECOND AMENDMENT TO STOCKHOLDER AGREEMENT (this “ Amendment ”) is made and entered into as of July 28, 2017, by and among Evofem Biosciences, Inc., a Delaware corporation (the “ Company ”), Joseph D. Pike (“ Pike ”), Thomas F. Darden, II (“ Darden ”), Woodford Investment Management Limited, as agent for and on behalf of each of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund (“ WEIF ”), Omnis Income & Growth Fund, a sub fund of Omnis Portfolio Investments ICVC (“ Omnis ”) and Woodford Patient Capital Trust Plc (“ WPCT ”; collectively with WEIF and Omnis, “ WIM ”) and Invesco Asset Management Limited, as agent for and on behalf of each of the Invesco Perpetual High Income Fund, a sub fund of the Invesco Perpetual UK Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000231) (the “ IPHI Fund ”), and the Invesco Perpetual Income Fund, a sub fund of the Invesco Perpetual UK 2 Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000221) (the “ IPI Fund ” and together with the IPHI Fund, “ Invesco ”), and amends that certain Stockholder Agreement, dated as of November 25, 2015, as amended pursuant to that certain First Amendment to Stockholder Agreement, dated as of July 13, 2016 (as amended, the “ Stockholder Agreement ”), by and between the Company and the Stockholders listed on Exhibit A thereto (collectively, the “ Stockholders ”). The Company, Pike, Darden, WIM and Invesco are sometimes referred to herein collectively as the “ Parties .”

RECITALS

WHEREAS, the Parties desire to amend the Stockholder Agreement, pursuant to Section 14.5 thereof, to apply the voting restrictions set forth in Section 7.7 to Omnis and to make certain other changes each as set forth below;

WHEREAS , WIM holds fifty percent (50%) of the shares of Series C Preferred Stock of the Company subject to the Stockholder Agreement; and

WHEREAS , WIM and Invesco are Special Holders for purposes of Section 14.5 of the Stockholder Agreement.

NOW, THEREFORE , for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged and agreed, the Parties hereby agree as follows:

AGREEMENT

1.     Amendment and Restatement of Section  7.7 . Section 7.7 of the Stockholder Agreement is hereby amended and restated in its entirety as follows:

Voting Restrictions . Each share of Stock will entitle the holder to one vote; provided that if at any time WEIF owns, in the aggregate, Stock constituting more than Nineteen and One-Half Percent (19.5%) of the total voting share capital of the Corporation, on an as-converted basis, then the Stock held by WEIF shall be limited, in the aggregate, to Nineteen and One-Half Percent (19.5%) of the total number of votes, on an as-converted basis, such votes to be split equally on a fractional basis amongst such shares; provided further that for so long as Omnis owns, in the aggregate, Stock constituting more than Nineteen and One-Half Percent (19.5%) of the total voting share capital of the Corporation, on an as-converted basis, then the Stock held by Omnis shall be limited, in the aggregate, to Nineteen and One-Half Percent (19.5%) of the total number of votes, on an as-converted basis, such votes to be split equally on a fractional basis amongst such shares; provided further that for so long as WPCT is the holder of any Stock and

 

1


any provision would result in WPCT being able to exercise more than 49% of the votes capable of being exercised at any particular meeting, on an as-converted basis, then the number of votes attaching to all Stock held by WPCT shall, so long as this situation pertains, be restricted such that the votes conferred on WPCT in respect of all Stock held by it shall represent 49% of the votes capable of being exercised, on an as-converted basis; provided further that if at any time the IPHI Fund owns, in the aggregate, Stock constituting more than Nineteen and One-Half Percent (19.5%) of the total voting share capital of the Corporation, on an as-converted basis, then the Stock held by the IPHI Fund shall be limited, in the aggregate, to Nineteen and One-Half Percent (19.5%) of the total number of votes, on an as-converted basis, such votes to be split equally on a fractional basis amongst such shares; provided further that if at any time the IPI Fund owns, in the aggregate, Stock constituting more than Nineteen and One-Half Percent (19.5%) of the total voting share capital of the Corporation, on an as-converted basis, then the Stock held by the IPI Fund shall be limited, in the aggregate, to Nineteen and One-Half Percent (19.5%) of the total number of votes, on an as-converted basis, such votes to be split equally on a fractional basis amongst such shares.”

2.     Amendment of Section  2.1(e) . Section 2.1(e) of the Stockholder Agreement is hereby deleted in its entirety.

3.     Amendment of Section  14 . A new Section 14.16 of the Stockholder Agreement is hereby inserted following Section 14.15 of the Stockholder Agreement as follows:

Woodford Obligations . Woodford will not be obliged to comply with any provision of this Agreement if so complying would result in Woodford breaching any applicable law or regulation (to be determined by Woodford in its sole discretion) provided that Woodford will use reasonable endeavours to procure that any such breach is avoided. If, by entering into any provision of this Agreement, Woodford would be in breach of any applicable law or regulation (to be determined by Woodford in its sole discretion), that provision will be treated by the parties as void ab initio and will be severed from this Agreement. Notwithstanding that severance, the other provisions of this Agreement and the remainder (if any) of the relevant provision will continue to be fully effective.”

4.     Amendment of Section  14 . A new Section 14.17 of the Stockholder Agreement is hereby inserted following the new Section 14.16 of the Stockholder Agreement as follows:

Invesco Obligations . Invesco will not be obliged to comply with any provision of this Agreement if so complying would result in Invesco breaching any applicable law or regulation (to be determined by Invesco in its sole discretion) provided that Invesco will use reasonable endeavours to procure that any such breach is avoided. If, by entering into any provision of this Agreement, Invesco would be in breach of any applicable law or regulation (to be determined by Invesco in its sole discretion), that provision will be treated by the parties as void ab initio and will be severed from this Agreement. Notwithstanding that severance, the other provisions of this Agreement and the remainder (if any) of the relevant provision will continue to be fully effective.”

5.     Amendment and Ratification . The parties agree that the Stockholder Agreement is hereby amended in accordance with the foregoing provisions of this Amendment. Except as specifically amended hereby, all terms, conditions, covenants, representations and warranties contained in the Stockholder Agreement shall remain in full force and effect, and shall be binding upon each party to the Stockholder Agreement.

 

2


6.     Counterparts . This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. This Amendment may be executed on signature pages exchanged by facsimile or electronic mail, which copies shall be equally as effective as delivery of an original executed counterpart of this Amendment.

[Remainder of page intentionally left blank.]

 

3


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

EVOFEM BIOSCIENCES, INC.
By:  

/s/ Jay File

Name:   Jay File
Title:   Chief Financial Officer

 

S IGNATURE P AGE TO S ECOND A MENDMENT TO S TOCKHOLDER A GREEMENT


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

FOUNDER:
By:  

/s/ Thomas F. Darden, II

Name:   Thomas F. Darden, II
STOCKHOLDER:
B RICKHAVEN II, L.L.C.
By:  

/s/ Thomas F. Darden, II

Name:   Thomas F. Darden, II
Title:   Managing Member

 

S IGNATURE P AGE TO S ECOND A MENDMENT TO S TOCKHOLDER A GREEMENT


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

FOUNDER:
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
STOCKHOLDER:
T HE J OSEPH D. P IKE F AMILY T RUST
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee
J OSEPH D. P IKE AND C HAN P. P IKE , AS T RUSTEES OF THE P IKE L EGACY T RUST I DATED M ARCH  14, 2012
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee
J OSEPH D. P IKE AND C HAN P. P IKE , AS T RUSTEES OF THE P IKE L EGACY T RUST II DATED M ARCH  14, 2012
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee
J OSEPH D. P IKE AND C HAN P. P IKE , AS T RUSTEES OF THE P IKE L EGACY T RUST III DATED M ARCH  14, 2012
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

STOCKHOLDER:

W OODFORD I NVESTMENT M ANAGEMENT L IMITED ,

as agent for and on behalf of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund

By:  

/s/ Chris Martin

Name:   Chris Martin
Title:   Authorised Signatory

W OODFORD I NVESTMENT M ANAGEMENT L IMITED ,

as agent for and on behalf of Woodford Patient Capital Trust Plc

By:  

/s/ Chris Martin

Name:   Chris Martin
Title:   Authorised Signatory

W OODFORD I NVESTMENT M ANAGEMENT L IMITED ,

as agent for and on behalf of Omnis Income & Growth Fund, a sub fund of Omnis Portfolio Investments ICVC

By:  

/s/ Chris Martin

Name:   Chris Martin
Title:   Authorised Signatory


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

STOCKHOLDER:

I NVESCO A SSET M ANAGEMENT L IMITED ,

as agent for and on behalf of the Invesco Perpetual High Income Fund, a sub fund of the Invesco Perpetual UK Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000231), and the Invesco Perpetual Income Fund, a sub fund of the Invesco Perpetual UK 2 Investment Series Investment Company with Variable Capital (ICVC) (Company No. IC000221)

By:  

/s/ Nick Mustoe

Name:   Nick Mustoe
Title:   Director

Exhibit 10.38

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”), is made as of November 25, 2015, by and among Evofem Holdings, 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 .”

RECITALS

WHEREAS , the Company and the Investors are parties to the Series C Preferred Stock Purchase Agreement of even date herewith (the “ Purchase Agreement ”); and

WHEREAS , in order to induce the Company to enter into the Purchase Agreement and to induce the Investors to invest funds in the Company pursuant to the Purchase Agreement, the Investors and the Company hereby agree that this Agreement shall govern 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 ” shall mean any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified party. For purposes of the preceding sentence, the term “control” shall mean (a) the power, direct or indirect, to direct or cause the direction of the management and policies of a Person through voting securities, by contract or otherwise; or (b) the ownership, directly or indirectly, of at least fifty percent (50%) (or, if less, the maximum ownership interest permitted by law) of the voting securities or other ownership interest of a Person.

1.2    “ Common Stock ” means shares of the Company’s common stock, par value $0.001 per share.

1.3    “ Damages ” means any loss, damage, claim 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, claim 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.

1.4    “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

1.5    “ 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.

1.6    “ Form S -1 ” means such 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.

1.7    “ Form S -3 ” means such 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.

1.8    “ Holder ” means any holder of Registrable Securities who is a party to this Agreement.

1.9    “ 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.

1.10    “ Initiating Holders ” means, collectively, Holders who properly initiate a registration request under this Agreement.

1.11    “ IPO ” shall mean a firm commitment underwritten public offering of the Company’s common stock, or securities convertible into common stock, pursuant to an effective registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the listing or admission of the Company’s common stock to a national securities exchange, including, without limitation, the Alternative Investment Market or the Main Market of the London Stock Exchange, pursuant to a similar disclosure document filed under a similar statute in a jurisdiction outside the United States.

1.12    “ Person ” means any individual, corporation, partnership, trust, limited liability company, association or other entity.

1.13    “ Registrable Securities ” means (i) the Common Stock issuable or issued upon conversion of th e Series C Preferred Stock 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, the shares referenced in clause (i) above; excluding, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Subsection 3.1 and any shares for which registration rights have terminated pursuant to Subsection 2.12 of this Agreement.

1.14    “ 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.

 

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1.15    “ Restricted Securities ” means the securities of the Company required to be notated with the legend set forth in Section 3.10 of the Purchase Agreement.

1.16    “ SEC ” means the Securities and Exchange Commission.

1.17    “ SEC Rule 144 ” means Rule 144 promulgated by the SEC under the Securities Act.

1.18    “ SEC Rule 145 ” means Rule 145 promulgated by the SEC under the Securities Act.

1.19    “ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

1.20    “ 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 the Selling Holder Counsel borne and paid by the Company as provided in Subsection 2.6 .

1.21    “ Series C Preferred Stock ” means shares of the Company’s Series C Preferred Stock, par value $0.001 per share.

2.     Registration Rights . The Company covenants and agrees as follows:

2.1     Demand Registration .

(a)     Form S-1 Demand . If at any time after the earlier of (i) three (3) years after the date of this Agreement or (ii) 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 fifty percent (50%) of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to at least twenty percent (20%) of the Registrable Securities then outstanding, then the Company shall (x) 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 (y) 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-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 Subsection s 2.1(c) and 2.3.

(b)     Form S-3 Demand . 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 fifty percent (50%) of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least $25 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 forty-five (45) 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 requested to be included in such registration by any other Holders, as specified

 

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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 Subsections 2.1(c) and 2.3 .

(c)    Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Subsection 2.1 a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Company’s Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore necessary to defer the filing of such registration statement, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than One Hundred Twenty (120) days after the request of the Initiating Holders is given; provided , however , that the Company may not invoke this right more than one time 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 One Hundred Twenty (120) 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 Subsection 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 three (3) registration pursuant to Subsection 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 Subsection 2.1(b) . The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(b)  (i) 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 (ii) if the Company has effected three (3) registrations pursuant to Subsection 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 Subsection 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 Subsection 2.6 , in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Subsection 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 Common Stock 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 Subsection 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 Subsection 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 Subsection 2.6 .

 

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2.3     Underwriting Requirements .

(a)    If, pursuant to Subsection 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 Subsection 2.1 , and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. 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 Subsection 2.4(e) ) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Subsection 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; provided , however , that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. 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 Subsection 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 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. For purposes of the provision in this Subsection 2.3(b) 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

 

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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.

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 ninety (90) 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 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;

(e)    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;

 

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(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.

In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Company’s directors may implement a trading program under Rule 10b5-1 of the Exchange Act.

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.

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 $25,000, of one counsel for the selling Holders (“ Selling Holder Counsel ”), 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 Subsection 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the 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 a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Subsections 2.1(a) or 2.1(b) , as the case may be; provided further that if, at the time of such withdrawal, the Holders shall 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 Subsections 2.1(a) or 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 .

 

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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 Subsection 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.

(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 Subsection 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 Subsections 2.8(b) and 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 Subsection 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 Subsection 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 Subsection 2.8 , to the extent that such failure materially prejudices the indemnifying party’s ability to

 

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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 Subsection 2.8 .

(d)    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 Subsection 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 Subsection 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 Subsection 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 Subsection 2.8(d) , when combined with the amounts paid or payable by such Holder pursuant to Subsection 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.

(e)    Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(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 Subsection 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:

(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;

 

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(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 a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would provide to such holder the right to include securities in any registration on other than on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Registrable Securities that they wish to so include.

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 registration by the Company of shares of its Common Stock or any other equity securities under the Securities Act on a registration statement on Form S-1 or Form S-3, and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days in the case of the IPO, or such other period as may be 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), or ninety (90) days in the case of any registration other than the IPO, or such other period as may be 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 (whether such shares or any such securities are then owned by the Holder or are thereafter acquired) or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such 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 Subsection 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 only if all officers and directors are subject to the same restrictions and the Company uses

 

10


commercially reasonable efforts to obtain a similar agreement from all stockholders individually owning more than five percent (5%) of the Company’s outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Series C Preferred Stock). The underwriters in connection with such registration are intended third-party beneficiaries of this Subsection 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 Subsection 2.11 or that are necessary to give further effect thereto.

2.12     Termination of Registration Rights . The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Subsections 2.1 or 2.2 shall terminate upon the earliest to occur of:

(a)    the closing of a Liquidation Transaction, as such term is defined in the Company’s Amended and Restated Certificate of Incorporation;

(b)    the closing of the IPO if such IPO includes admission to or listing on the Alternative Investment Market or the Main Market of the London Stock Exchange;

(c)    such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder’s shares without limitation during a three-month period without registration; and

(d)    the fourth anniversary of the date of this Agreement.

3.     Miscellaneous .

3.1     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 of a Holder; or (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; 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 Subsection 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 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.

3.2     Counterparts . This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g. , www.docusign.com) or

 

11


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 .

3.3     Titles and Subtitles . The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.

3.4     Notices . All notices required in connection with 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; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written notification of receipt. All communications shall be sent to the holder appearing on the books of the Company or at such address as such party may designate by ten (10) days advance written notice to the other parties hereto.

3.5     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 a majority of the Registrable Securities then outstanding; provided that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party. 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. 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 Subsection 3.5 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.

3.6     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.

3.7     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 and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.

3.8     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.

3.9     Dispute Resolution . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. The parties agree that any and all disputes, claims or controversies arising out of or relating to this Agreement that are not resolved by their mutual agreement shall be submitted to final and binding arbitration in New York, New York before

 

12


JAMS, or its successor, pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq. Either party may commence the arbitration process called for in this Agreement by filing a written demand for arbitration with JAMS, with a copy to the other party. The arbitration will be conducted in English in accordance with the provisions of JAMS’ Streamlined Arbitration Rules and Procedures in effect at the time of filing of the demand for arbitration. The parties will cooperate with JAMS and with one another in selecting an arbitrator from JAMS’ panel of neutrals, and in scheduling the arbitration proceedings. The parties covenant that they will participate in the arbitration in good faith, and that they will share equally in its costs. The decision of the arbitrator shall be final and binding on the parties, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, this Section  3.9 shall not preclude either party from seeking temporary, provisional, or injunctive relief from any court. The provisions of this Section  3.9 may be enforced by any court of competent jurisdiction, and the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including reasonable attorney’s fees, to be paid by the party against whom enforcement is ordered.

3.10     Jury Trial . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS AGREEMENT.

3.11     Delays or Omissions . No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such 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.

3.12     Real Property Holding Company . The Company represents and warrants that neither it nor any of its subsidiaries is or has ever been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Internal Revenue Code of 1986, as amended (the “ Code ”), at any time during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code.

[ Remainder of Page Intentionally Left Blank ]

 

13


IN WITNESS WHEREOF, the Company has executed this Registration Rights Agreement as of the date first written above.

 

COMPANY:
EVOFEM HOLDINGS, INC.
By:  

/s/ Saundra Pelletier

Name:   Saundra Pelletier
Title:   Chief Executive Officer
Address:   12400 High Bluff Dr.
  Suite 600
  San Diego, CA 92130
  Attn: Saundra Pelletier
  Facsimile:
  Email:
INVESTORS:
Woodford Investment Management LLP, as agent for and on behalf of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund
By:  

/s/ illegible

Name:  

 

Title:  

 

Address:  

 

Facsimile:  

 

Email:  

 

Woodford Investment Management LLP, as agent for and on behalf of Woodford Patient Capital Trust Plc
By:  

/s/ illegible

Name:  

 

Title:  

 

Address:  

 

Facsimile:  

 

Email:  

 

 

 

S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT


INVESTORS:
Brickhaven II, L.L.C.
By:  

/s/ Thomas F. Darden, II

Name:   Thomas F. Darden, II
Title:   Managing Member
The Joseph D. Pike Family Trust
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee
Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust I dated March 14, 2012
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee
Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust II dated March 14, 2012
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee
Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust III dated March 14, 2012
By:  

/s/ Joseph D. Pike

Name:   Joseph D. Pike
Title:   Trustee

 

 

S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT


SCHEDULE A

Investors

CF Woodford Equity Income Fund

Address : Woodford Investment Management LLP, Attn: Michael Nouril, Africa House, 70 Kingsway, London, WC2B 6AH, United Kingdom

Woodford Patient Capital Trust Plc

Address : Woodford Investment Management LLP, Attn: Michael Nouril, Africa House, 70 Kingsway, London, WC2B 6AH, United Kingdom

Brickhaven II, L.L.C.

Address : Attn: Thomas F. Darden, II, 2351 Hales Road, Raleigh North Carolina 27608

The Joseph D. Pike Family Trust

Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust I dated March 14, 2012

Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust II dated March 14, 2012

Joseph D. Pike and Chan P. Pike, as Trustees of the Pike Legacy Trust III dated March 14, 2012

Address : Attn: Joseph D. Pike, 9663 Mashie Court, Naples, Florida 34108

Exhibit 10.39

 

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CONSULTING AGREEMENT

This Consulting Agreement (the “Agreement”) is made and entered into effective as of April 1, 2017 (the “Effective Date”), by and between Evofem Biosciences, Inc., a Delaware corporation (the “Company”), and Thomas Lynch, an individual, (the “Consultant”). The Company and Consultant hereby agree as follows:

1.     Engagement . The Company hereby engages Consultant to perform the Services (as defined below) on the terms and conditions herein and Consultant hereby accepts such engagement.

2.     Scope of Duties . During the term of this Agreement, Consultant shall perform the services for the Company set forth on Exhibit  A attached hereto (the “Services”). In addition, Consultant may perform such additional services as are agreed upon by the Company and Consultant from time to time which shall also be deemed “Services” governed by the terms and conditions of this Agreement, unless otherwise set forth in such signed writing. The Company shall compensate Consultant for the Services pursuant to Section 3.1 hereof. Consultant hereby agrees to devote Consultant’s reasonable time, abilities and energy to the faithful performance of Consultant’s duties hereunder. The parties acknowledge and agree that Consultant’s Services to Company hereunder shall be non-exclusive and that Consultant shall at all times remain an independent contractor and shall have no authority to bind the Company. The Company will not exercise any control over the manner or methods with which Consultant performs the Services. The Company’s sole interest and responsibility is to ensure that the Services are performed and rendered in a competent, satisfactory, timely and legal manner.

3.    Compensation; Reimbursement.

3.1     Consulting Fees . In consideration for the timely and fully satisfactory performance of the Services, Consultant shall receive the consideration set forth on Exhibit B attached hereto. Consultant acknowledges and agrees that Exhibit B sets forth all of Consultant’s compensation for any and all Services performed for or on behalf of the Company whether during the term of this Agreement or prior to the term of this Agreement and that Consultant is not entitled to any other compensation in connection with any services provided to the Company, including, without limitation, the Services, other than as set forth on Exhibit B hereto. Except as expressly set forth herein, there are no other fees, costs or other compensation of any kind or nature to be paid by Company for the Services. Consultant shall be solely responsible for and shall make proper and timely payment of any taxes due on payments made (a) to Consultant pursuant to this Agreement (including, but not limited to, Consultant’s estimated state and Federal income taxes and self-employment taxes, as applicable), and (b) to the extent permitted under this Agreement, to other persons who provide services to Consultant in connection with this Agreement.

3.2     Expenses . Consultant shall be reimbursed for all reasonable “out-of-pocket” business expenses which have been incurred in connection with the performance of Consultant’s duties under this Agreement in accordance with Company’s standard expense

 

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reimbursement policies, subject to Consultant’s submission of appropriate vouchers and receipts substantiating any such expenses at Company’s request.

4.     Confidentiality; Non-Disclosure . In the course of performing the Services, it is understood that the Company may disclose certain Confidential Information of the Company to Consultant. “Confidential Information” shall include all information or material of the Company, whether disclosed orally, graphically, electronically or in writing, by the Company to Consultant or of which Consultant becomes aware, including, without limitation, information relating to the business of the Company and any and all intellectual property rights stemming therefrom and relating thereto and any and all other materials, documentation, contracts and agreements of the Company and any business plans, methods, concepts, marketing plans, projections, investor lists, or ideas relating to the business of the Company or its products or services. Notwithstanding the foregoing, Confidential Information shall not be information which: (i) has entered the public domain through no action or failure to act of Consultant; (ii) prior to disclosure hereunder was already lawfully in Consultant’s possession without any obligation of confidentiality; (iii) subsequent to disclosure hereunder is obtained by Consultant on a non-confidential basis from a third party who has the right to disclose such information to Consultant; or (iv) is ordered to be or otherwise required to be disclosed by Consultant by a court of law or other governmental body provided, however, that the Company is notified of such order or requirement and given a reasonable opportunity to intervene or obtain a protective order. Consultant agrees to: (i) use the same degree of care (and in no event less than reasonable care) in protecting the Confidential Information of Company that Consultant would use to protect its own Confidential Information of a similar nature; (ii) not to copy, publish, reverse engineer, show, or disclose the Confidential Information of the Company to any third parties without the prior written consent of the Company, and (iii) to return the Confidential Information of the Company to the Company at the Company’s request.

5.     Ownership of Work Product . Consultant hereby expressly acknowledges and agrees that any and all work product, software (in object code or source code form), improvements, inventions (whether patentable or not), enhancements, processes, methods, algorithms, techniques, concepts and other data or information made, conceived, developed reduced to practice or learned by Consultant, either alone or jointly with others, in connection with Consultant’s performance of the Services together with any and all intellectual property rights arising therefrom or related thereto, including, without limitation, any patent rights, copyrights, trademark rights or trade secrets, shall be the sole and exclusive property of the Company, and Consultant hereby assigns to the Company any and all rights Consultant may have or acquire in the same, including, without limitation, any and all such intellectual property rights.

6.     Representations, Warranties and Covenants . Consultant represents, warrants and covenants to the Company that she shall perform the Services in a workmanlike and professional manner and in accordance with all applicable laws and regulations. Consultant further represents, warrants and covenants that it will not permit any other person or entity to contribute

 

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to or perform any of the Services or contribute to any work product produced by Consultant pursuant to this Agreement.

7.     Term; Termination . This Agreement shall be effective as of the Effective Date and shall continue in full force and effect for a period of two (2) years. Either party may terminate this Agreement upon seven (7) days advance written notice to the other party for any reason or no reason.

8.     Other Work . The Company recognizes and agrees that the Consultant may perform services for other persons, provided that such services do not represent a conflict of interest or a breach of the Consultant’s duties to the Company. Notwithstanding the foregoing, Consultant hereby represents and warrants that the terms of this Agreement are not inconsistent with, nor do they violate, any other contractual or legal obligations Consultant may have with any other third party.

9.     No Employee Benefits . This Agreement shall not entitle Consultant to participate in any of the Company’s employee benefit plans, fringe benefit programs, group insurance arrangements or similar programs. The Company shall not provide workers’ compensation, disability insurance, Social Security or unemployment compensation coverage nor any other statutory benefit to the Consultant as a result of this Agreement. The Consultant shall comply at his or her expense with all applicable provisions of workers’ compensation laws, unemployment compensation laws, federal Social Security law, the Fair Labor Standards Act, OSHA regulations, federal, state and local income tax laws, and all other applicable federal, state and local laws, regulations and codes relating to terms and conditions of employment required to be fulfilled by employers or independent contractors.

10.     General Terms .

10.1     Assignment . This Agreement shall not be assigned or transferred by Consultant without the prior written consent of the Company. Further, Consultant acknowledges and agrees that Consultant possesses unique skills, expertise and qualifications, and that as such its performance is material to this Agreement. Consultant shall not assign or delegate any of the duties of Consultant hereunder to any third party without the prior written consent of the Company. It is understood and agreed that the Company shall have the right to assign this Agreement to any successor to all or substantially all of its assets and business by dissolution, merger, consolidation, transfer of assets or otherwise, or to any direct or indirect subsidiary of the Company.

10.2     Severability . Should there be any conflict between any provisions hereof and any present or future statute, law, ordinance, regulation, or other pronouncement having the force of law, the latter shall prevail, but the provision of this Agreement affected thereby shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law, and the remaining provisions of this Agreement shall remain in full force and effect.

 

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10.3     Governing Law . This Agreement and the rights and obligations of the parties set forth herein shall be governed by, construed and interpreted in accordance with the internal laws of the State of California, without regard to its conflicts of laws principles.

10.4     Miscellaneous . The Agreement constitutes the entire agreement between the parties regarding the subject matter set forth herein and supersedes and prior or contemporaneous agreement related to the subject matter hereof whether written or oral, and may only be modified in writing and signed by an authorized representative of both parties. All waivers hereunder must be made in writing by a duly authorized representative of the party against whom the waiver is to operate, and failure at any time to require the other party’s performance of any obligation under this Agreement shall not affect the right subsequently to require performance of that obligation. If any provision of this Agreement is illegal, unenforceable or invalid under applicable law, it shall be enforced to the maximum permissible extent to effect the intent of the parties, and the remaining provisions will remain in full force and effect. This Agreement may be executed in one or more counterparts, each of which may be signed and transmitted via PDF electronic delivery with the same validity as if it were an ink-signed document. Consultant is an independent contractor, and neither party shall, expressly or by implication, represent themselves as having, any authority to make contracts in the name of or binding on the other, or to obligate or bind the other in any manner whatsoever. Any notices under this Agreement must be in writing, may be emailed, sent by express 24-hour guaranteed courier, or hand-delivered, or may be served by depositing the same in the United States mail, addressed to the party to be notified, postage-prepaid and registered or certified with a return receipt requested. Each notice given by registered or certified mail shall be deemed delivered and effective on the date of delivery as shown on the return receipt, and each notice delivered in any other manner shall be deemed to be effective as of the time of actual delivery or the date the applicable email was sent if no non-delivery response is received by the sender.

Signatures on the following page

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be effective as of the Effective Date.

 

“Company”

    Evofem, Inc.
    By:  

/s/ Jay File

“Consultant”

   

/s/ Thomas Lynch 8/30/17

 

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EXHIBIT A

DESCRIPTION OF SERVICES

During the Term, Consultant shall perform the following activities:

Initiate and conduct investor relation activities within the U.S. and Europe, including the coordination and participation in telephonic and in-person meetings as it relates to future private equity fundraising activities or potential offerings on NASDAQ;

Serve as the initial point of contact for the coordination of investment activities and engage in ongoing communications with the Company’s two cornerstone investors, including telephonic and in-person meetings, as required;

Generate, initiate, coordinate, and engage business contacts for potential corporate business development opportunities in the area of women’s reproductive health, including participating in the initial communication with businesses for potential partnering opportunities and coordinating Company personnel’s participation in telephonic or in-person meetings; and

Perform other corporate activities as agreed upon by Company and Consultant.

 

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EXHIBIT B

CONSULTANT COMPENSATION

In consideration for the Services, Consultant shall be compensated as follows for each annual period commencing April 1:

$350,000, which includes $60,000 to be allocated as board fees in connection with his appointment as a non-executive director of the Company, due in quarterly installments commencing upon the Effective Date.

EQUITY GRANT:

An option for 250,000 shares of common stock, vesting quarterly for one year from the commencement of the Effective Date on the last day of the quarterly period for services provided under this Agreement.

One-hundred percent (100%) of the total shares of common stock to be issued under this Agreement shall vest in the event of a change of control, hereunder defined as the sale of all or substantially all of the assets of Company, any merger, consolidation or acquisition of Company with, by or into another corporation, entity or person, or any change in the ownership of more than fifty percent (50%) of the stock of Company in one or more related transactions.

 

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Exhibit 10.40

EVOFEM, INC. 12400 High Bluff Dr.

Suite 600

San Diego, CA 92130

November 16, 2015

Justin File

 

  Re: Severance Agreement

Dear Justin:

I am pleased to inform you that you have been selected to be eligible for certain severance protection upon the occurrence of an eligible termination of your employment with Evofem. Inc. (the “Company”) or any Subsidiary of the Company. This letter sets out the terms and conditions of the severance protection (the “Agreement”) for which you are eligible.

1.     Eligibility for Severance Benefits.

(a)    Subject to the terms and conditions of this Agreement, if your employment with the Company or any Subsidiary of the Company is terminated by the Company or such Subsidiary without Cause or by you for Good Reason at any time, the Company will provide you the following payments and benefits (the “Severance Benefits”):

(i)     (1) if you have provided less than twelve (12) months of service to the Company at the time of your termination, then an amount equal to your Highest Monthly Salary, with such amount payable in each month following your termination of employment for a period of six (6) months, or (2) if you have provided twelve (12) or more months of service to the Company at the time of your termination, then an amount equal to your Highest Monthly Salary, with such amount payable in each month following your termination of employment for a period of twelve (12) months; and

(ii)    if you and any of your eligible dependents timely elect COBRA continuation coverage with respect to any medical, dental or vision insurance benefits in which you or any such dependents are participating at the time of your termination, the Company will pay the employer share of any applicable COBRA premiums for such continued coverage: (1) if you have provided less than twelve (12) months of service to the Company at the time of your termination, then for a period of six (6) months following the date of termination, and (2) if you have provided twelve (12) or more months of service to the Company at the time of your termination, then for a period of twelve (12) months following the date of termination.

(b)    If your employment or service with the Company is terminated under any circumstances other than without Cause or for Good Reason as set forth in Section I (a), including without limitation by reason of retirement, death, disability, discharge for Cause or resignation other than for Good Reason, you will have no right to receive the Severance Benefits or to receive any other payments or benefits in respect of this Agreement.


(c)    Notwithstanding anything to the contrary contained in this Agreement, payment of the cash Severance Benefits under Section 1(a) will be conditioned on and subject to your execution of a general release of claims in favor of the Company and its successors and affiliates, and their officers, directors and employees, in such form as the Company may reasonably specify. If you do not execute such a release within thirty (30) days following your termination of employment or service (or you revoke your release prior to the date it becomes effective), you automatically forfeit your right to any cash severance payment set forth in Section 1 (a)(i) or I (a)(ii) which amounts will no longer payable under this Agreement.

(d)    Except as expressly provided herein, the Severance Benefits described in Section 1 (a) will be payable in addition to, and not in lieu of, all other accrued or vested or earned but as yet unpaid compensation, rights, or other benefits which may be owed to you following termination, including but not limited to accrued vacation and amounts or benefits payable under any bonus or other compensation plans, which benefits and arrangements will be governed by the terms of the applicable plans.

2.      Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below:

(a)     “Cause” means any of the following:

(i)    your conviction by a court of competent jurisdiction or pleading “no contest” to a felony or to any conduct of a criminal nature involving moral turpitude (other than a minor traffic violation);

(ii)    if you intentionally engage in fraud, embezzlement or any other illegal conduct substantially detrimental to the business reputation of the Company and/or its affiliates, regardless of whether such conduct is designed to defraud the Company, its affiliates or others; or

(iii)    you impart material confidential information relating to the business of the Company and/or its affiliates to competitors or other third parties other than in the course of carrying out your employment duties.

(b)     “Effective Date” means November 16, 2015

(c)     “Good Reason” means the occurrence of any of the following events, without your written consent:

(i)     a material reduction in the amount of your base compensation (unless such reduction is pursuant to a general reduction in base compensation applicable to all similarly situated employees of the Company);

(ii)    a material diminution in your duties or responsibilities as of the Effective Date; or


(iii)    a material change in your principal place of employment to a location more than 50 miles from your place of employment as of the Effective Date.

Notwithstanding the above, the occurrence of any of the events described in (i), (ii) or (iii) above will not constitute a “Good Reason” unless you give the Company written notice, within 30 calendar days after the occurrence of any of such events, that such circumstances constitute “Good Reason,” and the Company thereafter fails to cure such circumstances within 30„days after receipt of such notice.

(d)     “Highest Monthly Salary” means your monthly base salary or similar base compensation paid to you for your service to the Company or any Subsidiary at the highest rate in effect at any time during the twelve (12)-month period immediately prior to the date of termination.

(e)     “Subsidiary” means any corporation or other legal entity (other than the Company) in an unbroken chain of corporations or other entities beginning with the Company„ if each of the corporations or other entities other than the last corporation or entity in the unbroken chain owns units or other equity interests possessing 50% or more of the total combined voting power of all classes of units or equity interests in one of the other corporations or entities in such chain. A corporation or other entity that attains the status of a Subsidiary on a date after the Effective Date of this Agreement shall be considered a Subsidiary commencing as of such date.

3.      Binding Effect . This Agreement is personal to you and without the prior written consent of the Company will not be assignable by you otherwise than by will or the laws of descent and distribution. This Agreement will inure to the benefit of and be enforceable by your legal representatives. This Agreement will inure to the benefit f and be binding upon the Company and its successors and assigns.

4.      Employment Status. This Agreement will not be deemed to create in or confer upon you any right to be retained in the employ or service of the Company or any Subsidiary or other affiliate thereof and will not limit your or the Company’s right to terminate your employment at any time for any reason or for no reason.

5.      Entire Agreement. This Agreement contains the entire understanding of the Company and you with respect to the subject matter hereof, and supersedes any prior agreement between the Company and you with respect to the subject matter hereof.

6.      Severability. In the event any provision of this Agreement will be held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Agreement, and the Agreement will be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of its provisions and will have no force and effect.

7.      Amendment and Termination. This Agreement may be amended or terminated at any time by written agreement of the parties hereto.


8.      Applicable Law. To the extent not preempted by the laws of the United States, the laws of the State of California, other than the conflict of law provisions thereof, will be the controlling law in all matters relating to this Agreement.

9.      Tax Matters; Compliance with Section  409A. All benefits provided under this Agreement will be subject to any required Federal, state and local tax withholding and deductions. This Agreement and any Severance Benefits payable under it are intended to be exempt from or, if not exempt, to otherwise comply with Section 409A of the Internal Revenue Code of 1986, where applicable, and will be interpreted and applied in a manner consistent with that intention. Notwithstanding any provision of this Agreement to the contrary, to the extent that a payment or benefit provided hereunder is subject to Section 409A and payable on account of your “separation from service” (as defined in Section 409A and the related regulations), such payment will be delayed for a period of six months after your separation date (or if earlier within thirty (30) days of your date of death following the date of such separation) if you are a “specified employee” (as defined in Section 409A and the related regulations) of the Company, as determined in accordance with the regulations issued under Section 409A and the procedures established by the Company. Notwithstanding the foregoing, this provision will not apply to (i) all payments on separation from service that satisfy the short-term deferral rule of Treas. Reg. §1.409A-1 (b)(4), (ii) the portion of the payments on separation from service that satisfy the requirements for separation pay due to an involuntary separation from service under Treas. Reg. §1.409A-1(b)(9)(iii), and (iii) any payments that are otherwise exempt from the six month delay requirement of the Treasury Regulations under Section 409A. For purposes of clarification, only to the extent a payment hereunder is deemed to be “deferred compensation” and subject to and not otherwise exempt from Section 409A, a termination of employment will not be deemed to have occurred for purposes of a payment of amounts or benefits under the Agreement upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of this Agreement, references to a “resignation,” “termination,” “termination of employment,” or like terms will mean a separation from service. For purposes of Section 409A of the Code, each payment made under this Policy will be designated as a “separate payment” within the meaning of the Section 409A.

 

Yours Truly,

/s/ Saundra Pelletier

Saundra Pelletier, CEO

 

Acknowledged and Agreed
By:  

/s/ Jay File

Name:   Jay File
Date:   11/16/15

Exhibit 10.41

EVOFEM, INC.

12400 High Bluff Dr.

Suite 600

San Diego, CA 92130

April 27th, 2015

Saundra Pelletier

 

  Re: Severance Agreement

Dear Saundra:

I am pleased to inform you that you have been selected to be eligible for certain severance protection upon the occurrence of an eligible termination of your employment with Evofem, Inc. (the “Company”) or any Subsidiary of the Company. This letter sets out the terms and conditions of the severance protection (the “Agreement”) for which you are eligible.

 

  1. Eligibility for Severance Benefits.

(a)    Subject to the terms and conditions of this Agreement, if your employment with the Company or any Subsidiary of the Company is terminated by the Company or such Subsidiary without Cause or by you for Good Reason at any time, the Company will provide you the following payments and benefits (the “Severance Benefits”):

(i)    (1) if you have provided less than eighteen (18) months of service to the Company at the time of your termination, then an amount equal to your Highest Monthly Salary, with such amount payable in each month following your termination of employment for a period of six (6) months, or (2) if you have provided eighteen (18) or more months of service to the Company at the time of your termination, then an amount equal to your Highest Monthly Salary, with such amount payable in each month following your termination of employment for a period of twelve (12) months; and

(ii)    if you and any of your eligible dependents timely elect COBRA continuation coverage with respect to any medical, dental or vision insurance benefits in which you or any such dependents are participating at the time of your termination, the Company will pay the employer share of any applicable COBRA premiums for such continued coverage: (1) if you have provided less than eighteen (18) months of service to the Company at the time of your termination, then for a period of six (6) months following the date of termination, and (2) if you have provided eighteen (18) or more months of service to the Company at the time of your termination, then for a period of twelve (12) months following the date of termination.


(b)    If your employment or service with the Company is terminated under any circumstances other than without Cause or for Good Reason as set forth in Section 1(a), including without limitation by reason of retirement, death, disability, discharge for Cause or resignation other than for Good Reason, you will have no right to receive the Severance Benefits or to receive any other payments or benefits in respect of this Agreement.

(c)    Notwithstanding anything to the contrary contained in this Agreement, payment of the cash Severance Benefits under Section 1(a) will be conditioned on and subject to your execution of a general release of claims in favor of the Company and its successors and affiliates, and their officers, directors and employees, in such form as the Company may reasonably specify. If you do not execute such a release within thirty (30) days following your termination of employment or service (or you revoke your release prior to the date it becomes effective), you automatically forfeit your right to any cash severance payment set forth in Section 1(a)(i) or 1(a)(ii) which amounts will no longer payable under this Agreement.

(d)    Except as expressly provided herein, the Severance Benefits described in Section 1(a) will be payable in addition to, and not in lieu of, all other accrued or vested or earned but as yet unpaid compensation, rights, or other benefits which may be owed to you following termination, including but not limited to accrued vacation and amounts or benefits payable under any bonus or other compensation plans, which benefits and arrangements will be governed by the terms of the applicable plans.

2.      Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below:

(a)     “Cause” means any of the following:

(i)    your conviction by a court of competent jurisdiction or pleading “no contest” to a felony or to any conduct of a criminal nature involving moral turpitude (other than a minor traffic violation);

(ii)    if you intentionally engage in fraud, embezzlement or any other illegal conduct substantially detrimental to the business reputation of the Company and/or its affiliates, regardless of whether such conduct is designed to defraud the Company, its affiliates or others; or

(iii)    you impart material confidential information relating to the business of the Company and/or its affiliates to competitors or other third parties other than in the course of carrying out your employment duties.

(b)     “Effective Date” means April 27th, 2015.

(c)     “Good Reason” means the occurrence of any of the following events, without your written consent:

(i)    a material reduction in the amount of your base compensation (unless such reduction is pursuant to a general reduction in base compensation applicable to all similarly situated employees of the Company);

(ii)    a material diminution in your duties or responsibilities as of the Effective Date; or


(iii)    a material change in your principal place of employment to a location more than 50 miles from your place of employment as of the Effective Date.

Notwithstanding the above, the occurrence of any of the events described in (i), (ii) or (iii) above will not constitute a “Good Reason” unless you give the Company written notice, within 30 calendar days after the occurrence of any of such events, that such circumstances constitute “Good Reason,” and the Company thereafter fails to cure such circumstances within 30 days after receipt of such notice.

(d)      “Highest Monthly Salary” means your monthly base salary or similar base compensation paid to you for your service to the Company or any Subsidiary at the highest rate in effect at any time during the twelve (12)-month period immediately prior to the date of termination.

(e)      “Subsidiary” means any corporation or other legal entity (other than the Company) in an unbroken chain of corporations or other entities beginning with the Company, if each of the corporations or other entities other than the last corporation or entity in the unbroken chain owns units or other equity interests possessing 50% or more of the total combined voting power of all classes of units or equity interests in one of the other corporations or entities in such chain. A corporation or other entity that attains the status of a Subsidiary on a date after the Effective Date of this Agreement shall be considered a Subsidiary commencing as of such date.

3.      Binding Effect. This Agreement is personal to you and without the prior written consent of the Company will not be assignable by you otherwise than by will or the laws of descent and distribution. This Agreement will inure to the benefit of and be enforceable by your legal representatives. This Agreement will inure to the benefit of and be binding upon the Company and its successors and assigns.

4.      Employment Status. This Agreement will not be deemed to create in or confer upon you any right to be retained in the employ or service of the Company or any Subsidiary or other affiliate thereof and will not limit your or the Company’s right to terminate your employment at any time for any reason or for no reason.

5.      Entire Agreement. This Agreement contains the entire understanding of the Company and you with respect to the subject matter hereof, and supersedes any prior agreement between the Company and you with respect to the subject matter hereof, including, without limitation, that certain Change in Control Severance Agreement, if any, entered into between you and EvoMed LLC (formerly Evofem LLC) dated November 1st, 2013.

6.      Severability. In the event any provision of this Agreement will be held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Agreement, and the Agreement will be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of its provisions and will have no force and effect.

7.      Amendment and Termination. This Agreement may be amended or terminated at any time by written agreement of the parties hereto.

8.      Applicable Law. To the extent not preempted by the laws of the United States, the laws of the State of California, other than the conflict of law provisions thereof, will be the controlling law in all matters relating to this Agreement.


9.      Tax Matters; Compliance with Section  409A. All benefits provided under this Agreement will be subject to any required Federal, state and local tax withholding and deductions. This Agreement and any Severance Benefits payable under it are intended to be exempt from or, if not exempt, to otherwise comply with Section 409A of the Internal Revenue Code of 1986, where applicable, and will be interpreted and applied in a manner consistent with that intention. Notwithstanding any provision of this Agreement to the contrary, to the extent that a payment or benefit provided hereunder is subject to Section 409A and payable on account of your “separation from service” (as defined in Section 409A and the related regulations), such payment will be delayed for a period of six months after your separation date (or if earlier within thirty (30) days of your date of death following the date of such separation) if you are a “specified employee” (as defined in Section 409A and the related regulations) of the Company, as determined in accordance with the regulations issued under Section 409A and the procedures established by the Company. Notwithstanding the foregoing, this provision will not apply to (i) all payments on separation from service that satisfy the short-term deferral rule of Treas. Reg. §1.409A-1(b)(4), (ii) the portion of the payments on separation from service that satisfy the requirements for separation pay due to an involuntary separation from service under Treas. Reg. §1.409A-1(b)(9)(iii), and (iii) any payments that are otherwise exempt from the six month delay requirement of the Treasury Regulations under Section 409A. For purposes of clarification, only to the extent a payment hereunder is deemed to be “deferred compensation” and subject to and not otherwise exempt from Section 409A, a termination of employment will not be deemed to have occurred for purposes of a payment of amounts or benefits under the Agreement upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of this Agreement, references to a “resignation,” “termination,” “termination of employment,” or like terms will mean a separation from service. For purposes of Section 409A of the Code, each payment made under this Policy will be designated as a “separate payment” within the meaning of the Section 409A.

 

Yours truly,
/s/ John Fair
John Fair, COO

 

By:   /s/ Saundra Pelletier
Name:   Saundra Pelletier
Date:   4/27/2015

Exhibit 10.42

April 15, 2015

Kelly Culwell

Dear Kelly:

It gives me great pleasure to confirm the offer for your full-time, exempt employment with Evofem, Inc. as Chief Medical Officer. You will report directly to Evofem’s CEO.

This term of employment will begin on June 1, 2015 at 50% time and salary from June 1, 2015 to June 30, 2015 based on an annual salary of $250,000.00. You will be full-time starting on July 1, 2015 with an annual salary of US $250,000.00 (separate and additional to your WCG salary of $110,000.00) and is eligible for benefits, including an annual bonus of up to 50% of your annual earnings excluding the previous year’s bonus, if any. You will be eligible to receive the annual bonus after meeting a ninety (90) days employment requirement. The bonus percentage is subject to change and requires board approval each year. You are eligible for medical, dental, and vision coverage effective as of your date of hire. Equity participation will be determined near the time of the capital raise.

Evofem will pay to Planned Parenthood a payment of $20,000 which represents our assumption of your remaining employment agreement. If you should leave Evofem prior to your second anniversary, you will need to repay a prorated portion of this $20,000 payment back to Evofem.

Additionally, you will be eligible to participate in our 401K plan. The service requirement is three (3) months, the pay period employer contribution is three per cent (3%) and the annual employer contribution is an additional one percent (1%).

You will also be eligible for vacation accrual at a rate of twenty (20) days per year, and ten (10) days of sick accrual. Upon your acceptance of this offer, Barbara Garcia, Associate Director HR, will schedule a time to review all your benefits in detail so that you can enroll for the coverage you want.

Please note: Employment is governed by Evofem’s Personnel Policies and is not for a fixed period unless Evofem specifies in writing. Employment with Evofem is at will, and either the employee or Evofem can terminate employment at any time. The terms of this letter embody the entire agreement and understanding between you and Evofem with respect to the subject matter hereof and supersede any prior or contemporaneous communications (whether written or oral) related to the subject matter hereof.

By signing below you agree to the terms of this offer.

We are all very pleased to welcome you as a member of the Evofem team!!!

 

Sincerely,       Agreed:

/s/ Saundra Pelletier

Saundra Pelletier

CEO

     

/s/ Kelly Culwell 4/16/15

 

Employee/Date

 

12400 High Bluff Drive, Suite 600, San Diego, CA 92130

Exhibit 10.43

October 16, 2014

Saundra Pelletier

Dear Saundra:

It gives me great pleasure to confirm the offer for your full-time, regular employment with Evofem, Inc. as Chief Executive Officer (CFO). (Note that in connection with the contemplated initial public offering, Evofem, Inc. may reorganize and have a parent entity, in which case your employment would be with Evofem, Inc.’s parent entity

This term of employment will begin on October 16, 2014, carries an annual salary of US $250,000 and is eligible for benefits, including an annual bonus of up to fifty percent (50%) of your annual salary at the time, which bonus shall be payable upon the achievement of certain performance metrics as determined by the Board of Directors You will also receive a bonus of $50,000 upon the completion of Evofem’s initial public offering if that initial public offering is completed prior to December 31, 2015 (the “IPO Bonus”) The IPO Bonus amount will be deducted from any annual bonus payout amount you may be eligible to receive in the calendar year in which the initial public offering takes place. Additionally, you will be eligible for medical, dental, and vision coverage that will be available to similarly situated employees

Additionally, you will be eligible to participate in our 401K plan. Please note that both the service requirements and the employer contribution from Evofem will differ from those currently in effect once the TriNet system is in place Once the applicable Evofem entity is set up in our TriNet payroll system the service requirement is six (6) months, the pay period employer contribution is three per cent (3%) and the annual employer contribution is an additional one percent (1%).

Further, and subject to the formal approval of the Evofem board of directors, in connection with the expected initial public offering of Evofem, you will also be eligible to receive one of the following an option to purchase a number of shares of common stock of Evofem (or its public parent, as the case may be) equal to approximately one and one half percent (1.5%) of the outstanding capital stock of Evofem (or its public parent) calculated immediately after the closing of the expected initial public offering at an exercise price equal to the price paid by investors in such initial public offering. Such option shall vest over four years with a one year cliff and monthly vesting thereafter, subject to acceleration upon change in control referenced below. Such option shall be embodied in a separate written option award agreement and subject to the Evofem equity incentive plan.

Additionally, you will be eligible for the following severance protection:

Six (6) months’ salary with paid benefits for the same period of time for termination without cause and twelve (12) months’ salary with paid benefits for the same period of time in connection with a change in control transaction. Such severance arrangement shall be embodied in a separate written agreement substantially similar to that entered into by other senior executives of Evofem or its parent EvoMed LLC. In addition, vesting of the option referenced above shall fully vest upon a change in control.

You will also be eligible for vacation accrual at a rate of twenty-five (25) days per year. Upon your acceptance of this offer, I will schedule a time to review all your benefits in detail so that you can enroll for the coverage you want.

Please note: Employment is governed by Evofem’s Personnel Policies and is not for a fixed period unless Evofem specifies in writing. Employment with Evofem is at will, and either the employee or Evofem can terminate employment at any time. The terms of this letter embody the entire agreement and understanding between you and Evofem with respect to the subject matter hereof and supersede any prior or contemporaneous communications (whether written or oral) related to the subject matter hereof.

By signing below you agree to the terms of this offer.

 

Sincerely,      
/s/ Joe Pike      

Joe Pike

Chairman

    Agreed:  

/s/ Saundra Pelletier

 

Employee/Date

 

Evofem, Inc.  |  8910 University Center Lane | Suite120 | San Diego, CA 92122

P 858-550-1901 Ex. 101  |  F 858-550-0119  |  evofem.com

Exhibit 10.44

 

LOGO

March 8, 2015

Justin File

Dear Justin:

It gives me great pleasure to confirm the offer for your full-time, exempt employment with Evofem, Inc. as Senior Director of Finance. (Note that in connection with the contemplated Initial public offering, Evofem, Inc. may reorganize and have a parent entity, in which case your employment would be with Evofem, Inc.’s parent entity.) You will report directly to Evofem’s CEO with a dotted line to the COO, until such time as a CFO is hired.

This term of employment will begin on March 23, 2015 and carries an annual salary of US $200,000.00 and is eligible for benefits, including an annual bonus of up to 10% of your annual salary at the time. You will be eligible to receive the annual bonus after meeting a ninety (90) days employment requirement. The bonus percentage is subject to change and requires board approval each year. You are eligible for medical, dental, and vision coverage as of your date of hire.

Additionally you are eligible to participate in our 401K plan after three (3) months of service. The employer contribution is a non-matching three percent (3%) of your salary each pay period and a discretionary annual non-matching one percent (1%).

You will also be eligible for vacation accrual rate of fifteen (15) days per year, and sick accrual of ten (10) days per year.

Upon your acceptance of this offer, our Associate Director of HR will schedule a time to review ail your benefits in detail so that you can enroll for the coverage you want.

Please note: Employment is governed by Evofem’s Personnel Policies and is not for a fixed period unless Evofem specifies in writing. Employment with Evofem is at will, and either the employee or Evofem can terminate employment at any time. The terms of this letter embody the entire agreement and understanding between you and Evofem with respect to the subject matter hereof and supersede any prior or contemporaneous communications (whether written or oral) related to the subject matter hereof.

By signing below you agree to the terms of this offer.

Please return the offer by 03/13/2015 or this offer will become null and void.

We are all very pleased to welcome you as a member of the Evofem team!!!

 

Sincerely,       Agreed:
/s/ Saundra Pelletier      
Saundra Pelletier      

/s/ Jay File 3/9/15

CEO       Employee/Date

 

LOGO

Exhibit 10.45

November 16, 2015

Justin File

Dear Jay:

This amended offer letter is confirming that you will be eligible for the following severance protection:

Six months’ salary with paid benefits for the same period of time for termination without cause and twelve (12) months’ salary with paid benefits for the same period of time in connection with a change in control transaction. Such severance arrangement shall be embodied in a separate written agreement substantially similar to that entered into by other senior executives of Evofem. In addition, vesting of any options granted shall fully vest upon a change in control.

You will also be eligible for vacation accrual at a rate of twenty-five (25) days per year effective as of the date of this letter.

By signing below you agree to the terms of this amended offer.

 

Sincerely,       Agreed:
/s/ Saundra Pelletier       /s/ Jay File 11/17/15
Saundra Pelletier       Employee/Date
CEO      

 

Evofem, Inc.  | 12400 High Bluff Drive  |  Suite 600  |  San Diego, CA 92130

P 858-550-1900 | evofem.com

Exhibit 10.46

EVOFEM BIOSCIENCES, INC.

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (the “ Agreement ”) is made as of [                    ], by and between Evofem Biosciences, Inc., a Delaware corporation (the “ Company ”), and [name] (the “ Indemnitee ”).

RECITALS

WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance;

WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection; and

WHEREAS, the Company desires to attract and retain the involvement of highly qualified persons, such as Indemnitee, to serve and be associated with the Company, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows:

1.     Indemnification .

(a)     Third Party Proceedings . The Company shall indemnify Indemnitee if Indemnitee is or was 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 Company as described in Section 1(b) below) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably


incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

(b)     Proceedings By or in the Right of the Company . The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee’s duty to the Company and its stockholders, including relating to the admission of the Company to the London Stock Exchange’s AIM market, unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. For the avoidance of doubt, nothing in this Section 1(b) shall affect the Indemnitee’s right to enforce his rights under Section 7 (Officer and Director Liability Insurance) and the terms of any such liability insurance obtained by the Company on behalf of the Indemnitee.

(c)     Mandatory Payment of Expenses . To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by Indemnitee in connection therewith.

2.     No Employment Rights . Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment.


3.     Expenses; Indemnification Procedure .

(a)     Advancement of Expenses . The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section l(a) or Section 1(b) hereof (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.

(b)     Notice/Cooperation by Indemnitee . Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.

(c)     Procedure . Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than thirty (30) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company’s Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within sixty (60) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties’ intention that if the Company contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(d)     Notice to Insurers . If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in


effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(e)     Selection of Counsel . In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company. As long as the Company has otherwise complied with the terms hereof, the Company shall have the right to conduct such defense as it sees fit in its sole discretion, including the right to settle any action, suit or proceeding against Indemnitee without the consent of Indemnitee, provided such settlement includes a full release of Indemnitee by the claimant from all liabilities or potential liabilities under such action, suit or proceeding.

4.     Additional Indemnification Rights; Nonexclusivity .

(a)     Scope . Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, its Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee’s rights and the Company’s obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

(b)     Nonexclusivity . The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company’s Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee’s official capacity and as to action in


another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding.

5.     Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

6.     Mutual Acknowledgment . Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the “ SEC ”) has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands, acknowledges and agrees that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee, notwithstanding any provision hereof to the contrary.

7.     Officer and Director Liability Insurance . The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company’s performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company.

8.     Severability . Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this


Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

9.     Exceptions . Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a)     Excluded Action or Omissions . To indemnify Indemnitee for any intentional malfeasance by Indemnitee or any act undertaken by Indemnitee where Indemnitee did not in good faith believe Indemnitee was acting in the best interests of the Company, or for any other acts, omissions or transactions from which Indemnitee may not be relieved of liability under applicable law;

(b)     Claims Initiated by Indemnitee . To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the General Corporation Law of the State of Delaware, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate;

(c)     Indemnitee Liable to Company . To indemnify Indemnitee for expenses or liabilities incurred in connection with a proceeding by or in the right of the Company in which Indemnitee was adjudged liable to the Company;

(d)     Improper Personal Benefits . To indemnify Indemnitee for expenses or liabilities incurred in connection with any proceeding charging improper personal benefit to Indemnitee, whether or not involving action in Indemnitee’s official capacity, in which Indemnitee was adjudged liable on the basis that personal benefit was improperly received by Indemnitee;

(e)     Lack of Good Faith . To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous or resulting from Indemnitee’s knowingly fraudulent, dishonest or willful misconduct;

(f)     Duplicate Claims . To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) to the extent Indemnitee has otherwise actually received payment (under any insurance policy, the Company’s Certificate of Incorporation, its Bylaws or otherwise) of the amounts otherwise indemnifiable hereunder.


(g)     Claims under Section  16(b) . To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute or similar provisions of any state law; or

(h)     Indemnification Impermissible . Where indemnification by the Company under this Agreement is not permitted by the Securities Act of 1933 or other applicable law.

(i)     Placing Agreement . To indemnify the Indemnitee in respect of his personal liability for a breach by the Indemnitee of his obligations under a placing agreement between, inter alia , J.P. Morgan Cazenove, the Indemnitee and the Company.

10.     Construction of Certain Phrases .

(a)    For purposes of this Agreement, references to the “ Company ” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b)    For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and 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 if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

11.     Attorneys Fees . In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to


Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee’s material defenses to such action were made in bad faith or were frivolous.

12.     Miscellaneous .

(a)     Governing Law . This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of law.

(b)     Entire Agreement; Amendment; Enforcement of Rights . This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto, including, but not limited to, any indemnification agreement executed by the parties hereto prior to the date hereof. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

(c)     Construction . This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto.

(d)     Notices . Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by fax or forty-eight (48) hours after being sent by nationally-recognized courier or deposited in the U.S. mail, by certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party’s address or fax number as set forth below or as subsequently modified by written notice.

(e)     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 instrument.

(f)     Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company (and the Company may assign its rights and obligations under this Agreement in connection with any such transaction without the consent of Indemnitee), spouses, heirs, and personal and legal representatives.


(g)     Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights.

(h)     Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

[ Signature page follows ]


The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement.

 

EVOFEM BIOSCIENCES, INC.
By:  

 

  Saundra Pelletier, Chief Executive Officer

 

AGREED TO AND ACCEPTED:

 

[name]

 

(Signature)
Address:  

 

 

 

 

 

 

[ Signature Page to Indemnification Agreement ]

Exhibit 10.47

EVOFEM BIOSCIENCES, INC.

AMENDED AND RESTATED 2012 EQUITY INCENTIVE PLAN 1

1.      PURPOSE . This Evofem Biosciences, Inc. Amended and Restated 2012 Equity Incentive Plan has two complementary purposes: (a) to attract and retain outstanding individuals to serve as officers, directors, employees, consultants and advisors to the Company and its Affiliates, and (b) to increase stockholder value. The Plan will provide Participants incentives to increase stockholder value by offering the opportunity to acquire shares of the Company’s common stock or receive monetary payments based on the value of such common stock, on the potentially favorable terms that this Plan provides.

2.      EFFECTIVE DATE . The Plan shall be effective, and Awards may be granted on and after July 25, 2012.

3.     DEFINITIONS . Capitalized terms used in this Plan have the following meanings:

(a)    “Administrator” means (i) prior to the IPO Date, the Board, and (ii) on and after the IPO Date, the Committee.

(b)    “Affiliate” means any entity that, directly or through one or more intermediaries, is controlled by, controls, or is under common control with, the Company within the meaning of Code Sections 414(b) or (c), provided that, in applying such provisions, the phrase “at least 50 percent” shall be used in place of “at least 80 percent” each place it appears therein.

(c)    “Award” means a grant of Options, Performance Shares, Restricted Stock, or Restricted Stock Units.

(d)    “Board” means the Board of Directors of the Company.

(e)    “Cause” means: (i) if the Participant is subject to an employment or consulting agreement with the Company or an Affiliate that includes a definition of “Cause,” such definition, or (ii) in any other case, “Cause” means any of the following: (A) the Participant’s conviction of a felony (or plea of nolo contendere thereto); (B) the Participant’s willful refusal to substantially perform his or her duties as an employee or consultant (other than as a result of disability or illness or an absence approved by the Company); (C) the Participant’s willful engagement in misconduct that is materially injurious to the Company or an Affiliate; (D) the Participant’s violation of any material policy or code of conduct of the Company or an Affiliate; or (E) the Participant’s violation of the provisions of any employment agreement, non-competition agreement, confidentiality agreement, assignment of invention agreement, or any similar agreement with the Company or an Affiliate.

(f)    “Change of Control” shall be deemed to have occurred as of the first day that any one or more of the following conditions is satisfied, including, but not limited to, signing of documents by all parties and approval by all regulatory agencies, if required:

(i)    Any person (as such term is defined in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d)) other than an Excluded Person (as defined below) becomes the Beneficial Owner (as such term is defined pursuant to rules promulgated under the Exchange Act), directly or indirectly, of

 

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Plan assumed by Evofem Biosciences, Inc. (f/k/a Evofem Holdings, Inc.) pursuant to that certain Agreement of Merger, dated October 30, 2015, by and among Evofem Biosciences, Inc., Amphora Merger Sub, Inc., and Evofem, Inc.


securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities (not including (A) any securities of the Company acquired and/or beneficially owned by such person if such person is an existing stockholder of the Company and (B) any securities acquired directly from the Company or its Affiliates).

(ii)    The stockholders approve a plan of complete liquidation or dissolution of the Company.

(iii)    The consummation of (A) an agreement for the sale or disposition of all or substantially all of the Company’s assets (other than to an Excluded Person), or (B) a merger, consolidation or reorganization of the Company with or involving any other corporation, other than (1) a merger, consolidation or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such other surviving entity) outstanding immediately after such merger, consolidation or reorganization, or (2) a merger, consolidation or reorganization that would result in at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such other surviving entity) outstanding immediately after such merger, consolidation or reorganization being held by an Excluded Person.

An Excluded Person means: (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock in the Company.

Notwithstanding the foregoing, with respect to an Award that is considered deferred compensation subject to Code Section 409A, the definition of “Change of Control” (if a Change of Control results in the payment of such Award) shall be amended and interpreted in a manner that allows the definition to satisfy the requirements of a change of control under Code Section 409A.

Notwithstanding the foregoing, in no event shall an IPO constitute a Change of Control.

(g)    “Change of Control Price” means the higher of: (i) the Fair Market Value of a Share, as determined on the date of the Change of Control; or (ii) the highest price per Share paid in the Change of Control transaction.

(h)    “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes any successor provision and the regulations promulgated under such provision.

(i)    “Committee” means the Compensation Committee of the Board (or such successor committee with the same or similar authority).

(j)    “Common Stock” means the common stock of the Company.

(k)    “Company” means Evofem Biosciences, Inc., a Delaware corporation, or any successor thereto.

 

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(l)    “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time. Any reference to a specific provision of the Exchange Act shall be deemed to include any successor provision thereto.

(m)    “Fair Market Value” means, per Share on a particular date,

(i)    Prior to the IPO Date, the value as determined by the Administrator in good faith. In determining Fair Market Value, the Administrator shall consider the price paid for any securities of the Company in a private placement made within the prior twelve (12) months, with appropriate adjustment for any differences in the rights, preferences or privileges of such securities as opposed to a Share, and the Administrator may, but shall not be required to, rely on the most recent valuation determined by an independent appraiser;

(ii)    On the IPO Date, the price at which a Share is first sold to the public on such date; and

(iii)    After the IPO Date, (A) if the Shares are listed for trading on the New York Stock Exchange, the last reported sales price on the date in question as reported in The Wall Street Journal, or if no sales of Shares occur on the date in question, on the last preceding date on which there was a sale on such exchange; or (B) if the Shares are not listed or admitted to trading on the New York Stock Exchange, the last reported sales price on the date in question on the principal national securities exchange on which the Shares are listed or admitted to trading, or if no sales of Shares occur on the date in question, on the last preceding date on which there was a sale on such exchange; or (C) if the Shares are not listed or admitted to trading on any national securities exchange, the last reported sales price on the date in question in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or such other system then in use, or if no sales of Shares occur on the date in question, on the last preceding date on which there was a sale; or (D) if on any such date the Shares are not quoted by any such organization, the last sales price on the date in question as furnished by a professional market making a market in the Shares selected by the Company for the date in question, or if no sales of Shares occur on the date in question, on the last preceding date on which there was a sale; or (E) if on any such date no market maker is making a market in the Shares, the price as determined in good faith by the Administrator.

(n)    “IPO” means the initial public offering of shares of the Company’s voting common stock pursuant to an effective registration statement filed by the Company under the Securities Act.

(o)    “IPO Date” means the date on which the shares of the Company’s voting common stock are first sold to the public pursuant to an effective registration statement filed by the Company under the Securities Act.

(p)     “Option” means the right to purchase Shares at a stated price. “Options” may either be “incentive stock options” which meet the requirements of Code Section 422, or “nonqualified stock options” which do not meet the requirements of Code Section 422.

(q)     “Participant” means an officer or other employee of the Company or its Affiliates, a consultant or advisor who provides services to the Company or its Affiliates, including a non-employee director of the Board, who the Administrator designates to receive an Award.

(r)    “Performance Goals” means any goals the Administrator establishes that relate to one or more of the following for such period as the Administrator specifies:

 

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(i)    Revenue;

(ii)    Earnings before interest, taxes, depreciation and amortization, as adjusted (EBITDA as adjusted);

(iii)    Income before income taxes and minority interests;

(iv)    Operating income;

(v)    Pre- or after-tax income;

(vi)    Average accounts receivable;

(vii)    Cash flow;

(viii)    Cash flow per share;

(ix)    Net earnings;

(x)    Basic or diluted earnings per share;

(xi)    Return on equity;

(xii)    Return on assets;

(xiii)    Return on capital;

(xiv)    Growth in assets;

(xv)    Economic value added;

(xvi)    Share price performance;

(xvii)    Total stockholder return;

(xviii)    Improvement or attainment of expense levels;

(xix)    Market share or market penetration; or

(xx)    Business expansion, and/or acquisitions or divestitures.

The Administrator may specify at the time an Award is made that the Performance Goals are to be measured for an individual, the Company, for the Company on a consolidated basis, for any one or more Affiliates or divisions of the Company and/or for any other business unit or units of the Company, and/or that the Performance Goals are to be measured either in absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies.

As to each Performance Goal, the relevant measurement of performance shall be computed in accordance with generally accepted accounting principles, if applicable, but, unless otherwise determined by the Administrator and to the extent consistent with Code Section 162(m), will exclude the effects of: (i) charges for reorganizing and restructuring; (ii) discontinued operations; (iii) asset write-downs; (iv) gains or losses on the disposition of a business; (v) changes in tax or accounting principles, regulations or laws;

 

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(vi) mergers, acquisitions or dispositions; and (vii) extraordinary, unusual and/or non-recurring items of gain or loss, that in each case the Company identifies in its audited financial statements, including footnotes, or, after the IPO Date, in the Management’s Discussion and Analysis section of the Company’s annual report.

In the case of Awards that the Administrator determines will not be considered “performance-based compensation” under Code Section 162(m), or for purposes of exercising negative discretion in connection with an Award that is considered “performance based compensation” under Code Section 162(m), the Administrator may establish other Performance Goals not listed in this Plan.

(s)    “Performance Shares” means the right to receive Shares to the extent the Company and/or Participant achieves or partially achieves one or more Performance Goals over a period of time the Administrator designates.

(t)    “Plan” means this Evofem Biosciences, Inc. Amended and Restated 2012 Equity Incentive Plan, as amended from time to time.

(u)    “Registration Event” means the date the Company files an effective registration statement under the Securities Act, including in connection with an IPO, or under Section 12(g) of the Exchange Act.

(v)    “Restricted Stock” means Shares that are subject to a risk of forfeiture and/or restrictions on transfer, which may lapse upon the achievement or partial achievement of one or more Performance Goals during a specified period and/or upon the completion of a period of service, as determined by the Administrator.

(w)    “Restricted Stock Unit” means the right to receive a Share, or a cash payment the amount of which is equal to the Fair Market Value of a Share, which is subject to a risk of forfeiture which may lapse upon the achievement or partial achievement of one or more Performance Goals during a specified period and/or upon the completion of a period of service, as determined by the Administrator.

(x)    “Section 16 Participants” means Participants who are subject to the provisions of Section 16 of the Exchange Act.

(y)    “Securities Act” means the Securities Act of 1933, as amended from time to time.

(z)     “Share” means a share of Common Stock.

(aa)    “Subsidiary” means any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the chain) owns stock possessing more than fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in the chain.

(bb)    “10% Owner-Employee” means an employee who, at the time an incentive stock option is granted, owns (directly or indirectly, within the meaning of Code Section 424(d)) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Subsidiary.

4.     ADMINISTRATION .

(a)     General . The Administrator has full authority to administer this Plan, including the authority to (i) interpret the provisions of this Plan, (ii) prescribe, amend and rescind rules and regulations relating

 

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to this Plan, (iii) correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award agreement in the manner and to the extent it deems desirable to carry this Plan or such Award into effect, and (iv) make all other determinations necessary or advisable for the administration of this Plan. All Administrator determinations are final and binding.

(b)     Delegation to Committees or Officers . To the extent applicable law permits, the Administrator may delegate to a committee of the Board or to one or more officers of the Company any or all of the authority and responsibility of the Administrator under the Plan. However, no such delegation is permitted on or after the Registration Event with respect to Awards made to Section 16 Participants at the time any such delegated authority or responsibility is exercised unless the delegation is to a committee or sub-committee consisting entirely of non-employee directors who qualify as such under Rule 16b-3(b) of the Exchange Act. In the event of such delegation, all references to the Administrator in this Plan or any Award agreement shall include such committee or one or more officers to the extent of such delegation.

(c)     No Liability . No member of the Board or Committee, and no individual or officer to whom a delegation under subsection (b) has been made, will be liable for any act done, or determination made, by the individual in good faith with respect to the Plan or any Award. The Company will indemnify and hold harmless such individual to the maximum extent that the law and the Company’s bylaws permit.

5.     DISCRETIONARY GRANTS OF AWARDS . Subject to the terms of this Plan, the Administrator has full power and authority to: (a) designate from time to time the Participants to receive Awards under this Plan; (b) determine the type or types of Awards to be granted to each Participant; (c) determine the number of Shares with respect to which an Award relates; and (d) determine the terms and conditions of any Award. Awards under this Plan may be granted either alone or in addition to, in tandem with, or in substitution for any other Award (or any other award granted under another plan of the Company or any Affiliate). The Administrator’s designation of a Participant in any year will not require the Administrator to designate such person to receive an Award in any other year.

6.     SHARES RESERVED UNDER THIS PLAN .

(a)     Plan Reserve . An aggregate of (14,000,000) Shares are reserved for issuance under this Plan. However, not more than (14,000,000) of the reserved Shares may be issued pursuant to incentive stock options. The limitations of this subsection are subject to adjustments as provided in Section 13.

(b)     Replenishment of Shares Under this Plan . If an Award lapses, expires, terminates or is cancelled without the issuance of Shares or payment of cash under the Award, then the Shares subject to or reserved for in respect of such Award, or the Shares to which such Award relates, may again be used for new Awards as determined under subsection (a), including issuance pursuant to incentive stock options. If Shares are delivered to (or withheld by) the Company in payment of the exercise price or withholding taxes of an Award, then such Shares may be used for new Awards under this Plan as determined under subsection (a), including issuance pursuant to incentive stock options. If Shares are issued under any Award and the Company subsequently reacquires them pursuant to rights reserved upon the issuance of the Shares, then such Shares may be used for new Awards under this Plan as determined under subsection (a), other than pursuant to incentive stock options.

7.      OPTIONS . Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each Option, including but not limited to:

(a)    Whether the Option is an incentive stock option or a nonqualified stock option; provided that in the case of an incentive stock option, if the aggregate Fair Market Value (determined at the time of

 

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grant) of the Shares with respect to which such option and all other incentive stock options issued under this Plan (and under all other incentive stock option plans of the Company or any Affiliate that is required to be included under Code Section 422) are first exercisable by the Participant during any calendar year exceeds $100,000, such Option automatically shall be treated as a nonqualified stock option to the extent this limit is exceeded.

(b)    The number of Shares subject to the Option.

(c)    The exercise price per Share, which may not be less than the Fair Market Value of a Share as determined on the date of grant; provided that an incentive stock option granted to a 10% Owner-Employee must have an exercise price that is at least one hundred ten percent (110%) of the Fair Market Value of a Share on the date of grant.

(d)    The terms and conditions of exercise.

(e)    The termination date, except that each Option must terminate no later than the tenth (10th) anniversary of the date of grant, and each incentive stock option granted to any 10% Owner-Employee must terminate no later than the fifth (5 th ) anniversary of the date of grant. Notwithstanding anything to the contrary in this Plan or in any Award agreement, if a Participant’s employment or service with the Company terminates due to death or disability, then the vested portion of Participant’s Option will terminate on the close of business at the Company’s headquarters on the day that is six (6) months following the date of Participant’s termination of employment or service.

In all other respects, the terms of any incentive stock option should comply with the provisions of Code Section 422 except to the extent the Administrator determines otherwise. Upon a Participant’s death, the Option may be exercised by the person or persons to whom such Participant’s rights under the Option shall pass by will or by applicable law or, if no such person has such rights, by his or her executor or administrator.

8.      PERFORMANCE SHARE AWARDS . Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each Performance Share Award, including but not limited to:

(a)    The number of Shares to which the Performance Share Award relates.

(b)    The terms and conditions of each Award, including, without limitation, the Performance Goals that must be achieved for the Participant to realize all or a portion of the benefit provided under the Award.

(c)    Whether all or a portion of the Shares subject to the Award will be issued to the Participant, without regard to whether the Performance Goals have been attained, in the event of the Participant’s death, disability, retirement or other termination of employment.

9.      RESTRICTED STOCK AND RESTRICTED UNIT AWARDS . Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each award of Restricted Stock or Restricted Stock Units, including but not limited to:

(a)    The number of Shares or Restricted Stock Units to which such Award relates.

(b)    The period of time over which the restrictions imposed on Restricted Stock will lapse and the vesting of Restricted Stock Units will occur, and whether, as a condition for the Participant to realize all

 

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or a portion of the benefit provided under the Award, one or more Performance Goals must be achieved during such period as the Administrator specifies.

(c)    With respect to awards of Restricted Stock, the manner of registration of certificates for such Shares, and whether to hold such Shares in escrow pending lapse of the risk of forfeiture and/or restrictions on transfer or to issue such Shares with an appropriate legend referring to such restrictions.

(d)    With respect to awards of Restricted Stock, whether dividends paid with respect to such Shares will be immediately paid or held in escrow or otherwise deferred and whether such dividends shall be subject to the same terms and conditions as the Award to which they relate.

(e)    With respect to awards of Restricted Stock Units, whether to credit dividend equivalent units equal to the amount of dividends paid on a Share and whether such dividend equivalent units shall be subject to the same terms and conditions as the Award to which they relate.

10.     TRANSFERABILITY . Each Award granted under this Plan is not transferable other than by will or the laws of descent and distribution, except that a Participant may, to the extent the Administrator allows and in a manner the Administrator specifies: (a) designate in writing a beneficiary to exercise the Award after the Participant’s death; or (b) transfer any Award.

11.     TERMINATION AND AMENDMENT OF PLAN; AMENDMENT, MODIFICATION OR CANCELLATION OF AWARDS .

(a)     Term . Subject to the right of the Board to terminate the Plan pursuant to Section 11(b), the Plan shall remain in effect until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions; provided that no incentive stock option may be issued under the Plan after the tenth (10th) anniversary of the Plan’s effective date; provided, further, that the Plan shall terminate automatically on the ten (10) year anniversary of the Plan’s effective date.

(b)     Termination and Amendment of Plan . The Board may amend, alter, suspend, discontinue or terminate this Plan at any time, provided that stockholders must approve any of the following Plan amendments: (i) an amendment to increase any number of Shares specified in Section 6(a) (except as permitted by Section 13) or expand the class of individuals eligible to receive an Award; or (ii) any other amendment if required by applicable law.

(c)     Amendment, Modification or Cancellation of Awards . Except as provided in subsection (e) and subject to the requirements of this Plan, the Administrator may (i) waive any restrictions or conditions applicable to any Award or the exercise of the Award or (ii) modify or amend any Award, provided that if any such modification or amendment adversely affects the rights of a Participant under the Award, such modification or amendment shall be effective only if consented to by the Participant, but the Administrator need not obtain Participant (or other interested party) consent for the cancellation of an Award pursuant to the provisions of Section 13. Notwithstanding the foregoing, any such amendment shall be made in a manner that will enable an Award intended to be exempt from Code Section 409A to continue to be so exempt, or to enable an Award intended to comply with Code Section 409A to continue to so comply.

(d)     Survival of Administrator Authority and Awards . Notwithstanding the foregoing, the authority of the Administrator to administer this Plan and modify or amend an Award may extend beyond the date of this Plan’s termination. In addition, termination of this Plan will not affect the rights of Participants with respect to Awards previously granted to them, and all unexpired Awards will continue in

 

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force and effect after termination of this Plan except as they may lapse or be terminated by their own terms and conditions.

(e)     Repricing Prohibited . Notwithstanding anything in this Plan to the contrary, and except for the adjustments provided in Section 13, neither the Administrator nor any other person may decrease the exercise price or grant price of any Option nor take any action that would result in a deemed decrease of the exercise price or grant price of an Option under Code Section 409A, after the date of grant.

(f)     Foreign Participation . To assure the viability of Awards granted to Participants employed in foreign countries, the Administrator may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Board may approve such supplements to, or amendments, restatements or alternative versions of this Plan as it determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative versions that the Board approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan for any other country.

12.     TAXES . Withholding . The Company is entitled to withhold the amount of any tax attributable to any amount payable or Shares deliverable under this Plan after giving the person entitled to receive such amount or Shares notice as far in advance as practicable, and the Company may defer making payment or delivery if any such tax may be pending unless and until indemnified to its satisfaction. The Administrator may permit a Participant to pay all or a portion of the federal, state and local withholding taxes arising in connection with the grant, vesting or payment of an Award, by electing to (a) have the Company withhold Shares otherwise issuable under the Award, or (b) tender back Shares received in connection with such Award, in each case having a Fair Market Value equal to the amount to be withheld; provided that the amount to be withheld may not exceed the total statutory minimum federal, state and local tax withholding obligations associated with the transaction. The election must be made on or before the date as of which the amount of tax to be withheld is determined and otherwise as the Administrator requires. The Fair Market Value of fractional Shares remaining after payment of the withholding taxes may be paid to the Participant in cash. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and any Affiliate shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Participant.

(b)     No Guarantee of Tax Treatment . Notwithstanding any provisions of the Plan, the Company does not guarantee to any Participant or any other person with an interest in an Award that any Award intended to be exempt from Code Section 409A shall be so exempt, nor that any Award intended to comply with Code Section 409A shall so comply, nor that any Award designated as an incentive stock option within the meaning of Code Section 422 qualifies as such, and neither the Company nor any Affiliate shall indemnify, defend or hold harmless any individual with respect to the tax consequences of any such failure.

13.     ADJUSTMENT PROVISIONS; CHANGE OF CONTROL .

(a)     Adjustment of Shares . If (i) the Company shall at any time be involved in a merger or other transaction in which the Shares are changed or exchanged; (ii) the Company shall subdivide or combine the Shares or the Company shall declare a dividend payable in Shares, other securities or other property; (iii) the Company shall effect a cash dividend the amount of which, on a per Share basis, exceeds ten percent (10%) of the Fair Market Value of a Share at the time the dividend is declared, or the Company shall effect any other dividend or other distribution on the Shares in the form of cash, or a repurchase of Shares, that the Board determines by resolution is special or extraordinary in nature or that is in connection with a transaction that the Company characterizes publicly as a recapitalization or

 

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reorganization involving the Shares; or (iv) any other event shall occur, which, in the case of this clause (iv), in the judgment of the Administrator necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares subject to this Plan (including the number and type of Shares that may be issued pursuant to incentive stock options), (ii) the number and type of Shares subject to outstanding Awards, (iii) the grant, purchase, or exercise price with respect to any Award, and (iv) to the extent such discretion does not cause an Award that is intended to qualify as performance-based compensation under Code Section 162(m) to lose its status as such, the Performance Goals established under any Award. In any such case, the Administrator may also make provision for a cash payment in an amount determined by the Administrator to the holder of an outstanding Award in exchange for the cancellation of all or a portion of the Award (without the consent of the holder of an Award) effective at such time as the Administrator specifies (which may be the time such transaction or event is effective); provided that any such adjustment to an Award that is exempt from Code Section 409A shall be made in manner that permits the Award to continue to be so exempt, and any adjustment to an Award that is subject to Code Section 409A shall be made in a manner that complies with the provisions thereof. However, with respect to Awards of incentive stock options, no such adjustment may be authorized to the extent that such authority would cause this Plan to violate Code Section 422(b). Further, the number of Shares subject to any Award payable or denominated in Shares must always be a whole number.

Without limitation, in the event of any reorganization, merger, consolidation, combination or other similar corporate transaction or event, whether or not constituting a Change of Control, other than any such transaction in which the Company is the continuing corporation and in which the outstanding Common Stock is not being converted into or exchanged for different securities, cash or other property, or any combination thereof, the Administrator may substitute, on an equitable basis as the Administrator determines, for each Share then subject to an Award, the number and kind of shares of stock, other securities, cash or other property to which holders of Common Stock are or will be entitled in respect of each Share pursuant to the transaction.

(b)     Issuance or Assumption . Notwithstanding any other provision of this Plan, and without affecting the number of Shares otherwise reserved or available under this Plan, in connection with any merger, consolidation, acquisition of property or stock, or reorganization, the Administrator may authorize the issuance or assumption of awards upon such terms and conditions as it may deem appropriate.

(c)     Change of Control .

(i)    Upon or immediately prior to the date of a Change of Control, and subject to the provisions of subsection (d), the Board may provide that all outstanding Awards that are then vested or earned shall be cancelled in exchange for a payment in cash and/or Shares (which may include shares or other securities of any surviving or successor entity or the purchasing entity) equal to:

(1)    In the case of an Option, the excess of the Change of Control Price of the Shares covered by the vested portion of the Option over the exercise or grant price of such Shares under the Award; provided that if such amount is zero, the Option shall be cancelled without payment therefor;

(2)    In the case of Restricted Stock Units, the Change of Control Price multiplied by the number of vested units; and

 

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(3)    In the case of a Performance Share Award which has been earned in whole or in part, the Change of Control Price multiplied by the number of earned Shares.

(ii)    If, in connection with the Change of Control, the Options issued under the Plan are not assumed, or if substitute Options are not issued, or if the assumed or substituted awards fail to contain similar terms and conditions as the Award prior to the Change of Control or fail to preserve, to the extent applicable, the benefit to be provided to the Participant as of the date of the Change of Control, including but not limited to the right of the Participant after the IPO Date to receive Shares upon exercise of the Option that are registered for sale to the public pursuant to an effective registration statement filed with the U.S. Securities and Exchange Commission, then each holder of an Option that is outstanding as of the date of the Change of Control shall have the right, exercisable by written notice to the Company (or its successor in the Change of Control transaction) within thirty (30) days after the Change of Control (but not beyond the Option’s expiration date), to receive, in exchange for the surrender of the Option, an amount of cash equal to the excess of the Fair Market Value of the Shares on the date of surrender covered by the Option (to the extent vested and not yet exercised) that is so surrendered over the exercise price of such Shares under the Award. If the Administrator so determines prior to the Change of Control, any such Option that is not exercised or surrendered prior to the end of such thirty (30)-day period will be cancelled, even if vested.

(iii)    The portion of any Award that has not vested or been earned as of the date of the Change of Control shall be cancelled without payment therefor, unless and to the extent provided otherwise in an award agreement or as approved by the Board prior to the Change of Control.

(d)     Parachute Payment Limitation .

(i)    Except as may be set forth in a written agreement by and between the Company and the holder of an Award, in the event that the Company’s auditors determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant (a “Payment”) would be nondeductible by the Company for federal income tax purposes because of the provisions concerning “excess parachute payments” in Code Section 280G, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount. For purposes of this Section 13(d), the “Reduced Amount” shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of Code Section 280G.

(ii)    If the Company’s auditors determine that any Payment would be nondeductible by the Company because of Code Section 280G, then the Company shall promptly give the Participant notice to that effect, a copy of the detailed calculation thereof and of the Reduced Amount, and which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount). For purposes of this Section 13(d), present value shall be determined in accordance with Code Section 280G(d)(4). All determinations made by the Company’s auditors under this Section 13(d) shall be binding upon the Company and the Participant and shall be made within sixty (60) days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan.

 

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(iii)    As a result of uncertainty in the application of Code Section 280G at the time of an initial determination by the Company’s auditors hereunder, it is possible that Payments will have been made by the Company that should not have been made (an “Overpayment”) or that additional Payments that will not have been made by the Company could have been made (an “Underpayment”), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Company’s auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant that the auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which he or she shall repay to the Company, together with interest at the applicable federal rate provided in Code Section 7872(f)(2); provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount subject to taxation under Code Section 4999. In the event that the auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in Code Section 7872(f)(2).

(iv)    For purposes of this Section 13(d), the term “Company” shall include affiliated corporations to the extent determined by the auditors in accordance with Code Section 280G(d)(5).

14.     STOCK TRANSFER RESTRICTIONS .

(a)     Restriction on Transfer . Shares issued under the Plan may not be sold or otherwise disposed of except as permitted by the Board. As a condition to the receipt of Shares hereunder, the Participant (or individual entitled to receive Shares following the Participant’s death) may be required to execute a stockholders agreement or other agreement required by the Board of the Company’s stockholders.

(b)     Restrictions; Legends . All Shares delivered under the Plan shall be subject to such restrictions as the Administrator may deem advisable, and the Administrator may cause a legend or legends to be put on any certificates for shares to make appropriate references to such restrictions.

(c)     Right to Purchase Shares . Pursuant to the provisions of this Section 14(c), the Company shall have the right (the “Purchase Right”), but not the obligation, to purchase the Shares acquired by the Participant under this Plan upon the occurrence of any of the following events (each, a “Trigger Date”):

(i)    The Participant’s termination of employment or service from the Company and its Affiliates, or

(ii)    The issuance of any Shares following a Participant’s termination of employment or service from the Company and its Affiliates pursuant to the terms of an Award, such as upon the exercise of an Option following termination of employment.

The purchase price for the Shares subject to such Purchase Right shall be the Fair Market Value of the Shares on the applicable Trigger Date.

The Company may exercise its Purchase Right by giving written notice thereof to the Participant within thirty (30) days after the Trigger Date (the thirty (30) day period in each case, the “Call Period”) of the number of Shares with respect to which the Purchase Right is being exercised. The Company shall promptly determine the purchase price for the Shares subject to the Purchase Right and shall notify the Participant of such determination. The Company shall pay such purchase price in cash.

 

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Upon the delivery of the payment described herein by the Company, the Participant shall take all actions necessary, and execute all related documents specified by the Company as being reasonably necessary to consummate the sale of the Shares to the Company, and the Participant hereby appoints the Company’s Secretary as his or her true and lawful attorney-in-fact to exercise and deliver all such instruments, documents and writings, and to take all such actions as shall be required to consummate the sale of the Shares to the Company as contemplated in this Section. Such power is a special power of attorney coupled with an interest, is irrevocable, and shall run with the Shares to any subsequent owners thereof.

(d)     Right of First Refusal.

(i)     Transfer . Whenever a Participant has any notice or knowledge of any attempted, impending or consummated involuntary transfer of, or lien, charge or other encumbrance upon, any of the Participant’s Shares acquired under this Plan during the Participant’s lifetime, whether by operation of law or otherwise, including the death or divorce of the Participant’s spouse if the Participant does not succeed to the marital property interest of such spouse in any Shares, or whenever the Participant proposes to sell or otherwise transfer any of the Participant’s Shares issued under this Plan to any party other than another Company stockholder or the Company (in each case, a “Proposed Transfer”), the Participant shall give immediate written notice thereof to the Company. Such notice shall specify all information relevant to the Proposed Transfer, including the number of Shares subject to the Proposed Transfer, the identity of the transferee, a description of the nature of the Proposed Transfer and a copy of any written documents relating to the Proposed Transfer and, if applicable, the purchase price proposed to be paid by the transferee for the Shares. Such notice by the Participant shall constitute an offer to sell all of the Shares that are the subject of the Proposed Transfer to the Company in the manner specified in subsection (c) for the purchase price determined under subsection (d).

(ii)     Tendering of Shares . At the time a Participant sends a written notice under paragraph (i), the Participant shall send to the Secretary of the Company the applicable stock certificates for the Shares so offered, together with transfer instruments executed in blank sufficient to effect the transfer of all of such Shares, if purchased pursuant to such offer, which shall be held by the Company in trust for delivery to the purchasers of such Shares if a sale is effected hereunder.

(iii)     Company’s Exercise of Purchase Right . In the event that a Proposed Transfer arises pursuant to paragraph (i), the Company shall have an option to elect to purchase any part or all of the Shares to which the Proposed Transfer applies for a period of ninety (90) days from the date the Company receives the notice from the Participant of the Proposed Transfer. If the Company desires to exercise in whole or in part its purchase right, then the Company shall signify such exercise and the number of Shares to be purchased by delivering written notice to the transferring Participant, or the Participant’s legal representative, as the case may be, prior to the end of the ninety (90)-day period. The Company may exercise its purchase option with respect to any part or all of the Shares subject to the Proposed Transfer.

(iv)     Purchase Price and Payment under Purchase Options . The purchase price for all Shares purchased pursuant to this Section 14(d) shall be the Fair Market Value of such Shares, as determined at the time of purchase, or if lesser, the price indicated in the written notice delivered by such Participant to the Company pursuant to paragraph (i), if applicable. Upon the Company’s exercise of its purchase right, the Secretary of the Company shall give written notice to the Company and all interested parties of the business day and hour for the closing of the purchase of the Shares subject to such purchase right at the principal office of the Company (the “Closing

 

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Date”). Such Closing Date shall occur no later than thirty (30) days after the date of such notice. At the time of closing, certificates for the Shares being purchased shall be transferred of record to the Company, against payment to the seller(s) of the purchase price in cash or by cashier’s check.

15.     MISCELLANEOUS .

(a)     Other Terms and Conditions . The grant of any Award under this Plan may also be subject to other provisions (whether or not applicable to the Award made to any other Participant) as the Administrator determines appropriate, including, without limitation, provisions for:

(i)    the payment of the purchase price of Options by delivery of cash or other Shares or other securities of the Company (including by attestation) having a then Fair Market Value equal to the purchase price of such Shares, or by delivery (including by fax) to the Company or its designated agent, of an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the Shares and deliver the sale or margin loan proceeds directly to the Company to pay for the exercise price;

(ii)    provisions giving the Participant the right to receive dividend payments or dividend equivalent payments with respect to the Shares subject to the Award (both before and after the Shares subject to the Award are earned, vested or acquired), which payments may be either made currently or credited to an account for the Participant, and may be settled in cash or Shares, as the Administrator determines;

(iii)    restrictions on resale or other disposition, including requiring the Participant (or other interested party) to execute a stockholder’s agreement in such form and subject to such terms as the Company may prescribe; and

(iv)    Compliance with federal or state securities laws and stock exchange requirements.

(b)     Code Section  409A . The provisions of Code Section 409A are incorporated herein by reference to the extent necessary for any Award that is subject to Code Section 409A to comply therewith.

(c)     Employment or Service . The issuance of an Award shall not confer upon a Participant any right with respect to continued employment or service with the Company or any Affiliate, or the right to continue as a consultant or director. Unless determined otherwise by the Administrator, for purposes of the Plan and all Awards, the following rules shall apply:

(i)    A Participant who transfers employment between the Company and any Affiliate, or between Affiliates, will not be considered to have terminated employment;

(ii)    A Participant who ceases to be a non-employee director because he or she becomes an employee of the Company or an Affiliate shall not be considered to have ceased service as a director with respect to any Award until such Participant’s termination of employment with the Company and its Affiliates;

(iii)    A Participant who ceases to be employed by the Company or an Affiliate of the Company and immediately thereafter becomes a non-employee director of the Company or any Affiliate, or a Consultant to the Company or any Affiliate, shall not be considered to have terminated employment until such Participant’s service as a director of, or consultant to, the Company and its Affiliates has ceased; and

 

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(iv)    A Participant employed by an Affiliate will be considered to have terminated employment when such entity ceases to be an Affiliate of the Company.

Notwithstanding the foregoing, with respect to an Award subject to Code Section 409A, a Participant shall be considered to have terminated employment upon the date of his separation from service within the meaning of Code Section 409A.

(d)     No Fractional Shares . No fractional Shares or other securities may be issued or delivered pursuant to this Plan, and the Administrator may determine whether cash, other securities or other property will be paid or transferred in lieu of any fractional Shares or other securities, or whether such fractional Shares or other securities or any rights to fractional Shares or other securities will be canceled, terminated or otherwise eliminated.

(e)     Unfunded Plan . This Plan is unfunded and does not create, and should not be construed to create, a trust or separate fund with respect to this Plan’s benefits. This Plan does not establish any fiduciary relationship between the Company and any Participant. To the extent any person holds any rights by virtue of an Award granted under this Plan, such rights are no greater than the rights of the Company’s general unsecured creditors.

(f)     Requirements of Law . The granting of Awards under this Plan and the issuance of Shares in connection with an Award are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding any other provision of this Plan or any Award agreement, the Company has no liability to deliver any Shares under this Plan or make any payment unless such delivery or payment would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity.

(g)     Governing Law . This Plan, and all agreements under this Plan, shall be construed in accordance with and governed by the laws of the State of Delaware, without reference to any conflict of law principles. Any legal action or proceeding with respect to this Plan, any Award or any Award agreement, or for recognition and enforcement of any judgment in respect of this Plan, any Award or any Award agreement, may only be brought and determined in a court sitting in the State of Delaware.

(h)     Limitations on Actions . Any legal action or proceeding with respect to this Plan, any Award or any Award agreement, must be brought within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint.

(i)     Construction . Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used in the singular or plural, they shall be construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. Titles of sections are for general information only, and the Plan is not to be construed with reference to such titles.

(j)     Severability . If any provision of this Plan or any Award agreement or any Award (i) is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any person or Award, or (ii) would disqualify this Plan, any Award agreement or any Award under any law the Administrator deems applicable, then such provision should be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Administrator, materially altering the intent of this Plan, Award agreement or Award, then such provision should be stricken as to such jurisdiction, person or Award, and the remainder of this Plan, such Award agreement and such Award will remain in full force and effect.

 

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(k)     Award Agreement . No person shall have any rights under any Award granted under the Plan unless and until the Company and the Participant to whom such Award shall have been granted shall have executed and delivered an Award agreement or received any other Award acknowledgment authorized by the Administrator expressly granting the Award to such person and containing provisions setting forth the terms of the Award.

 

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Exhibit 10.48

EVOFEM BIOSCIENCES, INC.

2012 Equity Incentive Plan

Notice of Option Grant

 

 

Evofem Biosciences, Inc. (the “Company”), a Delaware corporation, hereby grants to the person named below an option to purchase shares of Common Stock, $0.001 par value, of the Company (the “Option”) subject to the terms set forth below and in the Stock Option Award Agreement and under and subject to the Evofem Biosciences, Inc. 2012 Equity Incentive Plan (the “Plan”).

 

Name of Optionee:   
Number of Shares:   
Type of Option:   
Exercise Price:   
Date of Grant:   
Expiration Date:   
Vesting Schedule:    Subject to the terms and conditions set forth in the Stock Option Award Agreement, the Option shall vest and become exercisable as follows:
  

        Vesting Date        Number to Become Vested         Total Number Vested        

  

                  Total:

 

 

By your signature and the signature of the Company’s representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and the attached Stock Option Award Agreement, both of which are made a part of this Notice of Stock Option Grant.

 

 

EVOFEM BIOSCIENCES, INC.   OPTIONEE
By:  

                                          

    By:  

                     

  Saundra Pelletier, Chief Executive Officer      
Date:  

                                          

    Date:  

                     

Exhibit 10.49

NOTICE OF GRANT OF RESTRICTED STOCK AWARD

EVOFEM BIOSCIENCES, INC.

2012 EQUITY INCENTIVE PLAN

FOR GOOD AND VALUABLE CONSIDERATION, Evofem Biosciences, Inc. (the “ Company ”) hereby grants, under the provisions of the Evofem Biosciences, Inc. 2012 Equity Incentive Plan (the “ Plan ”), to the Grantee designated in this Notice of Grant of Restricted Stock Award (the “ Notice ”) the number of shares of the Common Stock of the Company set forth in the Notice, subject to certain restrictions as outlined below in this Notice and the additional provisions set forth in the attached Terms and Conditions of Restricted Stock Award (collectively, the “ Agreement ”). The terms and conditions of the Plan are incorporated by reference in their entirety into this Agreement. When used in this Agreement, the terms which are defined in the Plan shall have the meanings given to them in the Plan, as modified herein (if applicable).

 

Grantee:          [                    ]
Grant Date:     [                    ]
# of Shares of Restricted Stock:         [                    ]

Vesting Schedule: Subject to the provisions contained in Paragraphs 5, 6 and 7 of the Terms and Conditions, this Restricted Stock Award shall vest, and the applicable restrictions set forth in the Terms and Conditions shall lapse, in accordance with the following schedule, in the event the Grantee does not have a Separation from Service prior to the applicable vesting date:

[Insert schedule—time-based or performance-based. The following is an example of a time-based schedule]

 

Vesting Date

   Percentage of
Award Vesting
 

First Anniversary of Grant Date

     25

Second Anniversary of Grant Date

     25

Third Anniversary of Grant Date

     25

Fourth Anniversary of Grant Date

     25

If the number of shares of Restricted Shares vesting as of a vesting date is a fractional number, the number vesting will be rounded down to the nearest whole number with any fractional portion carried forward.

Acceleration of Vesting on Change in Control: [add provisions if applicable; otherwise delete]

Acceleration of Vesting on Performance Goal: [add provisions if applicable; otherwise delete]


By signing below, the Grantee agrees that this Restricted Stock Award is granted under and governed by the terms and conditions of the Evofem Biosciences, Inc. 2012 Equity Incentive Plan and the attached Terms and Conditions.

 

Grantee     Evofem Biosciences, Inc.

 

   

 

      By:   Saundra Pelletier
    Title:   Chief Executive Officer
Date:  

                     

    Date:  

                     


TERMS AND CONDITIONS OF STOCK OPTION AWARD

The Stock Option Award (the “ Award ”) granted by Evofem Biosciences, Inc. (the “ Company ”) under the provisions of the Evofem Biosciences, Inc. 2012 Equity Incentive Plan (the “ Plan ”) to the Participant specified in the Notice of Grant of Non-Qualified Stock Option Award (the “ Notice ”) to which these Terms and Conditions of Stock Option Award (the “ Terms ”) are attached, is subject to the terms and conditions of the Plan, the Notice, these Terms, and the terms applicable to Awards granted to service providers outside the U.S. set forth in the Appendix A hereto. The terms and conditions of the Plan are incorporated by reference in their entirety into these Terms (the Plan is available upon request). Together, the Notice, these Terms and all Exhibits and Appendices to the Notice and these Terms constitute the “ Agreement .” When used in this Agreement, the terms which are defined in the Plan shall have the meanings given to them in the Plan, as modified herein (if applicable).

The Board has approved an award to the Participant of an Option with respect to a number of Shares, conditioned upon the Participant’s acceptance of the provisions set forth in the Notice and these Terms within sixty (60) days after the Notice and these Terms are presented to the Participant for review.

If designated in the Notice as an Incentive Stock Option (“ ISO ”), this Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code. Nevertheless, to the extent that the Option fails to meet the requirements of an ISO under Section 422 of the Code, this Option shall be treated as a non-qualified stock option (“ NSO ”).

The Company intends that this Option not be considered to provide for the deferral of compensation under Section 409A and that this Agreement shall be so administered and construed. Further, the Company may modify the Plan and this Award to the extent necessary to fulfill this intent.

 

1. Definitions .

(a)    “ Section  409A ” means Section 409A of the Code.

(b)    “ Securities Act ” means the Securities Act of 1933, as now in effect or as hereafter amended.

(c)    “ Separation from Service ” means a termination of service of the Participant, as determined by the Board, which determination shall be final, binding and conclusive; provided, however , that if any Award governed by Section 409A is to be distributed on a Separation from Service, then the definition of Separation from Service for such purposes shall comply with the definition provided in Section 409A.

 

2. Exercise of Option .

(a)     Right to Exercise . This Option shall be exercisable, in whole or in part, during its term in accordance with the Vesting Schedule set out in the Notice and with the applicable provisions of the Plan and this Agreement. No Shares shall be issued pursuant to the exercise of an Option unless the issuance and exercise comply with applicable laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Participant on the date on which the Option is exercised with respect to such Shares. Until such time as the Option has been duly exercised and Shares have been delivered, the Participant shall have no rights as a shareholder of the Company and without limitation of the foregoing shall not be entitled to exercise any voting rights with respect to such Shares and shall not be entitled to receive dividends or other distributions with respect thereto.

 

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(b)     Method of Exercise . The Participant may exercise the Option by delivering an exercise notice in a form approved by the Company (the “ Exercise Notice ”) which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Shares exercised. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.

(c)     Acceleration of Vesting Under Certain Circumstances . The vesting and exercisability of the Option shall not be accelerated under any circumstances, except as otherwise provided in the Notice or the Plan .

 

3. Method of Payment . If the Participant elects to exercise the Option by submitting an Exercise Notice under Section 2(b) of this Agreement, the aggregate Exercise Price (as well as any applicable withholding or other taxes) shall be paid by cash or certified check; provided, however , that the Board may consent, in its discretion, to payment in any of the following forms, or a combination of them:

(a)    cash or certified check;

(b)    a “net exercise” under which the Company reduces the number of shares of Common Stock issued upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate Exercise Price and any applicable withholding, or such other consideration received by the Company under a cashless exercise program approved by the Company in connection with the Plan;

(c)    surrender of other shares of Common Stock owned by the Participant which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the exercised Shares and any applicable withholding; or

(d)    any other consideration that the Board deems appropriate and in compliance with applicable law.

 

4. Non-Transferability of Option . This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of the Participant only by the Participant. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Participant.

 

5. Term of Option . This Option may be exercised only within the term set out in the Notice, and may be exercised during such term only in accordance with the Plan and the terms of this Agreement.

 

6. Withholding .

(a)    Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“ Tax-Related Items ”), the Participant acknowledges that the ultimate liability for all Tax-Related Items owed by the Participant is and remains the Participant’s responsibility and that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant, vesting or exercise of the Option or the subsequent sale of Shares acquired upon exercise; and (ii) does not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Participant’s liability for Tax-Related Items.

 

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(b)    Prior to exercise of the Option, the Participant shall pay or make adequate arrangements satisfactory to the Company to satisfy all withholding obligations of the Company. In this regard, the Participant authorizes the Company to withhold all applicable Tax-Related Items legally payable by the Participant from the Participant’s wages or other cash compensation paid to the Participant by the Company or from proceeds of the sale of the Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Participant acquires to meet the minimum withholding obligation for Tax-Related Items, and/or (ii) withhold Shares otherwise issuable upon exercise of the Option, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Participant shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold as a result of the Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue and deliver Shares upon exercise of the Option if the Participant fails to comply with the Participant’s obligations in connection with the Tax-Related Items as described in this Section 7.

 

7. Participant Representations . The Participant hereby represents to the Company that the Participant has read and fully understands the provisions of the Notice, these Terms and the Plan, and the Participant’s decision to participate in the Plan is completely voluntary. Further, the Participant acknowledges that the Participant is relying solely on his or her own advisors with respect to the tax consequences of this Award. The Participant releases and holds the Company, and its officers, directors, employees, stockholders and agents, harmless from any loss or claim related to or in any way connected with the tax consequences of the Option, including without limitation the treatment of the Option under Section 409A.

 

8. Regulatory Limitations on Exercises . Notwithstanding the other provisions of this Agreement, the Board shall have the sole discretion to impose such conditions, restrictions and limitations (including suspending the exercise of the Option and the tolling of any applicable exercise period during such suspension) on the issuance of Common Stock with respect to this Option unless and until the Board determines that such issuance complies with (i) any applicable registration requirements under the Securities Act or the Board has determined that an exemption therefrom is available, (ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed, (iii) any applicable Company policy or administrative rules, and (iv) any other applicable provision of state, federal or foreign law, including foreign securities laws where applicable.

 

9. Right to Purchase Shares; Right of First Refusal . Notwithstanding the other provisions of this Agreement, at any time prior to an IPO, any Shares issued upon exercise of the Option shall be subject to the right of purchase and the right of first refusal in favor of the Company as set forth in the Plan.

 

10. Market Stand-off Agreement . In connection with an IPO and upon request of the Company or the underwriters managing such IPO, the Participant agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares issued upon exercise of the Option without the prior written consent of the Company or such underwriters, as the case may be, for such period of time from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of an IPO.

 

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11. Miscellaneous .

(a)     Notices . Any notice which either party hereto may be required or permitted to give to the other shall be in writing and may be delivered personally, by intraoffice mail, by fax, by electronic mail or other electronic means, or via a postal service, postage prepaid, to such electronic mail or postal address and directed to such person as the Company may notify the Participant from time to time; and to the Participant at the Participant’s electronic mail or postal address as shown on the records of the Company from time to time, or at such other electronic mail or postal address as the Participant, by notice to the Company, may designate in writing from time to time.

(b)     Waiver . The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach.

(c)     Entire Agreement . This Agreement and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof. Any prior agreements, commitments or negotiations concerning the Award are superseded.

(d)     Binding Effect; Successors . This Agreement shall inure to the benefit of and be binding upon the parties hereto and to the extent not prohibited herein, their respective heirs, successors, assigns and representatives. Nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto and as provided above, their respective heirs, successors, assigns and representatives any rights, remedies, obligations or liabilities.

(e)     Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law, and applicable Federal law.

(f)     Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of these Terms.

(g)     Conflicts; Amendment . The provisions of the Plan are incorporated in these Terms in their entirety. In the event of any conflict between the provisions of these Terms and the Plan, the provisions of the Plan shall control. The Agreement may be amended at any time by the Board, provided that no amendment may, without the consent of the Participant, materially impair the Participant’s rights with respect to the Award.

(h)     No Right to Continued Employment . Nothing in the Notice or these Terms shall confer upon the Participant any right to continue in the employ or service of the Company or affect the right of the Company to terminate the Participant’s employment or service at any time.

(i)     Further Assurances . The Participant agrees, upon demand of the Company or the Board, to do all acts and execute, deliver and perform all additional documents, instruments and agreements which may be reasonably required by the Company or the Board, as the case may be, to implement the provisions and purposes of the Notice and these Terms and the Plan.

 

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(j)     Dispute Resolution .

(i)     Arbitration . If any controversy or claim arising out of this award cannot be resolved by the Participant and the Company (each a “ party ” and collectively, the “ parties ”), such conflict or claim shall be resolved by arbitration in accordance with the then current rules of the American Arbitration Association governing commercial disputes. Such matters will be arbitrated in the San Diego, California metropolitan area and, for purposes of these Terms, each party consents to arbitration in such place. Arbitration proceedings shall commence when either party notifies the other that a dispute to arbitration exists and requests that the dispute be arbitrated. If the parties to the dispute cannot within thirty (30) days after the request for arbitration is made mutually agree upon an arbitrator or arbitrators to settle the dispute, each party to the dispute shall select an arbitrator. The two arbitrators shall, within fifteen (15) days after the appointment of the last arbitrator, select a third arbitrator and the three arbitrators shall determine the matter. Each arbitrator shall act impartially. If for any reason an arbitrator is not appointed within the time provided or the arbitrators appointed by the parties cannot agree upon a third arbitrator, then an arbitrator shall be appointed by the Superior Court in and for the County of San Diego, California in accordance with applicable state law. Unless the parties mutually agree otherwise, any arbitrator selected will be familiar with equity compensation disputes. The final decision will be that of the sole arbitrator or of the majority of the arbitrators, and shall be final and binding upon the parties, except as otherwise provided by law. The sole arbitrator or the majority of arbitrators shall also determine the allocation of costs of the arbitration among the parties, and shall have the right to award to the prevailing party all cost of the arbitration, including reasonable attorneys’ fees.

(ii)     Jurisdiction and Venue . For purposes of enforcing the award or decision in any arbitration proceeding, each party hereto submits to the exclusive jurisdiction of California state courts located in the City of San Diego or the United States District Court for the Southern District of California. In that regard, each party hereby waives, and agrees 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 (except as protected by applicable law), 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 these Terms or the subject matter hereof may not be enforced in or by such court, and (ii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each party hereby consents to service of process by registered mail at the address to which notices are to be given. Each party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other party. Final judgment against any party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

(k)     Confidentiality . The Participant agrees that the terms and conditions of the Restricted Stock Units award reflected in the Notice and these Terms are strictly confidential and, with the exception of Participant’s counsel, tax advisor, immediate family, or as required by applicable law, have not and shall not be disclosed, discussed, or revealed to any other persons, entities, or organizations, whether within or outside Company, without prior written approval of Company. The Participant further agrees to take all reasonable steps necessary to ensure that confidentiality is maintained by any of the individuals or entities referenced above to whom disclosure is authorized.

 

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(l)     Restrictive Covenants . If the Participant is subject to any employment-related covenants (including covenants regarding non-competition, non-solicitation of customers/employees and preservation of confidential information) under any agreement with the Company or any Subsidiary, the vesting and receipt of benefits under this Award is specifically conditioned on the Participant’s compliance with such covenants. To the extent allowed by and consistent with applicable law and any applicable limitations period, if it is determined at any time that the Participant has materially breached any such covenants, the Company will be entitled to (i) cause any unvested portion of the Award to be immediately canceled without any payment of consideration by the Company and (ii) recover from the Participant in its sole discretion some or all of the Shares (or proceeds received by the Participant from such Shares) paid to the Participant pursuant to this Agreement. The Participant recognizes that if the Participant breaches any such covenants, the losses to the Company and/or its Subsidiaries may amount to the full value of any Shares paid to the Participant pursuant to this Agreement.

(m)     Additional Acknowledgments; Appendix A . By accepting this Award, the Participant acknowledges and agrees that this Award is subject to the terms applicable to Awards granted to service providers outside the U.S. set forth in the Appendix A hereto. Appendix A constitutes part of this Agreement. Please review the provisions of Appendix A carefully, as this Award will be null and void absent the Participant’s acceptance of such provisions. The Company reserves the right to impose other requirements on the Award to the extent that the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Award and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

 

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APPENDIX A

TO THE TERMS AND CONDITIONS OF STOCK OPTION AWARD

Terms Applicable to Awards Granted to Service Providers Outside the U.S.

 

1. DATA PRIVACY

By accepting the this Option, the Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data as described in this document and any other grant materials by and among, as applicable, the Company and any Affiliate for the exclusive purpose of implementing, administering and managing the Option.

The Participant understands that the Company holds certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company or any Affiliates, details of any entitlement to options, shares of stock or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Participant’s favor (“ Data ”), for the purpose of implementing, administering and managing the Participant’s participation in the Plan. The Participant understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Participant’s country or elsewhere (e.g., the United States), and that the recipient’s country may have different data privacy laws and protections from the Participant’s country. The Participant understands that the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the Participant’s local human resources representative. The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Participant’s participation in the Plan. The Participant understands that Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan. The Participant understands that the Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Participant’s local human resources representative. Further, the Participant understands that the Participant is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to revoke the Participant’s consent, the Participant’s employment status or service and career with the Participant’s employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Participant’s consent is that the Company would not be able to grant to the Participant Options or other awards under the Plan or administer or maintain such awards. Therefore, the Participant understands that refusing or withdrawing the Participant’s consent may affect the Participant’s ability to benefit from the Option. For more information on the consequences of the Participant’s refusal to consent or withdrawal of consent, the Participant understands that the Participant may contact the Participant’s local human resources representative.

 

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2. ADDITIONAL ACKNOWLEDGEMENTS

By entering into this Agreement and accepting the grant of the Option evidenced hereby, the Participant acknowledges, understands and agrees that:

(a)    the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;

(b)    the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future awards of Options or benefits in lieu of Options, even if such awards have been awarded in the past;

(c)    all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

(d)    the grant of Option shall not create a right to employment with the Company or any other Affiliate and shall not interfere with the ability of the Company or any Affiliate to terminate the Participant’s employment or service relationship (if any);

(e)    the Participant is voluntarily participating in the Plan;

(f)    the Option and any payment made pursuant to the Option, and the value and income of same, are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or welfare benefits or similar payments;

(g)    unless otherwise agreed with the Company, the Option and any Shares subject to the Option, and the value and income of same, are not granted as consideration for, or in connection with, any service the Participant may provide as a director of any affiliate;

(h)    in accepting the grant of the Option, the Participant expressly recognizes that the Option is an award made solely by the Company, with principal offices in San Diego, CA, U.S.A.; the Company is solely responsible for the administration of the Plan and the Participant’s participation in the Plan; in the event that the Participant is an employee or consultant of an Affiliate, the Option and the Participant’s participation in the Plan will not create a right to employment be interpreted to form an employment or service contract or relationship with the Company; furthermore, the Option will not be interpreted to form an employment or service contract with any Affiliate;

(i)    the future value of the Shares which may be delivered upon exercise of the Option is unknown, indeterminable and cannot be predicted with certainty;

(j)    no claim or entitlement to compensation or damages shall arise from forfeiture of the Option resulting from termination of the Participant’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Participant is employed or providing services or the terms of the Participant’s employment or service agreement, if any) and, in consideration of the grant of the Option, the Participant irrevocably agrees never to institute any claim against the Company, the Participant’s employer or any other affiliate, waives the

 

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Participant’s ability, if any, to bring any such claim, and releases the Company, the Participant’s employer and any other affiliate from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Participant shall be deemed irrevocably to have agreed not to pursue such claim, and the Participant agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(l)    the Participant is solely responsible for investigating and complying with any exchange control laws applicable to the Participant in connection with his or her participation in the Plan;

(m)    unless otherwise provided in the Plan or by the Company in its discretion, the Option and the benefits evidenced by this Agreement do not create any entitlement to have the Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Company’s Common Stock; and

(n)    neither the Company, the Participant’s employer nor any other affiliate shall be liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of the Option, any payment made pursuant to the Option or the subsequent sale of any shares of Common Stock acquired under the Plan.

 

3. NO ADVICE REGARDING GRANT

The Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding the Participant’s participation in the Plan or the Participant’s acquisition of any Shares under the Plan or subsequent sale of such Shares. The Participant is hereby advised to consult with the Participant’s personal tax, legal and financial advisors regarding the Participant’s participation in the Plan before taking any action in relation thereto.

 

4. LANGUAGE

If the Participant has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.

 

5. ELECTRONIC DELIVERY AND ACCEPTANCE

The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

 

6. INSIDER-TRADING/MARKET-ABUSE LAWS

The Participant acknowledge that, depending on his or her country, the Participant may be subject to insider-trading restrictions and/or market-abuse laws, which may affect his

 

3


or her ability to acquire or sell Shares acquired or rights to acquire Shares ( e.g. , Awards, Units) under the Plan during such times as the Participant is considered to have “inside information” regarding the Company (as defined by the laws in his or her country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Participant is responsible for complying with any applicable restrictions, and the Participant is advised to speak to his or her personal legal advisor regarding this matter.

 

4


TERMS AND CONDITIONS OF RESTRICTED STOCK AWARD

The Restricted Stock Award (the “ Award ”) granted by Evofem Biosciences, Inc. (the “ Company ”) under the provisions of the Evofem Biosciences, Inc. 2012 Equity Incentive Plan (the “ Plan ”), to the Grantee specified in the Notice of Grant of Restricted Stock Award (the “ Notice ”) to which these Terms and Conditions of Restricted Stock Award (the “ Terms ”) are attached, is subject to the terms and conditions of the Plan, the Notice, and these Terms. The terms and conditions of the Plan are incorporated by reference in their entirety into these Terms (the Plan is available upon request). Together, the Notice, the Plan and these Terms constitute the “ Agreement .” When used in this Agreement, the terms which are defined in the Plan shall have the meanings given to them in the Plan, as modified herein (if applicable). For purposes this Agreement, any reference to the Company shall include a reference to any Affiliate.

The Board has approved an award to the Grantee of a number of shares of the Company’s Common Stock, conditioned upon the Grantee’s acceptance of the provisions set forth in the Notice and these Terms within sixty (60) days after the Notice and these Terms are presented to the Grantee for review.

 

1. Definitions .

(a)    “ Section  409A ” means Section 409A of the Code.

(b)    “ Securities Act ” means the Securities Act of 1933, as now in effect or as hereafter amended.

(c)    “ Separation from Service ” means a termination of service of the Grantee, as determined by the Board, which determination shall be final, binding and conclusive; provided, however , that if any Award governed by Section 409A is to be distributed on a Separation from Service, then the definition of Separation from Service for such purposes shall comply with the definition provided in Section 409A.

 

2. Grant of Restricted Stock .

(a)    Subject to the terms and conditions of the Plan, as of the Grant Date, the Company grants to the Grantee the number of shares of Common Stock set forth in the Notice (the “ Restricted Shares ”), subject to the restrictions set forth in Paragraph 3 of these Terms, the provisions of the Plan and the other provisions contained in these Terms. If and when the restrictions set forth in Paragraph 3 expire in accordance with these Terms without forfeiture of the Restricted Shares, and upon the satisfaction of all other applicable conditions as to the Restricted Shares, such shares shall no longer be considered Restricted Shares for purposes of these Terms.

(b)    As soon as practicable after the Grant Date, the Company shall direct that a stock certificate or certificates representing the applicable Restricted Shares be registered in the name of and issued to the Grantee. Such certificate or certificates shall be held in the custody of the Company or its designee until the expiration of the applicable Restricted Period (as defined in Paragraph 4). Upon the request of the Company, the Grantee shall deliver to the Company one or more stock powers endorsed in blank relating to the Restricted Shares.

(c)    Except as provided in Paragraph 2(d), in the event that a certificate for the Restricted Shares is delivered to the Grantee, such certificate shall bear the following legend (the “ Legend ”):

 

1


THE OWNERSHIP AND TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE EVOFEM BIOSCIENCES, INC. 2012 EQUITY INCENTIVE PLAN AND A RESTRICTED STOCK AWARD NOTICE ENTERED INTO BETWEEN THE REGISTERED OWNER AND EVOFEM BIOSCIENCES, INC. COPIES OF SUCH PLAN AND NOTICE ARE ON FILE IN THE EXECUTIVE OFFICES OF EVOFEM BIOSCIENCES, INC.

In addition, the stock certificate or certificates for the Restricted Shares shall be subject to such stop-transfer orders and other restrictions as the Company may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, and any applicable federal or state securities law, and the Company may cause a legend or legends to be placed on such certificate or certificates to make appropriate reference to such restrictions.

(d)    As soon as administratively practicable following the expiration of the Restricted Period without a forfeiture of the Restricted Shares, and upon the satisfaction of all other applicable conditions as to the Restricted Shares, including, but not limited to, the payment by the Grantee of all applicable withholding taxes, the Company shall deliver or cause to be delivered to the Grantee a certificate or certificates for the applicable Restricted Shares which shall not bear the Legend.

 

3. Restrictions .

(a)     [ The Grantee shall have all rights and privileges of a stockholder as to the Restricted Shares, including the right to vote and receive dividends or other distributions with respect to the Restricted Shares, except that the following restrictions shall apply ] OR [ The Grantee shall have no rights or privileges of a stockholder as to the Restricted Shares prior to vesting, including no right to vote or receive dividends or other distributions with respect to the Restricted Shares; in addition, the following provisions shall apply ] :

(i) the Grantee shall not be entitled to delivery of the certificate or certificates for the Restricted Shares until the expiration of the Restricted Period without a forfeiture of the Restricted Shares and upon the satisfaction of all other applicable conditions;

(ii) none of the Restricted Shares may be sold, transferred (other than by will or the laws of descent and distribution), assigned, pledged or otherwise encumbered or disposed of during the Restricted Period applicable to such shares; and

(iii) all of the Restricted Shares shall be forfeited and returned to the Company and all rights of the Grantee with respect to the Restricted Shares shall terminate in their entirety on the terms and conditions set forth in Paragraph 5.

(b)    Any attempt to dispose of Restricted Shares or any interest in the Restricted Shares in a manner contrary to the restrictions set forth in these Terms shall be void and of no effect.

 

4.

Restricted Period and Vesting . The “ Restricted Period ” is the period beginning on the Grant Date and ending on the date the Restricted Shares, or such applicable portion of the Restricted

 

2


  Shares, are deemed vested under the schedule set forth in the Notice [ (including any applicable accelerated vesting provisions set forth in the Notice) ] .

 

5. Forfeiture .

(a)    Subject to Paragraph 7 below, if during the Restricted Period (i) the Grantee incurs a Separation from Service, (ii) there occurs a material breach of the Notice or these Terms by the Grantee or (iii) the Grantee fails to meet the tax withholding obligations described in Paragraph 6(b), all rights of the Grantee to the Restricted Shares that have not vested in accordance with Paragraph 4 as of the date of such Separation from Service [ (including pursuant to any applicable accelerated vesting provisions set forth in the Notice) ] shall terminate immediately and be forfeited in their entirety.

(b)    In the event of any forfeiture under this Paragraph 5, the certificate or certificates representing the forfeited Restricted Shares shall be canceled to the extent of any Restricted Shares that were forfeited.

 

6. Withholding .

(a)    Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“ Tax-Related Items ”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items owed by the Grantee is and remains the Grantee’s responsibility and that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant or vesting of the Award or the subsequent sale of Shares; and (ii) does not commit to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

(b)    Prior to vesting of the Award, the Grantee shall pay or make adequate arrangements satisfactory to the Company to satisfy all withholding obligations of the Company. In this regard, the Grantee authorizes the Company to withhold all applicable Tax-Related Items legally payable by the Grantee from the Grantee’s wages or other cash compensation paid to the Grantee by the Company or from proceeds of the sale of the Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Grantee acquires to meet the withholding obligation for Tax-Related Items, and/or (ii) withhold Shares otherwise deliverable upon vesting at no more than the maximum applicable withholding rate. Finally, the Grantee shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver Shares upon vesting of the Award if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items as described in this Paragraph 6.

 

7. Board Discretion . Notwithstanding any provision of the Notice or these Terms to the contrary, the Board shall have discretion under the Plan to waive any forfeiture of the Restricted Shares as set forth in Paragraph 5, the Restricted Period and any other conditions set forth in the Notice or these Terms.

 

8.

Grantee Representations . The Grantee hereby represents to the Company that the Grantee has read and fully understands the provisions of the Notice, these Terms and the Plan and the Grantee’s decision to participate in the Plan is completely voluntary. Further, the Grantee

 

3


  acknowledges that the Grantee is relying solely on his or her own advisors with respect to the tax consequences of this restricted stock award.

 

9. Regulatory Restrictions on the Restricted Shares . Notwithstanding the other provisions of this Agreement, the Board shall have the sole discretion to impose such conditions, restrictions and limitations on the issuance of Common Stock with respect to this Award unless and until the Board determines that such issuance complies with (i) any applicable registration requirements under the Securities Act or the Board has determined that an exemption therefrom is available, (ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed, (iii) any applicable Company policy or administrative rules, and (iv) any other applicable provision of state, federal or foreign law, including foreign securities laws where applicable.

 

10. Right to Purchase Shares; Right of First Refusal . Notwithstanding the other provisions of this Agreement, at any time prior to an IPO, any Restricted Shares that become vested shall be subject to the right of purchase and the right of first refusal in favor of the Company as set forth in the Plan.

 

11. Market Stand-off Agreement . In connection with an IPO and upon request of the Company or the underwriters managing such IPO, the Grantee agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares without the prior written consent of the Company or such underwriters, as the case may be, for such period of time from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of an IPO.

12.     Miscellaneous .

(a)     Notices . Any notice which either party hereto may be required or permitted to give to the other shall be in writing and may be delivered personally, by intraoffice mail, by fax, by electronic mail or other electronic means, or via a postal service, postage prepaid, to such electronic mail or postal address and directed to such person as the Company may notify the Grantee from time to time; and to the Grantee at the Grantee’s electronic mail or postal address as shown on the records of the Company from time to time, or at such other electronic mail or postal address as the Grantee, by notice to the Company, may designate in writing from time to time.

(b)     Waiver . The waiver by any party hereto of a breach of any provision of the Notice or these Terms shall not operate or be construed as a waiver of any other or subsequent breach.

(c)     Entire Agreement . These Terms, the Notice and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof. Any prior agreements, commitments or negotiations concerning the Award are superseded.

(d)     Binding Effect; Successors . These Terms shall inure to the benefit of and be binding upon the parties hereto and to the extent not prohibited herein, their respective heirs, successors, assigns and representatives. Nothing in these Terms, express or implied, is intended to confer on any person other than the parties hereto and as provided above, their respective heirs, successors, assigns and representatives any rights, remedies, obligations or liabilities.

 

4


(e)     Governing Law . The Notice and these Terms shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law.

(f)     Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of these Terms.

(g)     Conflicts; Amendment . The provisions of the Plan are incorporated in these Terms in their entirety. In the event of any conflict between the provisions of these Terms and the Plan, the provisions of the Plan shall control. The Agreement may be amended at any time by the Board, provided that no amendment may, without the consent of the Grantee, materially impair the Grantee’s rights with respect to the Restricted Stock Award.

(h)     No Right to Continued Employment . Nothing in the Notice or these Terms shall confer upon the Grantee any right to continue in the employ or service of the Company or affect the right of the Company to terminate the Grantee’s employment or service at any time.

(i)     Further Assurances . The Grantee agrees, upon demand of the Company or the Board, to do all acts and execute, deliver and perform all additional documents, instruments and agreements which may be reasonably required by the Company or the Board, as the case may be, to implement the provisions and purposes of the Notice and these Terms and the Plan.

(j)     Dispute Resolution .

(i)     Arbitration . If any controversy or claim arising out of this award cannot be resolved by the Grantee and the Company (each a “ party ” and collectively, the “ parties ”), such conflict or claim shall be resolved by arbitration in accordance with the then current rules of the American Arbitration Association governing commercial disputes. Such matters will be arbitrated in the San Diego, California metropolitan area and, for purposes of these Terms, each party consents to arbitration in such place. Arbitration proceedings shall commence when either party notifies the other that a dispute to arbitration exists and requests that the dispute be arbitrated. If the parties to the dispute cannot within thirty (30) days after the request for arbitration is made mutually agree upon an arbitrator or arbitrators to settle the dispute, each party to the dispute shall select an arbitrator. The two arbitrators shall, within fifteen (15) days after the appointment of the last arbitrator, select a third arbitrator and the three arbitrators shall determine the matter. Each arbitrator shall act impartially. If for any reason an arbitrator is not appointed within the time provided or the arbitrators appointed by the parties cannot agree upon a third arbitrator, then an arbitrator shall be appointed by the Superior Court in and for the County of San Diego, California in accordance with applicable state law. Unless the parties mutually agree otherwise, any arbitrator selected will be familiar with equity compensation disputes. The final decision will be that of the sole arbitrator or of the majority of the arbitrators, and shall be final and binding upon the parties, except as otherwise provided by law. The sole arbitrator or the majority of arbitrators shall also determine the allocation of costs of the arbitration among the parties, and shall have the right to award to the prevailing party all cost of the arbitration, including reasonable attorneys’ fees.

(ii)     Jurisdiction and Venue . For purposes of enforcing the award or decision in any arbitration proceeding, each party hereto submits to the exclusive jurisdiction of

 

5


California state courts located in the City of San Diego or the United States District Court for the Southern District of California. In that regard, each party hereby waives, and agrees 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 (except as protected by applicable law), 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 these Terms or the subject matter hereof may not be enforced in or by such court, and (ii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each party hereby consents to service of process by registered mail at the address to which notices are to be given. Each party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other party. Final judgment against any party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

(k)     Confidentiality . The Grantee agrees that the terms and conditions of the Restricted Stock award reflected in the Notice and these Terms are strictly confidential and, with the exception of Grantee’s counsel, tax advisor, immediate family, or as required by applicable law, have not and shall not be disclosed, discussed, or revealed to any other persons, entities, or organizations, whether within or outside Company, without prior written approval of Company. The Grantee further agrees to take all reasonable steps necessary to ensure that confidentiality is maintained by any of the individuals or entities referenced above to whom disclosure is authorized.

 

6

Exhibit 10.50

CONFIDENTIAL TREATMENT REQUESTED

AMENDED AND RESTATED LICENSE AGREEMENT

This Amended and Restated License Agreement (the “Agreement”) is made and effective as of the Effective Date as defined below by and between Evofem, Inc. having a principal place of business at 8910 University Center Lane, Suite 120, San Diego, California 92122 (LICENSEE), and Rush University Medical Center, a not-for-profit corporation having a principal place of business at 1700 West Van Buren Street, Suite 301, Chicago, Illinois 60612-2734 (RUSH) and amends and restates in its entirety that certain License Agreement dated January 9, 2003 between the parties’ respective predecessors-in-interest, Instead, Inc. and Rush-Presbyterian-St. Luke’s Medical Center, and as amended by that certain Addendum to License Agreement dated February 6, 2012 (the “Prior Agreement”).

INTRODUCTION

1.        WHEREAS, RUSH is, among other things, a medical research facility engaged in the development of new technology with beneficial health application. It has developed and is continuing research in the area of Technology, as defined in Section 1.13 below, which Technology is perceived to have significant health advantages for contraceptive uses and general vaginal health;

2.        WHEREAS, LICENSEE is in the business of manufacturing, marketing and selling feminine health products and desires to expand its product line by licensing the Technology from RUSH;

3.        WHEREAS, LICENSEE has represented to RUSH, to induce RUSH to enter into this Agreement, that LICENSEE has the desire, expertise and knowledge to develop, produce, market and sell Products as defined below and/or Processes as defined below and that it shall commit itself to a thorough, vigorous and diligent program of exploiting the Technology to promote public utilization of the Technology;

4.        WHEREAS, LICENSEE and RUSH now mutually desire to amend and restate in its entirety the Prior Agreement to, among other things: (i) clarify the real parties in interest to the Agreement, (ii) include the terms of the Addendum such that all the terms of the Agreement are contained in a single document, and (iii) make certain other mutually agreed upon changes to the terms of the Agreement; and

5.        WHEREAS, RUSH is the lawful owner of the Technology and has the right to grant the license as provided herein.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement and other good and valuable consideration, the sufficiency of which is acknowledged by the parties, RUSH and LICENSEE agree as follows:

SECTION 1. DEFINITIONS

In the terms defined and used herein, the singular shall include the plural and vice versa. Terms in this Agreement (other than names of parties and Section headings) which are set forth in upper case letters have the meanings established for such terms in the succeeding paragraphs of this Section 1.

 

  1.1 “Affiliate” means any company, corporation or business which is at least fifty percent (50%) owned or controlled by LICENSEE, or which owns or controls at least fifty percent (50%) of LICENSEE, or which together with LICENSEE is commonly owned or controlled by a Third Party who owns or controls at least fifty percent (50%) of each.

 

  1.2 “Effective Date” of this Agreement means the date of last signing.

 

  1.3 “Field” means any and all therapeutic, prophylactic and/or diagnostic uses, including, without limitation, use for female vaginal health and/or contraception.

 

  1.4 “Government” means the United States Government.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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 “Improvement” means any modification of Product and/or Process made within the Term of this Agreement in the course of research supported or developed by RUSH utilizing the Technology.

 

  1.6 “Know-how” means all compositions of matter, techniques and data and other know-how and technical information including inventions (whether or not patentable), Improvements and developments, practices, methods, concepts, know-how, trade secrets, documents, computer data, computer code, apparatus, clinical and regulatory strategies, test data, analytical and quality control data, formulation, manufacturing, patent data or descriptions, development information, drawings, specifications, designs, plans, proposals and technical data and manuals and all other proprietary information in the Field that is owned or controlled by RUSH as of the Effective Date or during the Term of this Agreement and which is required to practice the Patents and/or Improvements. Know-how also includes adverse information which effects the ability to practice the Patents and/or Improvements.

 

  1.7 “Minimum Annual Royalty” means the minimum sum payable to RUSH by LICENSEE during any annual term of this Agreement. Such term commences three (3) years after obtaining the appropriate approval and commencement of sales and shall represent the twelve (12) month period (or any successive twelve (12) month period) starting the month after this date of commencement. The Minimum Annual Royalty shall only be due in the event that royalties, including sublicense revenue, paid to RUSH are less than the amount indicated as the Minimum Annual Royalty amount. In such case, the amount to be paid shall be calculated as the amount of the Minimum Annual Royalty minus the sum of the amount of royalties and sublicense revenue paid during this twelve (12) month period.

 

  1.8 “Net Sales” means the gross invoiced amounts received for the sale, transfer, performance or other disposition for consideration of Product or Process to any Third Party by LICENSEE or its Affiliates, less charge backs, disposed of rejected items, transportation costs, insurance, customs and duties, use and turnover taxes, trade discounts and credits for rejected or returned goods, to the extent and only to the extent that they are regularly and customarily stated as a separate billable item on invoices and are so stated on the invoice( s) for which deduction from the gross invoiced amounts is claimed. No allowance or deduction shall be made for commissions or fees for collection, by whatever name known. If LICENSEE or its Affiliates receive anything of value in lieu of cash payments in consideration for the sale, transfer, performance or other disposition of the Product or Process to any Third Party, LICENSEE shall assess a Net Sales value on such transaction based on the fair market value of such payment. If LICENSEE or its Affiliates are the end user of a Product or Process, the Net Sales from each such use shall be that invoiced by LICENSEE to a Third Party end user of the same Product or Process. If no such Third Party end users exist, RUSH and LICENSEE shall negotiate in good faith to determine an equitable Net Sales price.

 

  1.9 “Patent” means (a) any and all patent applications filed in any country of the world by or on behalf of RUSH that claim priority from United States Patent Application No. [***] entitled “[***]” filed [***], including the parent application, any and all additions, divisions, continuations, continuation-in-part, pipeline protection, substitutions, reissues, reexaminations, extensions, registrations, patent term extensions, supplementary protections certificates and renewals of any of the above, and (b) any and all patents issuing from any of the foregoing in any country of the world.

 

  1.10 “Process” means any and all method(s), process(es) or procedure(s): (a) that cannot be performed, in whole or in part, without infringing one or more Valid Claims under the Patents or Improvements; or (b) that cannot be performed, in whole or in part, without using some or all of the Know-how.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

 

  1.11 “Product” means any and all products or process( es), composition(s) or material(s): (a) the manufacture or sale of which would, but for the license granted herein, infringe a Valid Claim within the Patents or Improvements, or the use, manufacture or sale of such product(s), composition(s) or material(s) would infringe a Valid Claim of any Process, in each case in the country in which such product is manufactured, used and/or sold. “Product” shall also mean: (b) any and all product(s) or process(es), composition(s) or material(s) the use, manufacture or sale of which incorporates some or all of the Know-how.

 

  1.12 “Regulatory Approval” means final approval by the United States Food and Drug Administration, or the foreign equivalent of same, of Product or Process for the uses described in the Technology.

 

  1.13 “Technology” means acid-buffering, bioadhesive vaginal formulation for the prevention of disease and/or contraception as described in the Know-how and described and claimed in the Patents and/or Improvement thereto.

 

  1.14 “Term” means the period beginning on the Effective Date and extending to the expiration of the last to expire Patent or patent claiming an Improvement.

 

  1.15 “Territory’’ means worldwide.

 

  1.16 “Third Party” means a person or entity that is not a party to this Agreement or an Affiliate of a party to this Agreement.

 

  1.17 “Valid Claim” means a claim of an issued and unexpired patent or a claim of a pending patent application within the Patents or Improvements which has not been held unpatentable, invalid or unenforceable by a court or other governmental agency of competent jurisdiction and has not been found admitted to be invalid or unenforceable through reissue, re-examination, disclaimer or otherwise; provided, however, that if the holding of such court or agency is later reversed by a court or agency with overriding authority, the claim shall be reinstated as a Valid Claim with respect to Product or Process made or used after the date of such reversal.

SECTION 2. LICENSE

 

  2.1 Grant . RUSH hereby grants and agrees to grant to LICENSEE an exclusive license of the Patents, Improvements and Know-how within the Territory, only in the Field, with the right to sublicense, to make, have made, lease, use, distribute, market, offer for sale, have sold, import and/or otherwise dispose of Products and practice the Processes under the Patents, Improvements and/or Know-how.

 

  2.2 Grant-Back . Notwithstanding Section 2.1 above, LICENSEE hereby grants back to RUSH, its Affiliates and/or its sublicensees a royalty-free, non-exclusive, perpetual, license to the Patents, Improvements and Know-how for noncommercial research purposes.

 

  2.3 No Implied License . Nothing herein shall be construed as granting LICENSEE, by implication, estoppel or otherwise, any license or other right to any other intellectual property owned, controlled by and/or invented by RUSH or any of the inventors or authors of the Patents, Improvements and/or Know-how, or to grant to LICENSEE any right or license other than those expressly granted herein.

SECTION 3. DUE DILIGENCE

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

 

  3.1 Due Diligence . LICENSEE shall use its best efforts to bring one or more Products or Processes to market through thorough, vigorous and diligent programs of development, testing and marketing of the Technology and to continue active, diligent marketing efforts for one or more Products or Processes throughout the Term of this Agreement.

 

  3.2 Milestones . In addition, LICENSEE shall adhere to other milestones agreed upon by the parties.

 

  3.3 Development Plan and Development Reports . LICENSEE has previously provided RUSH with a Development Plan pursuant to the Prior Agreement in the form attached hereto as APPENDIX A). In addition, within one month following the end of each quarterly period ending on March 31, June 30, September 30 and December 31 until the date of first commercial sale of Product or Process, LICENSEE will provide RUSH with a written Development Report (APPENDIX B) summarizing LICENSEE’s product development activities since the last Development Report and any necessary adjustments to the Development Plan. All development activities and strategies and all aspects of product design and decisions to market and the like are entirely at the discretion of LICENSEE, and LICENSEE shall rely entirely on its own expertise with respect thereto. RUSH’s review of LICENSEE’s Development Plan is solely to verify the existence of LICENSEE’s commitment to development activity and to assure compliance with LICENSEE’s obligations to utilize the inventions of the Patents, Improvements and Know-how to commercialize Product and/or Process for the marketplace, as set forth above.

 

  3.4 Record Audit . RUSH reserves the right to audit LICENSEE’s records relating to development of Product and Process as required hereunder. Such record keeping and audit procedures shall be subject to the procedures and restrictions set forth for audit of the financial records of LICENSEE in Section 6.

 

  3.5 Failure to Perform . LICENSEE’s failure to perform in accordance with any and all portions of Section 3 above shall be grounds for RUSH to terminate this Agreement pursuant to Section 10.

SECTION 4. PATENTS

 

  4.1 Ownership . RUSH shall retain title to the Patents, Improvements and Know-how.

 

  4.2 Patent Prosecution and Maintenance . RUSH shall file, prosecute, and maintain Patents and Improvements in the United States and in those countries designated by LICENSEE or, alternatively, LICENSEE may maintain such Patents and/or Improvements on RUSH’s behalf, however, such action by LICENSEE shall not affect ownership of the Patents.

 

  4.3 Reversion of Patent Rights . In the event that LICENSEE elects not to file, prosecute or maintain any patent application or patent within the Patents and/or Improvements or pay any fee related thereto, in any country, LICENSEE shall promptly notify RUSH of such election, but in no case later than ninety (90) days prior to any required action relating to the filing, prosecution or maintenance of such patent or patent application. From and after the effective date of such notice, such patent application or patent shall cease to be within the Patents and/or Improvements for all purposes of this Agreement, and all rights and obligations of LICENSEE with respect thereto shall terminate and revert to RUSH.

SECTION 5. PUBLICATION RIGHTS AND USE OF NAMES

 

  5.1 Publication . RUSH reserves the right to publish the results of its research on the Technology. Before publishing, however, RUSH agrees to submit copies of any manuscript proposed for publication to LICENSEE at least thirty (30) days in advance of the

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

publication date, and if LICENSEE asks to defer publication within thirty (30) days after receipt of the manuscript so that patent applications may be filed, RUSH shall not publish or otherwise disclose to any Third Party any of the information contained in the manuscript until such time as a patent application has been filed or the expiration of forty-five ( 45) days from the date of disclosure to LICENSEE, whichever occurs first.

 

  5.2 Use of Names . LICENSEE shall not use RUSH’s name, the name of any author or inventor of Know-how, or of any inventor of inventions governed by this Agreement in sales promotion, advertising, or any other form of publicity, except as may be required by law, without the prior written approval of the entity or person whose name is being used.

SECTION 6. PAYMENTS AND ROYALTIES

 

  6.1 Technology/Patent Support Payment . LICENSEE has previously paid to RUSH pursuant to the Prior Agreement an up-front technology/patent support payment totaling thirty thousand dollars ($30,000).

 

  6.2 Future Patent and Legal Fees . LICENSEE agrees to pay RUSH, or take responsibility for, all patent and legal fees, incurred on or after September 11, 2002, associated with the Patents and Improvements for the United States and foreign filings. These fees will be charged to LICENSEE by invoice reflected the actual amount of such charges without any added administrative fees. Such amounts shall be due and payable within thirty (30) days of receipt. Any amounts remaining outstanding after thirty (30) days shall accrue interest until paid at the rate of the lesser of one percent (1%) per month or the maximum amount allowed under applicable.

 

  6.3 Royalties .

 

  6.3.1 Earned Royalties . LICENSEE agrees to pay RUSH as “earned royalties”, a royalty calculated as a percentage of Net Sales of Product and/or Process in accordance with the terms and conditions of this Agreement. Notwithstanding any other provisions of this Agreement, the Net Sales of any Product and/or Process, wherein the Product and/or Process is a Product and/or Process only under Section 1.11(b) and/or Section 1.10(b) respectively, shall pay only [***] percent ([***]%) of the earned royalty as stated in this Section 6.3.1. The royalty is deemed earned as of the earlier date of the date: (a) the Product is actually sold, leased or otherwise transferred for consideration; (b) the date the Process (excluding manufacturing processes) is performed; (c) the date an invoice is sent by LICENSEE; or (d) the date a Product is transferred to a Third Party or a Process is performed by a Third Party for any non-promotional reasons. The royalty shall be equal to:

 

  A. [***] percent ([***]%) of Net Sales up to the first [***] dollars ($[***]) of Net Sales; and

 

  B. [***] percent ([***]%) of Net Sales between [***] dollars ($[***]) and up to and including dollars ($[***]) of Net Sales; and

 

  C. [***] percent ([***]%) of Net Sales greater than [***] dollars (USD$[***]) of Net Sales.

 

  6.3.2 Minimum Annual Royalty . Commencing on January 1 of year three (3) after a Product or Process has received Regulatory Approval and is introduced to market, to the extent that the amounts paid to RUSH as earned royalties or sublicensing

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

fees do not total the amount set forth hereinafter, LICENSEE shall pay to RUSH a Minimum Annual Royalty as follows:

 

  A. In the event Regulatory Approval for the contraceptive product has been obtained, the Minimum Annual Royalty shall be [***] dollars ($[***]).

 

  B. In the event that Regulatory Approval for the contraceptive product has not been obtained, but Regulatory Approval for the treatment of bacterial vaginosis has been obtained, the Minimum Annual Royalty shall be [***] dollars ($[***]). However, upon the subsequent approval of a Product or Process for contraceptive use plus the expiration of three years hence; such Minimum Annual Royalty shall revert to the [***] dollars ($[***]) Minimum Annual Royalty described in Section 6.3.2(A).

 

  C. The following shall not be deemed to be triggering events for determining when the Minimum Annual Royalty commences: (a) experimental drug sales (if applicable); or (b) approval in the following countries. Mexico, Russia, India, Brazil or the developing nations of Africa. It is further agreed that the Minimum Annual Royalty shall not apply to a Product or Process sold as a douche or for the treatment of vaginal Itch.

 

  D. Notwithstanding the foregoing provisions of Section 6.3, in the event LICENSEE must make royalty or other payments to one or more Third Parties in order for LICENSEE to avoid infringement upon the intellectual property of others, LICENSEE may offset up to fifty percent (50%) of such amounts owing to Third Parties from amounts owing to RUSH hereunder pursuant to Section 6.3 Notwithstanding the preceding sentence, in no event shall the royalties due to RUSH be so reduced to less than fifty percent (50%) of the amount that would have been otherwise due to RUSH hereunder.

 

  E. In addition, notwithstanding the foregoing, any withholding of taxes or other taxes levied by tax authorities on payments made by LICENSEE (or any Affiliate of LICENSEE) to RUSH or an Affiliate of LICENSEE to LICENSEE which payment relates to a corresponding payment to be made by LICENSEE to RUSH pursuant to any of the payment provisions of this Agreement shall be deducted by LICENSEE or the applicable Affiliate of LICENSEE, as the case may be, from any sums otherwise payable hereunder to RUSH or Licensee, as the case may be, for payment to the proper tax authorities by LICENSEE or its Affiliate, as the case may be on behalf of RUSH. LICENSEE agrees to cooperate, and to cause its Affiliates to cooperate, with RUSH and to provide RUSH with all written documentation for payment of such taxes in the event that RUSH claims exemption from such withholding or seeks credits or deductions under any double taxation or similar treaty or agreement from time to time in force, such cooperation to consist of providing receipts of payment of such withheld or other tax or other documents reasonably available to LICENSEE or its Affiliate, as the case may be.

 

  6.3.3

Sublicensing . LICENSEE (and its Affiliate sublicensees) shall have the right to sublicense the rights under the Patents, Improvements and Know-How to its Affiliates without the prior approval of RUSH. In addition, upon the prior written approval of RUSH, which approval may not be unreasonably withheld, delayed or conditioned, LICENSEE may sublicense the rights under the Patents,

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

 

  Improvements and Know-how to Third Parties. To the extent a sublicense to a Third Party is approved by RUSH, LICENSEE shall pay to RUSH, in lieu of any royalty payment obligation set forth in Section 6.3.1 or 6.3.2 hereof, [***] percent ([***]%) of any sublicensing revenue received from such Third Party in respect of such sublicense. Such sublicense revenue means any consideration paid to LICENSEE from a Third Party sublicensee of LICENSEE in consideration of the grant of sublicenses under the rights granted LICENSEE pursuant to this Agreement. Such consideration shall include, but not be limited to, royalty payments, equity investments with respect to amounts in excess of the fair market value of such equity, milestone payments, up-front or other lump sum payments and payments for research and development services. If LICENSEE receives anything of value in lieu of cash payments in consideration for the sublicense of the Patents, Improvements and/or Know-how to any Third Party sublicensee, then LICENSEE shall assess a sublicense revenue value on such transaction based on the fair market value of such payment. Revenue as described herein does not include revenue generated from services or revenues from sales or licensing of products that are not within the scope of the Technology. In the event this Section 6.3.3 becomes operative such that LICENSEE is obligated to pay RUSH a portion of sublicensing fee revenue in lieu of royalty payments, then, in addition to the sublicensing fee payments contemplated by this Section 6.3.3, LICENSEE shall also make the following payments to RUSH:

 

  A. At such time as the aggregate Net Sales by the applicable sublicensee(s) are [***] Dollars ($[***]), then within forty-five (45) days after the last day of the calendar quarter in which such aggregate sales milestone is achieved, LICENSEE shall pay to RUSH [***] Dollars ($[***]); and

 

  B. At such time as the aggregate Net Sales by the applicable sublicensee(s) are [***] Dollars ($[***]), then within forty-five (45) days after the last day of the calendar quarter in which such aggregate sales milestone is achieved, LICENSEE shall pay to RUSH [***] Dollars ($[***]).

 

  6.4 Time of Payments . Amounts owing to RUSH shall be paid on a quarterly basis, with such amounts due and paid on or before the thirtieth day following the end of the calendar quarter ending on March 31, June 30, September 30 or December 31 in which such amounts were earned. The balance of any amounts owing RUSH which remain unpaid more than thirty (30) days after they are due to RUSH shall accrue interest until paid at the rate of the lesser of one percent (1%) per month or the maximum amount allowed under applicable law. However, in no event shall this interest provision be construed as a grant of permission for any payment delays.

 

  6.5 Currency . Except as otherwise directed, all amounts owing to RUSH under this Agreement shall be paid in U.S. dollars to RUSH at the address provided in Section 6.7. All royalties owing with respect to Net Sales stated in currencies other than U.S. dollars shall be converted at the rate shown in the Federal Reserve Noon Valuation Value of Foreign Currencies on the day preceding the payment.

 

  6.6

Accounting . LICENSEE shall within thirty (30) days after the end of each calendar quarter deliver to RUSH an accounting showing the calculation of royalties and other sums owed to RUSH under this Section 6. Such accounting shall be on a per-country and product line, model or trade name basis and shall be summarized on the form shown in APPENDIX C of this Agreement. In the event no payment is owed to RUSH, a statement setting forth that fact shall be supplied to RUSH. In addition, the accounting shall include at least the following: (a) number of Product and Process commercially used, manufactured and sold, rented or leased; (b) total billings for Product and Process commercially used, sold, rented

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

 

  or leased; (c) deductions applicable as provided in Section 1.8; (d) total royalties due; (e) names and addresses of all sublicensees; (f) total sublicensing revenue income; and (g) total royalties due to RUSH for sublicensee revenue received.

 

  6.7 Place of Payment . All royalty payments and reports shall be sent to:

Intellectual Property Office

707 South Wood Street

Annex Building, Lower Level

Chicago, Illinois 60612

Attn: Director of Intellectual Property

 

  6.8 Audit . LICENSEE shall keep, for a period of two (2) years prior to the current year, full, true and accurate books of accounts and other records containing all information and data which may be necessary to ascertain and verify the remuneration payable to RUSH hereunder. During the Term of this Agreement and for a period of two (2) years following its termination, RUSH shall have the right to audit, or have an agent, accountant or other representative, audit such books, records and supporting data. Such audit shall take place no more frequently than on an annual basis. The cost of such audit shall be paid by RUSH, unless such audit discloses an underpayment of at least ten percent (10%), wherein such audit shall be paid for by LICENSEE. Any underpayments found by audit shall be paid within thirty (30) days of the conclusion of such audit.

SECTION 7. INFRINGEMENT

 

  7.1 Infringement Notification . Each party shall promptly report in writing to the other party during the Term of this Agreement any infringement or suspected infringement of any Patent or Improvement or unauthorized use or misappropriation of its Know-bow of which it becomes aware, and shall provide the other party with all available evidence supporting said infringement, suspected infringement, or unauthorized use or misappropriation.

 

  7.2 Infringement Suit by LICENSEE . Except as provided in Section 7.3, LICENSEE shall have the right to initiate an infringement suit or other appropriate action against any Third Party who at any time has infringed or is suspected of infringing any of the Patents or Improvements, or of using without proper authorization all or any portion of the Know-how. LICENSEE shall give RUSH sufficient advance written notice of its intent to initiate such action and the reasons therefore, and shall provide RUSH with an opportunity to make suggestions and comments regarding such action. LICENSEE shall keep RUSH promptly informed of the status of any such action. LICENSEE shall have the sole and exclusive right to select counsel for and shall pay all expenses of such action. RUSH shall offer reasonable assistance to LICENSEE in connection therewith at no charge to LICENSEE except for reimbursement of reasonable out-of-pocket expenses. LICENSEE may settle any such action subject to prior written approval of RUSH. Any damages, profits or awards of whatever nature recovered from such action shall be treated as Net Sales under this Agreement after LICENSEE has and RUSH have been compensated for all of their costs in handling such action.

 

  7.3 Infringement Suit by RUSH . In the event that LICENSEE does not within six (6) months: (a) secure cessation of the infringement, (b) enter suit against the infringer, or (c) provide RUSH with evidence of the pendency of a bona fide negotiation for the acceptance by the infringer of a sublicensee under the Patents, Improvements or the Know-how, RUSH shall thereafter have the right but not the obligation to take action against the infringer at RUSH’s own expense. LICENSEE shall offer reasonable assistance to RUSH in connection with such action at no charge to RUSH except for the reimbursement of reasonable out-of-

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

 

  pocket expenses. Any damages, profits or awards of whatever nature recovered from such action shall belong solely to RUSH.

SECTION 8. REPRESENTATIONS AND WARRANTIES

 

  8.1 RUSH Representations . RUSH hereby represents and warrants to LICENSEE that:

 

  8.1.1 Authority . RUSH has the full right, power and authority, and has obtained all approvals, permits or consents necessary, to enter into this Agreement and to perform all of their obligations hereunder and to grant the licenses provided hereunder;

 

  8.1.2 No Prior Agreement . RUSH has not, prior to the Effective Date, entered into and shall not, following the Effective Date, enter into any agreement and has not granted any now existing, or agreed to grant any future, license, right or privilege which agreement, license, right or privilege conflicts many way with this Agreement or RUSH’s obligations hereunder;

 

  8.1.3 Ownership . RUSH is the sole and exclusive owner of the Patents, Improvements and the Know-how, free and clear of any liens or encumbrances;

 

  8.1.4 Validity . To the best of RUSH’s knowledge and belief, the RUSH Patent Rights and the RUSH Know-how are valid and enforceable;

 

  8.1.5 Noninfringement . To the best of RUSH’s knowledge and belief, the making, using, distributing, selling, offering for sale, importing or exporting of Products in the Territory does not and shall not infringe or otherwise conflict with any intellectual property rights or other rights of RUSH or its Affiliates that are not licensed hereunder;

 

  8.1.6 Third Party Claims . To the best of RUSH’s knowledge and belief, no claims of infringement, misappropriation or other conflict with any intellectual property rights or other rights owned or controlled by any Third Party have been made or threatened with respect to the Patents, RUSH Know-how or Products;

 

  8.1.7 Misappropriation . To the best of RUSH’s knowledge and belief, RUSH is not aware of any infringement or misappropriation of the Patents or Know-how by any Third Party;

 

  8.1.8 Sale . To the best of RUSH’s knowledge and belief, the making, using, selling, offering for sale, import and export of Products containing the Product as described in the Patent or within the scope of the Know-how in the Territory does not and shall not infringe otherwise conflict with any intellectual property rights or other rights of any Third Party by reason thereof; and

 

  8.1.9 No Omission . RUSH has not, up through and including the Effective Date, omitted to furnish LICENSEE with any information in its control or possession or of which it is aware, concerning (a) the Patent, (b) the Know-how, (c) the Product, or (d) the activities contemplated by this Agreement, which would be material to LICENSEE’s decision to enter into this Agreement and to undertake the commitments and obligations set forth herein.

 

  8.2 LICENSEE Representations . LICENSEE hereby represents and warrants the following to RUSH:

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

 

  8.2.1 Authority . LICENSEE has the full right, power and authority, and have obtained all approvals, permits or consents necessary, to enter into this Agreement and to perform all of their obligations hereunder and to grant the licenses provided hereunder, and

 

  8.2.2 No Prior Agreement . LICENSEE has not, prior to the Effective Date, entered into and shall not, following the Effective Date, enter into any agreement that conflicts in any way with this Agreement or LICENSEE’s obligations hereunder.

 

  8.2.3 Expertise . LICENSEE agrees to and warrants that it has, or will obtain, the expertise necessary to independently evaluate the inventions of the Patents, Improvements and Know-how and to develop Product and/or Process for sale in the commercial market.

 

  8.3 No Warranties . Nothing in this Agreement shall be construed as;

 

  8.3.1 Validity . A warranty or representation by RUSH as to the validity or scope of any Patent or Improvement;

 

  8.3.2 Noninfringement . A warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents, copyrights and/or trademarks of Third Parties;

 

  8.3.3 Suit . An obligation of RUSH to bring or prosecute actions or suits against Third Parties for infringement;

 

  8.3.4 Publicity . Conferring rights to use in advertising, publicity or otherwise any trademark or the name of RUSH;

 

  8.3.5 Implied License . Granting by implication, estoppel or otherwise any licenses under patents of RUSH other than Patents and Improvements, regardless of whether such other patents are dominant of or subordinate to any Patent.

 

  8.4 Disclaimer . Except as expressly set forth in this Agreement, RUSH MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, AND ASSUMES NO RESPONSIBILITIES WHATEVER WITH RESPECT TO THE USE, SALE OR OTHER DISPOSITION BY LICENSEE OR ITS VENDEES OR OTHER TRANSFEREES OF PRODUCTS OR PROCESSES INCORPORATING OR MADE BY USE OF INVENTIONS LICENSED UNDER THIS AGREEMENT OR INFORMATION, IF ANY, FURNISHED UNDER THIS AGREEMENT SUCH INVENTIONS AND INFORMATION ARE PROVIDED AS IS, WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED.

SECTION 9. NOTICES

Any notice required to be given pursuant to the provisions of this Agreement shall be in writing and shall be deemed to have been given at the earlier of the time when actually received as a consequence of any effective method of delivery, including but not limited to hand delivery, or delivery by a professional courier service, or the time when sent by certified or registered mail addressed to the party for whom intended at the address below. Either party may change the address(es) given below, or as stated in Section 6.7, at any time by providing the other party with written notice in accordance with this Section at the address for the other party specified below, or as subsequently modified. Any notice of change of address shall be effective only upon actual receipt.

Communications to LICENSEE concerning this Agreement should be addressed to:

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

Evofem, Inc.

Attn: Chief Executive Officer

8910 University Center Lane, Suite 120

San Diego, California 92122

With a copy to:

K&L Gates LLP

Attn: Adam C. Lenain, Esq.

3580 Carmel Mountain Road, Suite 200

San Diego, California, 92130-6768

Communications to RUSH concerning this Agreement should be addressed to:

Intellectual Property Office

707 South Wood Street

Annex Building, Lower Level

Chicago, Illinois 60612

Attn: Director of Intellectual Property

With a copy to:

Rush University Medical Center

Attn: General Counsel

1700 West Van Buren Street, Suite 301

Chicago, Illinois 60612-2734

SECTION 10. TERM AND TERMINATION

 

  10.1 Term . Unless terminated earlier pursuant to this Section 10, the term of this Agreement shall commence on the Effective Date and continue in full force and effect until expiration, revocation or invalidation of the last patent or the abandonment of the last patent application within the Patents, and Improvements, whichever is later.

 

  10.2 Termination . This Agreement may be terminated: (a) upon mutual written consent of both parties; or (b) by the non-breaching party if a party commits a breach or default of any covenant contained in this Agreement, and such breach or default is not cured within thirty (30) days after written notice of such breach or default has been delivered to the breaching/defaulting party.

 

  10.3 Termination by RUSH . Subject to Section 10.4, in the event LICENSEE shall be in default of any of its obligations hereunder which default has not been cured within the period set forth below, RUSH may at its sole option: (a) terminate this Agreement, or (b) convert the exclusive license hereunder to a non-exclusive license, subject to the rights of any sublicensee under any pre-approved sublicense agreement then in effect as contemplated by Section 10.4. For the avoidance of doubt, to the extent LICENSEE has granted an exclusive license in any territory to any sublicensee which sublicense agreement was approved in advance by RUSH in accordance with Section 6.3.3 hereof, then RUSH shall not have the right to grant to any other Third Party any such sublicensed rights in such territory notwithstanding the conversion of this license to a non-exclusive license pursuant to this Section 10.3. This option (a) or (b) shall be exercised by written notice to LICENSEE specifying the nature of the default including the amount of royalties then due, if any, and shall be effective thirty (30) days following receipt of said notice by LICENSEE unless LICENSEE cures said default prior to the expiration of said period of thirty (30) days.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

 

  10.4 Sublicensee Termination . Termination of this Agreement or conversion to a non-exclusive license as provided under Section 10.3 shall give RUSH the right to terminate all sublicenses which may have been granted by LICENSEE or an Affiliate of LICENSEE to any Third Party and that were not approved by RUSH prior to the execution of such sublicense agreement as set forth under Section 6.3.3. RUSH may terminate any such non-approved sublicense agreement by giving sublicensee written notice of such termination. If RUSH declines to terminate such sublicense agreement, or such sublicense was approved by RUSH in accordance with Section 6.3.3, then: (a) in the case of a termination of this Agreement, such sublicense agreement shall automatically transfer to RUSH such that all obligations of LICENSEE under any such sublicense shall be assumed by RUSH and all obligations by the sublicensee to LICENSEE shall transfer to RUSH such that each such sublicense agreement shall become a direct agreement between RUSH and such sublicensee, and (b) in the case of a conversion of this Agreement to a non-exclusive license, such sublicense agreement shall continue in full force and effect in accordance with its terms. Any sublicense granted by LICENSEE shall contain a provision corresponding to this Section 10.4.

 

  10.5 Survival Upon Conversion . Upon conversion to a non-exclusive license as provided under Sections 10.3, neither party, shall be relieved of any obligations incurred prior to such termination or conversion, and the obligations of the parties under any provisions which by their nature are intended to survive any such termination or conversion shall survive and continue to be enforceable.

 

  10.6 Termination For Non-exploitation . RUSH may terminate this Agreement in its entirety with thirty (30) days notice to LICENSEE if aggregate royalties paid in any calendar year following the third anniversary of the Effective Date do not equal a minimum of fifty thousand dollars ($50,000). If aggregate royalties in such years do not equal fifty thousand dollars ($50,000), LICENSEE shall have the option of paying the difference between royalties actually paid and fifty thousand dollars ($50,000) each year to continue this Agreement for two years beyond the third anniversary of the Effective Date.

 

  10.7 Termination For Non-exploitation Within A Country . RUSH may individually terminate LICENSEE’s rights to the Patents, Improvements and/or Know-how for each country in the Territory, upon sixty (60) days notice, if within five (5) years of the Effective Date, LICENSEE has not, for such country, engaged in any of the following:

 

  10.7.1 Made significant efforts to contact appropriate governmental officials to pursue registration of the Product and/or Process;

 

  10.7.2 Initiated process for registration or bringing Product and/or Process into the country;

 

  10.7.3 Initiated process for establishing a sales channel within such country;

 

  10.7.4 Made significant efforts to contact suitable business partners for such country; or

 

  10.7.5 proceeded in ways to promote the business and Product and/or Process in the country. Such promotion can include either direct promotion or promotion through a third party, including, but not limited to, Product and/or Process promotion (samples), support product education, advertising, seeking governmental support and financial aid, and/or continuously seeking to improve business relations with local businesses.

 

  10.8 Survival . Sections 1, 4.1, 4.2, 6.6, 6.8, 9, 10.3, 10.4, 11 and 15 shall survive the expiration and/or termination of this Agreement. Except as otherwise stated in this Section 10.8, all

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

 

  rights and obligations of the parties under this Agreement shall terminate upon expiration or termination of this Agreement.

SECTION 11. INDEMNIFICATION

 

  11.1 Indemnification . LICENSEE shall defend, indemnify and hold harmless RUSH, its employees, officers, trustees, agents, and inventors of the Patents, Improvements and Know-how, and their successors and assigns (each a “RUSH Indemnitee”), from and against any and all liabilities, damages, settlements, penalties, fines, costs or expenses (including, without limitation, reasonable attorneys’ fees and other expenses of litigation), arising out of any claim, complaint, suit, proceeding or cause of action brought against a RUSH Indemnitee by a Third Party (any of the foregoing, a “Claim”) alleging damage arising from or occurring as a result of the activities performed by or under authority of LICENSEE, its Affiliates or sublicensees in connection with the exercise of its licenses and rights hereunder, except to the extent caused by the negligence or willful misconduct of RUSH. LICENSEE shall not enter into any settlement or utilize any strategy that admits or implies any fault or liability on the part of RUSH Indemnities without the prior written consent of RUSH. RUSH at all times reserves the right to select and retain counsel of its own to defend RUSH’s interests with respect to such Claim.

 

  11.2 Liability Insurance . LICENSEE warrants that it shall maintain and will continue to maintain liability insurance coverage in the amount of $5 million dollars upon the approval and first commercial sale of a Product and/or Process and that such insurance coverage lists RUSH and the inventors of the Patents, Improvements and Know-how as additional insureds. Within ninety (90) days after such first commercial sale of an approved Product and/or Process and thereafter annually between January 1 and January 31 of each year, LICENSEE will present evidence to RUSH that the coverage is being maintained with RUSH and its inventors listed as additional insureds. In addition, LICENSEE shall provide RUSH with at least thirty (30) clays prior written notice of any change in or cancellation of the insurance coverage.

SECTION 12. UNITED STATES GOVERNMENT INTERESTS

It is understood that if the United States Government (through any of its agencies or otherwise) has funded research, during the course of or under which any of the inventions of the Patents or Improvements were conceived or made, the United States Government is entitled, as a right, under the provisions of 35 U.S.C. §§ 200-212 and applicable regulations of Chapter 37 of the Code of Federal Regulations, to a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced the invention of such Patents or Improvements for governmental purposes. Any license granted to LICENSEE in this Agreement shall be subject to such right.

SECTION 13. PATENT MARKING

LICENSEE shall mark all Product packaging with the appropriate patent number reference in compliance with the requirements of U.S. law, 35 U.S C. § 287. LICENSEE will further comply with any relevant patent marking regulations, laws, ordinances and/or statutes of any other country in which Product is sold, in conformance with requirements of such country.

SECTION 14. INTEGRATION

This Agreement constitutes the full understanding between the parties with reference to the subject matter hereof, and no statements or agreements by or between the parties, whether orally or in writing, except as provided for elsewhere in this Section 14, made prior to or at the signing hereof, shall vary or modify the written terms of this Agreement. Neither party shall claim any amendment, modification, or release from any provisions of this Agreement by mutual agreement, acknowledgment, or otherwise, unless

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

such mutual agreement is in writing, signed by both parties, and specifically states that it is an amendment to this Agreement.

SECTION 15. CONFIDENTIALITY

Both parties agree to keep any information identified as confidential by the disclosing party confidential using methods at least as stringent as each party uses to protect its own confidential information. “Confidential Information” shall include LICENSEE’s Development Plan and Development Reports, the Know-how, Patents and Improvements and all information concerning them and any other information exchanged between the parties which is either (a) marked confidential, (b) accompanied by correspondence indicating such information is confidential; or (c) orally disclosed and confirmed in writing as confidential within forty-five (45) days. Except as may be authorized in advance in writing by RUSH, LICENSEE shall grant access to the Confidential Information only to its own employees involved in research relating to the Know-how, Patents and Improvements and LICENSEE shall require such employees to be bound by this Agreement as well. The confidentiality and use obligations set forth above apply to all or any part of the Confidential Information disclosed hereunder except to the extent that (a) either party can show by written record that it possessed the information prior to its receipt from the other party; (b) the information was already available to the public or became so through no fault of the receiving party; (c) the information is subsequently disclosed to receiving party by a Third Party that has the right to disclose it free of any obligations of confidentiality; (d) the information was independently developed by the receiving party without reliance on the Confidential Information of the disclosing party; or (e) the information is required to be disclosed to by court order or by law.

SECTION 16. MISCELLANEOUS

 

  16.1 Sublicenses . In the event that LICENSEE shall grant sublicenses to Third-Parties, each such sublicense shall be embodied in a written document and copied unabridged to RUSH at the time of its grant, and all relevant term shall apply to each such sublicensee to the same extent as they apply to LICENSEE.

 

  16.2 Assignment . Neither this Agreement nor any of the rights or obligations hereunder may be assigned by either party without the prior written consent of the other party, and such consent shall not be unreasonably withheld. Notwithstanding the foregoing, LICENSEE may perform this Agreement, either in whole or in part through an Affiliate, and may assign or transfer its rights and obligations under this Agreement to its Affiliates or to an entity that succeeds to all or substantially all of LICENSEE’s business or assets whether by sale, merger, operation of law or otherwise. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assignees.

 

  16.3 Export Restrictions . It is understood that RUSH is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities, and that its obligations hereunder are contingent on compliance with all applicable United States export laws and regulations. The transfer of certain technical data and/or commodities may require a license from the cognizant agency of the United States Government and/or written assurances by LICENSEE that LICENSEE shall not export data or commodities to certain foreign countries without prior approval of such agency. RUSH neither represents nor warrants that a license shall not be required nor that, if required, it shall be issued. In any event, LICENSEE specifically agrees not to export or re-export any information and/or technical data and/or products in violation of any applicable USA laws and/or regulations.

 

  16.4

Applicable Law . This Agreement shall be construed under and interpreted under the Laws of the State of Illinois, USA, except that questions affecting the construction and effect of any Patent shall be determined by the national law of the country in which the Patent has been granted. All disputes arising out of or related to this Agreement will be subject to the

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

 

  exclusive jurisdiction of the Illinois State Courts of Cook County, Illinois (or, if there is federal jurisdiction, the United States District Court for the Northern District of Illinois) and the parties consent to the personal and exclusive jurisdiction of these courts.

 

  16.5 Force Majeure . In the event that either party is prevented from performing or is unable to perform any of its obligations under this Agreement due to any act of God, fire, casualty, flood, war, strike, lockout, failure of public utilities, government regulation or the like, such party shall give notice to the other party in writing promptly, and thereupon the affected party’s performance shall be excused and the time for performance shall be extended for the period of delay or inability to perform due to such occurrence.

 

  16.6 Waiver . The waiver by either party of a breach or default of any provision of this Agreement by the other party shall not be construed as a waiver of any succeeding breach of the same or any other provision.

 

  16.7 Amendments . Changes and additional provisions to this Agreement shall be binding on the parties only if mutually agreed upon, laid down in writing and signed effectively by the parties. This Agreement may be used as a basis for further agreements between LICENSEE and RUSH for the development, manufacture and/or supply of additional products.

 

  16.8 Severability . The parties do not intend to violate any public policy or statutory common law. However, if any sentence, paragraph, clause or combination of this Agreement is in violation of any law or is found to be otherwise unenforceable, such sentence, paragraph, clause or combination of the same shall be deleted and the remainder of this Agreement shall remain binding, provided that such deletion does not alter the basic structure of this Agreement.

 

  16.9 Counterparts . This Agreement may be executed in counterparts, each of which together shall constitute one and the same Agreement.

 

  16.10 Entire Agreement . This Agreement contains the full understanding of the parties with respect to the subject matter hereof and supersedes all prior understandings and writings relating thereto, including, without limitation, the Prior Agreement.

 

  16.11 Independent Contractors . The relationship of the parties established by this Agreement is that of independent contractors. Nothing in this Agreement shall be construed to create any other relationship between RUSH and LICENSEE. Neither patty shall have any right, power or authority to assume, create or incur any expense, liability or obligation, express or implied, on behalf of the other parties.

 

  16.12 Headings . Headings included herein are for convenience only, do not form a part of this Agreement and shall not be used in any way to construe or interpret this Agreement.

SECTION 17. AUTHORITY

The persons signing on behalf of RUSH and LICENSEE hereby warrant and represent that they have authority to execute this Agreement on behalf of the party for whom they have signed.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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 patties hereto have caused this Agreement to be executed by their properly and duly authorized officers or representatives as of the date first above written.

 

 

RUSH UNIVERSITY

MEDICAL CENTER

    EVOFEM, INC.
By:  

/s/ Anne Murphy

  By:  

/s/ Saundra Pelletier

Name:   Anne Murphy   Name:   Saundra Pelletier
Title:   SVP & General Counsel   Title:   Chief Executive Officer
Date:   March 27, 2014   Date:   March 27 th , 2014

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

APPENDIX A

DEVELOPMENT PLAN

A development plan of the scope outlined below shall be submitted to RUSH by LICENSEE upon execution of this Agreement. In general, the plan should provide RUSH with a summary overview of the activities that LICENSEE believes are necessary to make Product available for sale in the commercial marketplace.

 

Estimated    Estimated
Start Date    Finish Date

 

1. Development Program.

 

  A. Development Activities to be Undertaken

(Please break activities into subunits with the date of completion of major milestones.)

 

  (i)

 

  (ii)

 

  B. Estimated Total Development Time.

 

2. Governmental Approval.

 

  A. Types of submissions required.

 

  B. Government agency e.g. FDA, EPA, etc.

 

3. Proposed Market Approach.

 

4. Competitive Information.

 

  A. Potential Competitors.

 

  B. Potential Competitive Devices/Compositions.

 

  C. Known Competitor’s plans, developments, technical achievements.

 

  D. Anticipated Date of Product Launch.

Total Length: approximately 2-3 pages.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

APPENDIX B

DEVELOPMENT REPORT

1.        Date development plan initiated and time period covered by this report.

2         Development Report (4~8 paragraphs).

A.        Activities completed since last report including the object and parameters of the development, when initiated, when completed and the results.

B.        Activities currently under investigation, i.e., ongoing activities including object and parameters of such activities, when initiated, and projected date of completion.

3.        Future Development Activities (4-8 paragraphs).

A.        Activities to be undertaken before next report including, but not limited to, the type and object of any studies conducted and their projected starting and completion dates.

B.        Estimated total development time remaining before a product will be commercialized.

4.        Changes to initial development plan (2-4 paragraphs)

A.        Reasons for change.

B.        Variables that may cause additional changes.

5.        Items to be provided if applicable:

A.        Information relating to Product that has become publicly available, e.g., published articles, competing products, patents, etc.

B.        Development work being performed by third parties other than LICENSEE to include name of third party, reasons for use of third party, planned future uses of third parties including reasons why and type of work.

C.        Update of competitive information trends in industry, government compliance (if applicable) and market plan.

PLEASE SEND DEVELOPMENT REPORTS TO:

Intellectual Property Office

707 South Wood Street

Annex Building, Lower Level

Chicago, Illinois 60612

Attn: Director of Intellectual Property

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the 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

 

APPENDIX C

RUSH ROYALTY REPORT

 

Licensee:                                                                                                                  Agreement No.:                                                                                          
Inventor:                                                                                                                   P#:                                                                                                                  
Period Covered: From:                                                     /                                 Through:                                                                                                  
Prepared By:                                                                                                            Date:                                                                                                               
Approved By:                                                                                                         Date:                                                                                                               

If license covers several major product lines, please prepare separate report for each line. Then combine all product lines into a summary report.

 

Report Type:    ☐    Single Product Line Report:                                         
   ☐    Multi-Product Summary Report. Page 1 of                  Pages
   ☐    Product Line Detail. Line                  Trade name:                  Page                 
Report Currency:    ☐    U.S. Dollars             ☐ Other                                              

 

                         Period Royalty Amount

Country

   Gross Sales    *Less:
Allowances
   Net Sales    Royalty Rate    This year    This year
U.S.A.                  
Canada                  
Europe                  
Japan                  
                 
Other                  
                 
                 
                 
                 
                 
                 
                 
TOTAL:                  

 

Total Royalty:                      Conversion Rate:                     _ Royalty in U.S. Dollars $                      

 

* On a separate page, please indicate the reasons for returns or other adjustments if significant.

Also note any unusual occurrences that affected royalty amounts during this period.

To assist RUSH’s forecasting, please comment on any significant expected trends in sales volume.

To assist RUSH’s forecasting, please comment on any significant expected trends in sales volume.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with

the Secretary of the Commission pursuant to the Registrant’s application requesting confidential

treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

Exhibit 10.51

 

LOGO

October 11, 2017

Woodford Investment Management Limited

 

Re: Payment of certain fees associated with the Agreement and Plan of Merger and Reorganization

Ladies and Gentlemen:

This Side Letter (“Side Letter”) is entered into by and between Evofem Biosciences, Inc. (“Evofem”) and Woodford Investment Management Limited (“WIM”), acting as agent for and on behalf of each CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund, Omnis Income & Growth Fund, a sub fund of Omnis Portfolio Investments ICVC, and Woodford Patient Capital Trust Plc, as of the date first written above.

It is hereby agreed that Evofem shall pay the reasonable legal fees of Mischon de Reya LLP, incurred by WIM, in connection with the negotiation of that certain Agreement and Plan of Merger and Reorganization, by and between Neothetics, Inc., Nobelli Merger Sub, Inc., and Evofem (the “Merger Agreement”) and related transactions, in an amount not to exceed, in the aggregate, £50,000, plus value added tax associated with said legal fees.

Yours sincerely,

 

Evofem Biosciences, Inc.
By:  

/s/ Jay File

  Jay File
  Chief Financial Officer

Exhibit 10.52

CONSENT TO SUB-SUBLEASE

THIS CONSENT TO SUB-SUBLEASE (this “ Agreement ”) is made as of January 30, 2015, by and among KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), RELATIONAL INVESTORS LLC , a Delaware limited liability company (“ Tenant ”), EVOFEM, INC., a Delaware corporation (“ Subtenant ”), and WOMANCARE GLOBAL TRADING, INC., a Delaware corporation (“ Sub-subtenant ”), and is made with regard to the following facts and objectives:

R E C I T A L S :

A.    Landlord and Tenant are parties to that certain Office Lease, dated as of June 1, 2004 (the “ Office Lease ”), as amended by that certain First Amendment to Office Lease, dated July 23, 2004 (“ First Amendment ”), that certain Release Agreement dated December 22, 2005 (the “ Release Agreement ”), that certain Second Amendment to Office Lease dated May 1, 2014 (the “ Second Amendment ”), and that certain Third Amendment to Office Lease dated December 31, 2014 (the “ Third Amendment ”), for approximately 15,784 rentable square feet commonly known as Suite 600 (the “ Premises ”), located on the sixth (6 th ) floor of that certain building located at 12400 High Bluff Drive, San Diego, California 92130 (“ Building ”). The Office Lease, the First Amendment, the Release Agreement, the Second Amendment and the Third Amendment are hereinafter collectively referred to as the “ Master Lease .”

B.    Tenant, as sublandlord, and EvoFem, Inc., a Delaware corporation, as subtenant, entered into that certain Sublease dated January 30, 2015 (the “ Sublease ”), which Sublease was consented to by Landlord pursuant to that certain Consent to Sublease Agreement dated as of January 30, 2015 (the “ Consent to Sublease Pursuant to the Sublease Tenant subleases to Subtenant and Subtenant subleases from Tenant the entirety of the Premises, as more particularly described in the Sublease (the “ Sublease Premises ”).

C.    Under the terms of Article  14 of the Master Lease, Tenant and Subtenant have requested Landlord’s consent to that certain Sublease dated January 30 2015 (the “ Sub-Sublease ”), pursuant to which Subtenant subleases a portion of the Sublease Premises (the “ Sub-sublease Premises ”) to Sub-subtenant, as more particularly described in the Sub-Sublease for a term commencing on or about February 1, 2015, and expiring on March 31, 2020. A copy of the Sub-Sublease is attached to this Agreement as Exhibit A .

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the parties agree as follows:

 

  1. Intentionally Deleted.

2.     Landlord s Consent . Landlord consents to the Sub-Sublease. The consent is granted only on the terms and conditions stated in this Agreement. Landlord is not bound by any of the terms, covenants or conditions of the Sub-Sublease. The Sub-Sublease is subject and subordinate to the Master Lease. Accordingly, Landlord’s consent pursuant to the terms hereof shall not be deemed to be Landlord’s consent to any alteration of the Sub-Sublease Premises not

 

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set forth in the Sub-Sublease nor entitle Sub-subtenant to any additional signage other than as set forth in the Sub-Sublease. Sub-subtenant acknowledges for the benefit of Landlord that Sub-subtenant accepts the Sub-Sublease Premises in their presently existing “as-is” condition and that Landlord has made no representation or warranty to Sub-subtenant as to the compliance of the Sub-Sublease Premises with any law, statute, ordinance, rule or regulation. Nothing contained herein shall be construed as a consent to, approval of, or ratification by Landlord of, any of the particular provisions of the Sub-Sublease or any plan or drawing referred to or contained therein (except as may be expressly provided herein). Notwithstanding anything to the contrary contained in the Sub-Sublease, except as may be set forth herein, in no event shall the Sub-Sublease be deemed to amend the Master Lease.

3.     Tenant, Subtenant or Sub-subtenant Default . If Tenant, Subtenant or Sub-subtenant violates any of the terms of this Agreement, or if any representation by Tenant, Subtenant or Sub-subtenant in this Agreement is untrue in any material respect, or if Sub-subtenant takes any action which would constitute a default under the Master Lease, then Landlord may declare the Master Lease to be in default and avail itself of all remedies provided at law or in equity or under the Master Lease with respect to defaults. Landlord’s rights and remedies under this Agreement shall be in addition to every other right or remedy available to it under the Master Lease, at law, in equity or otherwise and Landlord shall be able to assert its rights and remedies at the same time as, before, or after its assertion of any other right or remedy to which it is entitled without in any way diminishing such other rights or remedies.

4.     Nonrelease of Tenant; Further Transfers . Neither the Sub-Sublease nor this Agreement shall release or discharge Tenant from any liability, whether past, present or future, as Tenant under the Master Lease or alter the primary liability of Tenant to pay the Base Rent and any additional rent and perform all of Tenant’s obligations under the Master Lease (including the payment of all invoices rendered by Landlord for charges incurred by Tenant for services and materials supplied to the Sub-Sublease Premises by Landlord, if any), Neither the Sub-Sublease nor this Agreement shall be construed as a waiver of Landlord’s right to consent to any further subletting either by Tenant, by Subtenant or by Sub-subtenant, or to any assignment by Tenant if the Master Lease or assignment by Sub-subtenant of the Sub-Sublease after the date hereof, or as a consent to any portion of the Sub-Sublease Premises being used or occupied by any other party other than Sub-subtenant. Landlord may consent to an assignment of the Master Lease or any amendments or modifications thereto without notifying Sub-subtenant and without obtaining Sub-subtenant’s consent, and to further sublettings or assignments of the Sub-Sublease or any amendments or modifications thereto without notifying Tenant and without obtaining Tenant’s consent. No such action by Landlord shall relieve such persons from any liability to Landlord or otherwise with regard to the Sub-Sublease Premises.

5.     Relationship with Landlord . In the event a default (beyond applicable notice and cure periods) shall occur in the performance of Tenant’s obligations under the Master Lease, Tenant shall be deemed to have assigned and transferred to Landlord (without the necessity of any further documentation or notice) the Tenant’s interest in the Sub-Sublease and all rentals and income arising therefrom, subject to the terms of this Section  5 . Sub-subtenant, without any offset of rent, hereby expressly waives the right to enforce any such provision of the Sub-Sublease, Master Lease or this Agreement against Landlord. If Tenant defaults in the

 

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performance of its obligations to Landlord under Section  19.1 of the Master Lease (whether or not Landlord terminates the Master Lease), Landlord may, as provided by Section  19.2 of the Master Lease, at its option, by notice to Tenant, either (i) terminate the Sub-Sublease; or (ii) elect to receive and collect, directly from Sub-subtenant, all rent and any other sums owing and to be owed under the Sub-Sublease, as further set forth in Section  5.1 , below, or (iii) elect to succeed to Tenant’s interest in the Sub-Sublease and to cause Sub-subtenant to attorn to Landlord, as further set forth in Section  5.2 , below.

5.1     Landlord’s Election to Receive Rents . Landlord shall not, by reason of the Sub-Sublease, nor by reason of the collection of rents or any other sums from the Sub-subtenant pursuant to Section  5(ii) , above, be deemed liable to Sub-subtenant for any failure of Tenant to perform and comply with any obligation of Tenant, and Tenant hereby irrevocably authorizes and directs Sub-subtenant, upon receipt of any written notice from Landlord stating that a default exists in the performance of Tenant’s obligations under the Master Lease, to pay to Landlord the rents and any other sums due and to become due under the Sub-Sublease. Tenant agrees that Sub-subtenant shall have the right to rely upon any such statement and request from Landlord, and that Sub-subtenant shall pay any such rents and any other sums to Landlord without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Tenant to the contrary. Tenant shall not have any right or claim against Sub-subtenant for any such rents or any other sums so paid by Sub-subtenant to Landlord. Landlord shall credit Tenant with any rent received by Landlord under such assignment, but the acceptance of any payment on account of rent from the Sub-subtenant as the result of any such default shall in no manner whatsoever be deemed an attornment by the Landlord to Sub-subtenant or by Sub-subtenant to Landlord, be deemed a waiver by Landlord of any provision of the Master Lease or serve to release Tenant from any liability under the terms, covenants, conditions, provisions or agreements under the Master Lease. Notwithstanding the foregoing, any other payment of rent from the Sub-subtenant directly to Landlord, regardless of the circumstances or reasons therefor, shall in no manner whatsoever be deemed an attornment by the Sub-subtenant to Landlord in the absence of a specific written agreement signed by Landlord to such an effect.

5.2     Landlord’s Election of Tenant’s Attornment . In the event Landlord elects, at its option, to cause Sub-subtenant to attorn to Landlord pursuant to Section  5(iii) , above, Landlord will not be: (i) liable for any rent paid by Sub-subtenant to Tenant more than one (1) month in advance, or any security deposit paid by Sub-subtenant to Tenant; (ii) liable for any act or omission of Tenant under the Master Lease or for any default of Tenant under the Sub-Sublease which occurred prior to the Landlord’s assumption; (iii) subject to any defenses or offsets that Sub-subtenant may have against Tenant which arose prior to Landlord’s assumption of the Sub-Sublease; (iv) bound by any changes or modifications made to the Sub-Sublease without the written consent of Landlord; or (v) obligated to provide to Sub-subtenant any services provided to Sub-subtenant under the terms of the Sub-Sublease that are not services customarily provided by Landlord to its tenants or that are not required to be provided to Tenant pursuant to the Master Lease. Sub-subtenant, without any offset of rent, hereby expressly waives the right to enforce any such provisions of the Sub-Sublease, Master Lease or this Agreement against Landlord.

 

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5.3     Landlord Exculpation . The liability of Landlord or the “ Landlord Parties ,” as that term is defined in Section  10.1 of the Master Lease, to Sub-subtenant for any default by Landlord under this Agreement or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration or any other matter relating to the Building, the Premises or the Sub-Sublease Premises shall be limited solely and exclusively to an amount which is equal to the interest of Landlord in the Building. Neither Landlord nor any of the Landlord Parties shall have any personal liability therefor, and Sub-subtenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Sub-subtenant. The limitations of liability contained in this Section  5.3 shall inure to the benefit of Landlord’s and the Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord’s obligations under this Agreement. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Sub-subtenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

6.     Processing Fees . Pursuant to Section  14.1 of the Master Lease, upon demand, Tenant agrees to Landlord’s review and processing fees as well as any reasonable professional fees in an amount not to exceed $500.00. Tenant shall reimburse said costs within thirty (30) days of Landlord’s written request therefor.

7.     Notices .     Any notice that may or must be given by any party under this Agreement will be delivered (i) personally, (ii) by certified mail, return receipt requested, or (iii) by a nationally recognized overnight courier, addressed to the party to whom it is intended. Any notice given to Landlord, Tenant or Sub-subtenant shall be sent to the respective address set forth below, or to such other address as that party may designate for service of notice by a notice given in accordance with the provisions of this Section  7 , and any such notice shall be deemed delivered (A) when delivery is attempted, if delivered personally, (B) three (3) business days after deposit into the United States mail, or (C) the first business day following deposit with a nationally recognized overnight courier.

 

To Landlord:    Kilroy Realty, L.P.
   12200 W. Olympic Blvd., Suite 200
   Los Angeles, CA 90064
   Attn: Legal Department
With a copy to:    Kilroy Realty, L.P.
   3611 Valley Centre Drive, Suite 550
   San Diego, CA 92130
   Attn: Asset Management

 

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To Tenant:    Relational Investors LLC
   12400 High Bluff Drive, Suite 600
   San Diego, CA 92130
   Attn: Jay Sitlani
To Subtenant:    EvoFem Inc.
   12400 High Bluff, Suite 600
   San Diego, California 92130
   Attention: Chief Financial Officer
   (After Sublease Commencement Date)
with a copy to:    K&L Gates LLP
   1 Park Plaza, Twelfth Floor
   Irvine, CA 92614
   Attn: Adam C. Lenain
To Sub-subtenant:    WomanCare Global Trading Inc.
   8910 University Center Lane,
   Suite 120
   San Diego, CA 92122
   Attn:                     
   (Prior to the Sub-sublease Commencement Date)
   WomanCare Global Trading Inc.
   12400 High Bluff, Suite 600
   San Diego, California 92130
   Attn:                     
   (After the Sub-sublease Commencement Date)

8 .     General Provisions .

8.1     Consideration for Sub-Sublease . Tenant, Subtenant and Sub-subtenant each represents and warrants that, except as otherwise specifically provided in the Sub-Sublease, no rent or other consideration is being paid or is payable to Subtenant by Sub-subtenant for the right to use or occupy the Sub-Sublease Premises or for the use, sale or rental of Tenant’s fixtures, leasehold improvements, equipment, furniture or other personal property in excess of the pro-rata portion of the fixed rent and any additional rent payable pursuant to the Master Lease (collectively, the “ Rent ”) for the Sub-Sublease Premises, and if such rent or other consideration exceeds such pro-rata portion of the Rent, Tenant shall comply with Section  14.3 of the Master Lease and pay such excess to Landlord in accordance with the provisions of the Master Lease.

8.2     Brokerage Commission . Tenant, Subtenant and Sub-subtenant, jointly and severally, indemnify Landlord against, and hold it harmless from, all costs, damages and expenses, including reasonable attorneys’ fees and disbursements, arising out of any claims for brokerage commissions, finder’s fees or other compensation in connection with the Sub-Sublease

 

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or procuring possession of the Sub-Sublease Premises. Tenant, Subtenant and Sub-subtenant, at their sole expense, may defend any such claim with counsel reasonably acceptable to Landlord and settle any such claim at their expense, but only Landlord may approve the text of any stipulation, settlement agreement consent order, judgment or decree entered into on its behalf. The provisions of this Section  8.2 shall survive the expiration or sooner termination of the Master Lease or Sub-Sublease.

8.3     Recapture . This Agreement shall in no manner be construed as limiting Landlord’s ability to exercise its rights to recapture any portion of the Premises, as set forth in Section  14.4 of the Master Lease, in the event of a proposed future sublease or assignment of such portion of the Premises.

8.4     Controlling Law . The terms and provisions of this Agreement shall be construed in accordance with and governed by the laws of the State of California, without regard to the choice of law provisions thereof.

8.5     Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, successors and assigns. As used herein, the singular number includes the plural and the masculine gender includes the feminine and neuter.

8.6     Captions . The paragraph captions utilized herein are in no way intended to interpret or limit the terms and conditions hereof; rather, they are intended for purposes of convenience only.

8.7     Partial Invalidity . If any term, provision or condition contained in this Agreement shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Agreement shall be valid and enforceable to the fullest extent possible permitted by law.

8.8     Attorneys’ Fees . If either party commences litigation against the other for the specific performance of this Agreement, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the parties hereto agree to and hereby do waive any right to a trial by jury and, in the event of any such commencement of litigation, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys’ fees as may have been incurred.

8.9 General Indemnity . Tenant, Subtenant and Sub-subtenant, jointly and severally, indemnify Landlord against, and hold it harmless from any and all losses, costs, expenses, claims and liabilities including, but not limited to, reasonable counsel fees, arising from the use, occupancy, conduct or management of the Sub-Sublease Premises by Sub-subtenant, or its agents, employees, contractors, representatives, invitees, or visitors, or Sub-subtenant’s business activities therein. If any proceeding is brought against Landlord by reason of any such claim, Tenant, Subtenant and Sub-subtenant, jointly and severally, shall be responsible for Landlord’s costs and expenses (including, without limitation, reasonable

 

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attorneys’ fees and expenses) incurred in connection therewith. If any action or proceeding is brought against Landlord by reason of any such claim, Sub-subtenant, Subtenant and/or Tenant, upon written notice from Landlord, shall, at Tenant’s, Subtenant’s or Sub-subtenant’s sole cost and expense, as the case may be, resist or defend such action or proceeding using counsel reasonably approved by Landlord, but may not settle any such claim without Landlord’s prior written approval. The provisions of this Section  8.9 shall survive the expiration or earlier termination of the term of the Sub-Sublease or the Master Lease. The indemnity and any right granted to Landlord pursuant to this section shall be in addition to, and not in limitation of Landlord’s rights under the Master Lease.

8.10     Entire Agreement . The parties intend this Section  8.10 to be a conclusive recital of fact pursuant to Section 622 of the California Evidence code. This Agreement supersedes any prior consent to Sub-Sublease, oral or written, and contains the entire agreement between the parties on the subject matter hereof. This Agreement is intended to be a final expression of the agreement of the parties and is an integrated agreement within the meaning of Section 1856 of the California Code of Civil Procedure (the Parol Evidence Rule). There are no contemporaneous separate written or oral agreements between the parties in any way related to the subject matter of this Agreement, except for the Master Lease and the Sub-Sublease. No subsequent agreement, representation or promise made by any party hereto, or by or to any employee, officer, agent or representative of any party hereto, shall be of any effect unless it is in writing and executed by all of the parties to be bound thereby.

8.11     Authority; Due Organization . Each person executing this Agreement on behalf of any party, corporation, partnership or other entity which is a party hereto represents and warrants that he or she is duly authorized to execute and deliver this Agreement on such party’s behalf and to bind such party hereto. Each party represents and warrants that (a) this Agreement is valid, binding and enforceable; (b) it is a duly organized corporation, limited partnership or general partnership and is authorized to enter into this Agreement by its board of directors or partners in accordance with its organizational documents; (c) all steps have been taken prior to the date hereof to qualify all parties to do business in California; and (d) all forms, reports, fees and other corporate or partnership documents necessary to comply with applicable laws will be filed when due.

8.12     Capitalized Terms . All terms spelled with initial capital letters in this Agreement that are not expressly defined in this Agreement will have the respective meanings given such terms in the Master Lease. Except as herein and previously amended the Master Lease is hereby ratified, affirmed and approved. Landlord, Tenant, Subtenant and Sub-subtenant acknowledge and agree that to their best information and belief no default exists under the Master Lease.

8.13     Counterparts . This Agreement may be executed in any number of identical counterparts, each of which will be deemed to be an original, and all of which will constitute one and the same Agreement.

 

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IN WITNESS WHEREOF , the parties have executed this Agreement effective as of the above date.

 

Landlord:

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   KILROY REALTY CORPORATION,
  a Maryland corporation, general partner
  By:  

/s/ Brian Galligan

  Name:   Brian Galligan
  Title:   SVP Asset Management, SD/OC
  By:  

/s/ John T. Fucci

  Name:   John T. Fucci
  Title:   Sr. Vice President Asset Management
Tenant:

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

By:  

/s/ David H. Batchelder

Name:   David H. Batchelder
Title:   Managing Member
By:  

/s/ Jay Sitlani

Name:   Jay Sitlani
Title:   CFO
Subtenant:

EVOFEM, INC.,

a Delaware corporation

By:  

/s/ Saundra Pelletier

Name:   Saundra Pelletier
Title:   CEO
By:  

/s/ Chad Putnam

Name:   Chad Putnam
Title:   CFO

 

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Sub-Subtenant:

WOMANCARE GLOBAL TRADING, INC.,

a Delaware corporation

By:  

/s/ Saundra Pelletier

Name:   Saundra Pelletier
Title:   CEO
By:  

/s/ Karen Jordan

Name:   Karen Jordan
Title:   VP Financing

 

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EXHIBIT A

THE SUB-SUBLEASE

[[TO BE ATTACHED]]

Exhibit 10.53

SUBLEASE GUARANTY

THIS SUBLEASE GUARANTY (“ Guaranty ”) is made by EvoMed LLC, a Delaware limited liability company (“ Guarantor ”) in favor of RELATIONAL INVESTORS LLC, a Delaware limited liability company (“ Sublandlord ”) in connection with that certain Office Sublease dated January 30, 2015 the “ Sublease ”) pursuant to which Sublandlord is to sublease to EVOFEM INC., a Delaware corporation (“Subtenant”) certain premises located at 12400 High Bluff Drive, Suite 600, San Diego, California (the “ Subpremises ”).

A.    Sublandlord requires this Guaranty as a condition to its execution of the Sublease and the performance of the obligations to be performed under the Sublease by Sublandlord.

B.    Guarantor has agreed to provide this Guaranty to induce Sublandlord to enter into the Sublease with Subtenant and perform its obligations under the Sublease.

In consideration of Sublandlord’s agreement to execute the Sublease and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor does hereby agree with Sublandlord as follows:

1.    The Sublease is hereby incorporated into and made a part of this Guaranty by this reference.

2.    Guarantor hereby unconditionally guarantees, as a primary obligor and not as a surety, without deduction by reason of setoff, defense or counterclaim, the full and punctual payment of all sums of rent and other amounts payable under the Sublease and the full and punctual performance of all terms, covenants and conditions in the Sublease to be kept, performed and/or observed by Subtenant. Guarantor’s obligations under this Guaranty are continuing and unconditional.

3.    Guarantor hereby agrees that, without the consent of or notice to Guarantor and without affecting any of the obligations of Guarantor hereunder: (a) the Sublease may be extended and any other term, covenant or condition of the Sublease may be amended, compromised, released or otherwise altered by Sublandlord and Subtenant, and Guarantor does guarantee and promise to perform all the obligations of Subtenant under the Sublease as so extended, amended, compromised, released or altered; (b) any guarantor of or party to the Sublease may be released, substituted or added; (c) any right or remedy under the Sublease may be exercised, not exercised, impaired, modified, limited, destroyed, or suspended; (d) Sublandlord or any other person may deal in any manner with Subtenant, any guarantor, any party to the Sublease or any other person; (e) Sublandlord may permit Subtenant to holdover the Subpremises beyond the Sublease Term; and (f) all or any part of the Subpremises or of Subtenant’s rights or liabilities under the Sublease may be sublet, assigned or assumed. Without in any way limiting the foregoing, Guarantor agrees not to unreasonably withhold its consent to any sub-sublease, assignment of the Sublease or other modification of the Sublease which is agreed to by Sublandlord and Subtenant.

4.    Guarantor hereby waives and agrees not to assert or take advantage of: (a) any right to require Sublandlord to proceed against Subtenant, or any other guarantor or person or to pursue any other security or remedy before proceeding against Guarantor; (b) any defense based on the genuineness, validity, regularity or enforceability of the Sublease; (c) any right or defense that may arise by reason of the incapacity, lack of authority, death or disability of Subtenant or


any other person; and (d) any right or defense arising by reason of the absence, impairment, modification, limitation, destruction or cessation (in bankruptcy, by an election of remedies, or otherwise) of the liability of Subtenant, of the subrogation rights of Guarantor or of the right of Guarantor to proceed against Subtenant for reimbursement. Without limiting the generality of the foregoing, Guarantor hereby waives any and all benefits of the provisions of Sections 2809, 2810 and 2845 of the California Civil Code and any similar or analogous statutes of California or any other jurisdiction.

5.    Guarantor hereby waives and agrees not to assert or take advantage of (a) any right or defense based on the absence of any or all presentments, demands (including demands for performance), notices (including notices of any adverse change in the financial status of Subtenant, notices of any other facts which increase the risk to Guarantor, notices of non-performance and notices of acceptance of this Guaranty) and protests of each and every kind; (b) the defense of any statute of limitations in any action under or related to this Guaranty or the Sublease; (c) any right or defense based on a lack of diligence or failure or delay by Sublandlord in enforcing its rights under this Guaranty or the Sublease.

6.    Guarantor hereby waives and agrees not to assert or take advantage of any right to (a) exoneration if Sublandlord’s actions shall impair any security or collateral of Guarantor; (b) any security or collateral held by Sublandlord; (c) require Sublandlord to proceed against or exhaust any security or collateral before proceeding against Guarantor; (d) require Sublandlord to pursue any right or remedy for the benefit of Guarantor. Without limiting the generality of the foregoing, Guarantor hereby waives any and all benefits of the provisions of Sections 2819, 2849 and 2850 of the California Civil Code and any similar or analogous statutes of California or any other jurisdiction.

7.    Guarantor shall not, without the prior written consent of Sublandlord, commence, or join with any other person in commencing, any bankruptcy, reorganization or insolvency proceeding against Subtenant. Guarantor’s obligations under this Guaranty shall in no way be affected by any bankruptcy, reorganization or insolvency of Subtenant or any successor or assignee of Subtenant or by any disaffirmance or abandonment of the Sublease or any payment under this Guaranty by a trustee of Subtenant in any bankruptcy proceeding including, without limitation, any impairment, limitation, or modification of the liability of Subtenant or the estate of Subtenant in bankruptcy, or of any remedy for the enforcement of Subtenant’s liability under the Sublease resulting from the operation of any present or future provision of any federal or state bankruptcy or insolvency law or other statute or from the decision of any court. Guarantor shall file in any bankruptcy or other proceeding in which the filing of claims is required or permitted by law all claims which Guarantor may have against Subtenant relating to any indebtedness of Subtenant to Guarantor and will assign to Sublandlord all rights of Guarantor thereunder. Sublandlord shall have the sole right to accept or reject any plan proposed in such proceeding and to take any other action which a party filing a claim is entitled to do. In all such cases, whether in administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to Sublandlord the amount payable on such claim and, to the full extent necessary for that purpose, Guarantor hereby assigns to Sublandlord all of Guarantor’s rights to any such payments or distributions to which Guarantor would otherwise be entitled; provided, however, that Guarantor’s obligations hereunder shall not be satisfied except to the extent that Sublandlord receives cash by reason of any such payment or distribution. If Sublandlord receives anything hereunder other than cash, the same shall be held as collateral for amounts due under this Guaranty.


8.    Until all the Subtenant’s obligations under the Sublease are fully performed, Guarantor: (a) shall have no right of subrogation or reimbursement against the Subtenant by reason of any payments or acts of performance by Guarantor under this Guaranty; (b) subordinates any liability or indebtedness of the Subtenant now or hereafter held by Guarantor to the obligations of the Subtenant under, arising out of or related to the Sublease or Subtenant’s use of the Subpremises; and (c) acknowledges that the actions of Sublandlord may affect or eliminate any rights of subrogation or reimbursement of Guarantor as against Subtenant without any liability or recourse against Sublandlord. Without limiting the generality of the foregoing, Guarantor hereby waives any and all benefits of the provisions of Section 2848 of the California Civil Code and any similar or analogous statutes of California or any other jurisdiction.

9.    Prior to the execution of this Guaranty and at any time during the Term of the Sublease upon ten (10) days prior written notice from Sublandlord, Guarantor agrees to provide Sublandlord with Guarantor’s most recent financial statement and financial statements for Guarantor for the two (2) years prior to the most recent financial statement year to the extent not previously delivered to Sublandlord. Guarantor’s financial statements are to be prepared in accordance with the normal practice of Guarantor, including if such practice is to have the financial statements audited by an independent certified public accountant. Guarantor represents and warrants that all such financial statements shall be true and correct statements of Guarantor’s financial condition.

10.    The liability of Guarantor and all rights, powers and remedies of Sublandlord hereunder and under any other agreement now or at any time hereafter in force between Sublandlord and Guarantor relating to the Sublease shall be cumulative and not alternative and such rights, powers and remedies shall be in addition to all rights, powers and remedies given to Sublandlord by law.

11.    This Guaranty applies to, inures to the benefit of and binds all parties hereto, their heirs, devisees, legatees, executors, administrators, representatives, successors and assigns. This Guaranty may be assigned by Sublandlord voluntarily or by operation of law.

12.    This Guaranty shall constitute the entire agreement between Guarantor and the Sublandlord with respect to the subject matter hereof. No provision of this Guaranty or right of Sublandlord hereunder may be waived nor may any guarantor be released from any obligation hereunder except by a writing duly executed by an authorized officer, director or trustee of Sublandlord. The waiver or failure to enforce any provision of this Guaranty shall not operate as a waiver of any other breach of such provision or any other provisions hereof. No course of dealing between Sublandlord and Subtenant shall alter or affect the enforceability of this Guaranty or Guarantor’s obligations hereunder.

13.    Guarantor hereby agrees to indemnify, protect, defend and hold Sublandlord harmless from and against, all losses, costs and expenses including, without limitation, all interest, default interest, post-petition bankruptcy interest and other post-petition obligations, late charges, court costs and attorneys’ fees, which may be suffered or incurred by Sublandlord in enforcing or compromising any rights under this Guaranty or in enforcing or compromising the performance of Subtenant’s obligations under the Sublease.

14.    The term “Sublandlord” whenever hereinabove used refers to and means the Sublandlord in the foregoing Sublease specifically named and also any assignee of said Sublandlord, whether by outright assignment or by assignment for security, and also any successor to the interest of said Sublandlord or of any assignee of such Sublease or any part thereof, whether by assignment or otherwise. The term “Subtenant” whenever hereinabove used


refers to and means the Subtenant in the foregoing Sublease specifically named and also any assignee or sub-subtenant of said Sublease and also any successor to the interests of said Subtenant, assignee or sub-subtenant of such Sublease or any part thereof, whether by assignment, sublease or otherwise including, without limitation, any trustee in bankruptcy and any bankruptcy estate of Subtenant, Subtenant’s assignee or sub-subtenant.

15.    If Guarantor shall become bankrupt or insolvent, or any application shall be made to have Guarantor declared bankrupt or insolvent, or Guarantor shall make an assignment for the benefit of creditors, notice of such occurrence or event shall be promptly furnished to Sublandlord by Guarantor or Guarantor’s fiduciary. This Guarantee shall extend to and be binding upon Guarantor’s successors and assigns, including, but not limited to, trustees in bankruptcy and Guarantor’s estate.

16.    Any notice, request, demand, instruction or other communication to be given to any party hereunder shall be in writing and sent by registered or certified mail, return receipt requested in accordance with the notice provisions of the Sublease. The Subtenant shall be deemed Guarantor’s agent for service of process and notice to Guarantor delivered to the Subtenant at the address set forth in the Sublease shall constitute proper notice to Guarantor for all purposes. Notices to Sublandlord shall be delivered to Sublandlord’s address set forth in the Sublease. Sublandlord, at its election, may provide an additional notice to Guarantor at the address provided under Guarantor’s signature below.

17.    If either party hereto participates in an action against the other party arising out of or in connection with this Guaranty, the prevailing party shall be entitled to have and recover from the other party reasonable attorneys’ fees, collection costs and other costs incurred in and in preparation for the action. Guarantor hereby waives any right to trial by jury and further waives and agrees not to assert or take advantage of any defense based on any claim that any arbitration decision binding upon Sublandlord and Subtenant is not binding upon Guarantor.

18.    Guarantor agrees that all questions with respect to this Guaranty shall be governed by, and decided in accordance with, the laws of the State of California.

19.    Should any one or more provisions of this Guaranty be determined to be illegal or unenforceable, all other provisions shall nevertheless be effective.

20.    Time is strictly of the essence under this Guaranty and any amendment, modification or revision hereof.

21.    If more than one person signs this Guaranty, each such person shall be deemed a guarantor and the obligation of all such guarantors shall be joint and several. When the context and construction so requires, all words used in the singular herein shall be deemed to have been used in the plural. The word “person” as used herein shall include an individual, company, firm, association, partnership, corporation, trust or other legal entity of any kind whatsoever.

22.    If Guarantor is a corporation, each individual executing this Guaranty on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Guaranty on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the by-laws of said corporation, and that this Guaranty is binding upon said corporation in accordance with its terms. If Guarantor is a corporation, Sublandlord, at its option, may require Guarantor to concurrently, with the execution of this Guaranty, deliver to Sublandlord a certified copy of a resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Guaranty.

23.    Without limiting the generality of any of the covenants and agreements of the Guarantor set forth above in this Guaranty, Guarantor hereby waives any and all benefits of the


provisions of Section 2822 of the California Civil Code and any similar or analogous statutes of California or any other jurisdiction.


THE UNDERSIGNED HAS READ AND UNDERSTANDS THE TERMS AND CONDITIONS CONTAINED IN THIS GUARANTY INCLUDING, WITHOUT LIMITATION, ALL WAIVERS CONTAINED IN THIS GUARANTY.

Executed on this 30 th day of January, 2015.

 

EVOMED LLC,

a Delaware limited liability company

By:  

/s/ Sean Edwards

  Print Name:   Sean Edwards
  Print Title:   President
By:  

/s/ Helen Tran

  Print Name:   Helen Tran
  Print Title:   CFO

Exhibit 10.54

OFFICE SUBLEASE

by and between

RELATIONAL INVESTORS LLC,

a Delaware limited liability company

as Sublandlord

and

EVOFEM, INC.,

a Delaware corporation

as Subtenant

Dated: January 30, 2015


TABLE OF CONTENTS

 

          Page  
1.    Sublease of Subpremises; Sublease Term; Shared Occupancy      1  
   1.1.       Sublease of Subpremises      1  
   1.2.       Sublease Term      2  
   1.3.       Delivery Date      2  
2.    Subrent      3  
   2.1.       Base Subrent      3  
   2.2.       Additional Subrent      4  
   2.3.       Letter of Credit      4  
3.    Incorporation of Overlease      6  
      3.1.1.    Defined Terms      6  
      3.1.2.    Exclusions      8  
      3.1.3.    Amendments for Purposes of Sublease Incorporation of Overlease      8  
      3.1.4.    Other      15  
      3.1.5.    Dispute Resolution      15  
      3.1.6.    Representations and Warranties      15  
      3.1.7.    Interaction of Sublease and Overlease      15  
      3.1.8.    Notices      15  
   3.2.       Compliance with Overlease      16  
   3.3.       Abatement Rights      16  
   3.4.       Payment of Sublandlord’s Rent      16  
   3.5.       Rights and Benefits Under Overlease      16  
         3.5.1. Additional Costs      16  
   3.6.       Overlandlord’s Performance      16  
   3.7.       Preservation of Overlease      17  
   3.8.       Consents      17  
   3.9.       Representations and Warranties      17  
4.    Interaction of Estates; Effect on Overlandlord      17  
   4.1.       Priorities      17  
   4.2.       Event of Default      18  
   4.3.       Termination of Overlease, Reentry or Repossession      18  
   4.4.       No Effect on Overlease, Overlandlord      18  
   4.5.       Termination of Overlease      19  
5.    Leasing Covenants      19  
   5.1.       Delivery; FF&E; Surrender      19  
   5.2.       Insurance      20  
   5.3.       Default; Remedies      20  
   5.4.       Signage      20  

 

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6.    Miscellaneous      21  
   6.1.       Defined Terms      21  
   6.2.       Attorneys’ Fees      21  
   6.3.       Further Assurances      21  
   6.4.       Interpretation      21  
   6.5.       Execution      22  
   6.6.       Assignment of Overlease      22  
   6.7.       Overlandlord’s Consent      22  
   6.8.       Guaranty      22  
   6.9.       Financial Statements      22  

 

ii


OFFICE SUBLEASE

This OFFICE SUBLEASE (the “ Sublease”) is entered into as of January 30, 2015 (the “ Execution Date”) by and between RELATIONAL INVESTORS LLC, a Delaware limited liability company (“ Sublandlord ”), and EVOFEM INC., a Delaware corporation (“ Subtenant ”).

W I T N E S S E T H

WHEREAS, Sublandlord is the tenant (“ Overtenant ”) under that certain lease dated as of June 1, 2004 between Kilroy Realty, L.P., a Delaware limited partnership (“ Overlandlord ”) and Relational Advisors LLC and Relational Investors LLC, as amended by that certain (i) First Amendment to Office Lease dated as of July 23, 2004, (ii) Release Agreement dated December 22, 2005, (iii) Second Amendment to Office Lease (“ Second Amendment ”) dated May 1, 2014, and (iv) Third Amendment to Office Lease (“ Third Amendment ”) dated December 31, 2014 (collectively, the “ Overlease ”). A copy of the Overlease is attached hereto as Exhibit S-A;

WHEREAS, Relational Advisors LLC assigned its rights and interests under the Overlease to Sublandord pursuant to that certain Confidential Separation Agreement, effective as of November 10, 2005;

WHEREAS, pursuant to the Overlease, Overlandlord demised to Sublandlord the “Premises” (as defined and described in the original Overlease) located in the “Building” (as defined and described in the Overlease);

WHEREAS, pursuant to the Second Amendment, the Overlease with respect to the portion of the original Premises consisting of the “Expiration Space” (as defined and described in the Second Amendment) expired as of November 30, 2014, and as of December 1, 2014, the “Premises” under the Overlease became solely the “Remaining Premises” (as defined and described in the Second Amendment, and more particularly in Section 2.1 thereof), consisting of approximately 15,784 rentable (14,414 usable) square feet of space located at 12400 High Bluff Drive, Suite 600, San Diego, California 92130; and

WHEREAS, Sublandlord desires to sublease to Subtenant, and Subtenant desires to sublease from Sublandlord, subject to the terms of this Sublease, the Remaining Premises (herein referred to as the “ Subpremises ”). The Subpremises is more particularly depicted on Exhibit S-B attached hereto.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Sublease, and for valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the parties agree as follows.

1. Sublease of Subpremises; Sublease Term; Shared Occupancy.

1.1. Sublease of Subpremises. Subject to the terms and conditions of this Sublease, Sublandlord subleases the Subpremises to Subtenant, and Subtenant subleases the Subpremises from Sublandlord, for the Sublease Term.

 

1


Pursuant to Second Amendment, Overlandlord (and not Sublandlord) has the obligation to demise the Subpremises from the Expiration Space (as defined in the Second Amendment). Subtenant acknowledges that, pursuant to Section 2.3 of the Second Amendment, Overlandlord’s space planner/architect is to measure the rentable square feet of the Subpremises following such demising, and that the determination of Overlandlord’s space planner/architect will be conclusive and binding. Except as expressly set forth otherwise herein, Base Subrent and all other obligations hereunder that are based on the rentable square footage of the Subpremises shall be retroactively adjusted to reflect the results of such measurement. Without limiting any other provisions of this Sublease or the Overlease, Subtenant also acknowledges that the construction work to be performed by Overlandlord pursuant to the Second Amendment may involve noise, dust and other disturbances to Subtenant, and that Subtenant will have no rent abatement or other claims against Sublandlord relating to same.

1.2. Sublease Term. Subject to the terms hereof (including, but not limited to, Section 1.3 below), the “ Sublease Term ” “shall (a) commence on the date (the “ Sublease Commencement Date ”) that is the later of: (i) February 1, 2015, or (ii) one (1) business day after the date when Sublandlord delivers to Subtenant a consent to this Sublease executed by Overlandlord in accordance with Section 6.7 hereof and (b) expire upon the expiration date of the Overlease (i.e., March 31, 2020) (the “ Sublease Expiration Date”) . Subtenant acknowledges and agrees that Sublandlord has no obligation to, and does not intend to, exercise the options to extend the current term of the Overlease set forth in Section 4.2 of the Second Amendment.

1.3. Delivery Date. The Subpremises shall be delivered to the Subtenant on the Sublease Commencement Date; provided, however, that prior to the Sublease Commencement Date and so long as (i) Overlandlord has executed a consent to the Sublease in accordance with Section 6.7 hereof, and (ii) Subtenant has delivered the insurance certificate in accordance with Section 5.2 hereof, Subtenant and its contractors and consultants shall be permitted to enter the Subpremises with no obligation to pay Subrent until the Sublease Commencement Date except as set forth below, to install cabling, equipment, telecommunications, computers and furniture (collectively, “ Fixturizing”) and to use the Subpremises for conduct of Subtenant’s business in accordance with this Sublease. The first date on which the Subpremises is first accessed under this Section 1.3 shall be the “ Early Access Date ”. Subtenant shall hold Sublandlord harmless from and indemnify, protect and defend Sublandlord from and against any Claim relating to or arising out of any loss or damage to the Building, or Subpremises, or any injury to any persons, that results from Subtenant’s access to the Premises pursuant to this Section 1.3 . Additionally, if Subtenant uses the Subpremises for conducting Subtenant’s business prior to the Sublease Commencement Date, then Subtenant hereby agrees that it shall abide by the terms and conditions set forth in this Sublease during that time as if the Sublease Term had commenced; provided, however, that during the period prior to the Sublease Commencement Date, in lieu of the Base Subrent set forth in Section 2.1 below, Subtenant shall pay to Sublandlord an amount equal to One Thousand Dollars ($1,000.00) per month, divided by the number of days of such person’s occupancy, for each person who occupies the Subpremises during such period.

1.4 Shared Occupancy Period. Notwithstanding anything in this Sublease to the contrary, Sublandlord shall have the right to continue to occupy and use, until December 31, 2015 (the “ Shared Occupancy Period ”), (a) the portion of the office area within the Subpremises depicted on Exhibit S-B (the “ Sublandlord Office Area ”) and (b) the computer room within the

 

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Subpremises depicted on Exhibit S-B (the “ Computer Room ”). Sublandlord shall also have the right during the Shared Occupancy Period to use the conference rooms, kitchens, patios and similar areas within the Subpremises from time to time, subject to availability and Subtenant’s reasonable requirements relating to same. Additionally, after the Shared Occupancy Period expires, Sublandlord shall have the right, in its sole discretion, to continue to occupy and use the Computer Room, or portions thereof, on a month to month basis for up to an additional six (6) months, provided Sublandlord credits against the monthly Subrent payable hereunder a sum equal to the product of the usable square footage of the Computer Room exclusively used by Sublandlord multiplied by $3.65 (i.e. the monthly per square foot Subrent payable during such period). Sublandlord’s right to the use and occupancy of the Sublandlord Office Area and the Computer Room pursuant to the foregoing shall be exclusive, except that (y) Subtenant and its employees and invitees shall have a right to walk through the Sublandlord Office Space to the extent reasonably necessary to get to and from the Subpremises to the remainder of the Building and (z) Subtenant shall have the right to use portions of the Computer Room and the conduits serving same to the extent reasonably necessary in connection with Subtenant’s information systems provided that such use doesn’t interfere with or otherwise adversely affect Sublandlord’s use of the Computer Room and doesn’t result in any additional costs or expenses to Sublandlord.

Sublandlord shall not be obligated to pay any rent or other compensation to Subtenant (or give Subtenant any credit or offset against Subtenant’s obligations hereunder) for the use of the Subpremises as set forth in this Section 1.4 except (i) during the Shared Occupancy Period, Subtenant shall receive a credit against the Subrent payable hereunder equal to twenty percent (20%) of the cost of electricity provided to the Subpremises during the Shared Occupancy Period and (ii) if Sublandlord uses the Computer Room during any period following the Shared Occupancy Period, Subtenant shall receive a credit against the Subrent payable hereunder during such period equal to the product of (A) the sum of (1) the Base Subrent accruing hereunder during such period, (2) Tenant’s Share of Direct Expenses (as defined and calculated under the Overlease) accruing under the Overlease during such period and (3) the cost of electricity provided to the Subpremises during such period times (B) a fraction, the numerator of which is the square footage of the Computer Room (minus the square footage of any portion of same being used by Subtenant pursuant to this Section 1.4) and the denominator of which is the square footage of the entire Subpremises.

While acknowledging that the Sublandlord Office Area and the remainder of the Subpremises will not be separated by a demising wall or other such physical barrier, Sublandlord and Subtenant each agrees to respect and maintain the privacy and confidentiality of the other party’s business and to reasonably cooperate with the other party in implementing any reasonable security measures, procedures or protocols intended to ensure such privacy and confidentiality.

2. Subrent. Subtenant agrees to pay Sublandlord rent under this Sublease (the “ Subrent”) in the following amounts at the following times, prorated daily for partial periods:

2.1. Base Subrent. Subject to the last sentence of Section 1.3 above, Subtenant shall pay “ Base Subrent ” to Sublandlord for the Subpremises in monthly installments from and after the Sublease Commencement Date through the Expiration Date, in the corresponding amount for each such month (each a “ Lease Month ”) set forth on Exhibit S-C attached hereto. At Overlandlord’s

 

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election from time to time, Subtenant shall pay Base Subrent directly to Overlandlord and send concurrent evidence of such payment to Sublandlord.

2.2. Additional Subrent. From and after the Sublease Commencement Date through the Expiration Date, Subtenant shall pay directly to Overlandlord, as “ Additional Subrent ,” all amounts (other than the Base Rent) payable to Overlandlord under the Overlease, including but not limited to Tenant’s Share of Direct Expenses thereunder. Notwithstanding anything in the foregoing to the contrary, Additional Subrent shall exclude any charges to the extent such charges arise from (i) goods or services provided to or work performed for the benefit of Sublandlord, or (ii) the negligence or willful misconduct of Sublandlord. Subtenant shall pay each such item of Additional Subrent at least three (3) business days before the Overlease requires Sublandlord to make such payment to Overlandlord. At Sublandlord’s election from time to time, Subtenant shall pay Additional Subrent directly to Overlandlord and send concurrent evidence of such payment to Sublandlord.

2.3. Letter of Credit. Concurrently with Subtenant’s execution of this Sublease, Subtenant shall deliver to Sublandlord an unconditional, irrevocable and renewable letter of credit (“ Letter of Credit ”) in favor of Sublandlord in the form attached hereto as Exhibit S-D attached hereto issued by a financial institution satisfactory to Sublandlord, in the principal amount (“ Stated Amount ”) specified below, to be held by Sublandlord in accordance with the terms, provisions and conditions of this Sublease. Subtenant shall pay all expenses, points and/or fees incurred by Subtenant in obtaining, maintaining, modifying, reducing and/or replacing the Letter of Credit. If the Letter of Credit delivered by Subtenant is inconsistent with the form attached hereto as Exhibit S-D (including, without limitation, the wrong name or address for the Beneficiary), Sublandlord may so notify Subtenant in writing, in which case Subtenant shall cause the Letter of Credit to be corrected within ten (10) business days after such notice. If the issuer of the Letter of Credit is declared to be insolvent by the Federal Deposit Insurance Corporation (or any comparable institution) or becomes a debtor in any case or proceeding under the Bankruptcy Code or any similar law or statute, or ceases to conduct business for any reason, Sublandlord may so notify Subtenant, in which case Subtenant shall, within ten (10) business days after such notice from Sublandlord, provide Sublandlord with a new Letter of Credit which otherwise meets the requirements of this Section 2.3 issued by a substitute financial institution reasonably satisfactory to Sublandlord. The Stated Amount shall initially be Five Hundred Thousand Dollars ($500,000.00); provided, however, that, except as hereinafter provided, (a) commencing on the first (1 st ) day of the first (1 st ) full month following the one (1) year anniversary of the Sublease Commencement Date and thereafter on the first (1 st ) day of each subsequent month through month fifty-eight (58) of the Sublease Term, the Stated Amount may be reduced by Four Thousand Nine Hundred Seventy Nine and 57/100 Dollars ($4,979.57); provided, however, that the aggregate reduction pursuant to this clause (a) shall in no event exceed Two Hundred Thirty Four Thousand Forty Dollars ($234,040.00) and (b) on each of December 5, 2019, January 5, 2020, February 5, 2020 and March 5, 2020, the Stated Amount may be reduced by Sixty Six Thousand Four Hundred Ninety Dollars ($66,490.00). Each of the foregoing dates on which the Stated Amount may be reduced is hereafter referred to as an “ Adjustment Date ”.

However, if (i) a default by Subtenant occurs under this Sublease, or (ii) circumstances exist that would, with notice or lapse of time, or both, constitute a default by Subtenant, and Subtenant has failed to cure such default or circumstances within the time period permitted

 

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hereunder or such lesser time as may remain before the relevant Adjustment Date as provided above, the Stated Amount shall not thereafter be reduced unless and until such default or circumstances shall have been fully cured pursuant to the terms of this Sublease, at which time the Stated Amount may be reduced as hereinabove described. The Letter of Credit shall state that an authorized officer or other representative of Sublandlord may make demand on Sublandlord’s behalf for the Stated Amount of the Letter of Credit, or any portion thereof, and that the issuing bank must immediately honor such demand, without qualification or satisfaction of any conditions, except the proper identification of the party making such demand. In addition, the Letter of Credit shall indicate that it is transferable in its entirety by Sublandlord as beneficiary and that upon receiving written notice of transfer, and upon presentation to the issuing bank of the original Letter of Credit, the issuer or confirming bank will reissue the Letter of Credit naming such transferee as the beneficiary. Sublandlord shall be responsible for the payment to the issuing bank of any transfer costs imposed by the issuing bank in connection with any such transfer. If (A) the term of the Letter of Credit held by Sublandlord will expire prior to the last day of the Sublease Term and the Letter of Credit is not extended, or a new Letter of Credit for an extended period of time is not substituted, in either case at least sixty (60) days prior to the expiration of the Letter of Credit, or (B) Subtenant commits a default with respect to any provision of this Sublease, including the filing of a voluntary petition under Title 11 of the United States Code (i.e., the Bankruptcy Code), or otherwise becomes a debtor in any case or proceeding under the Bankruptcy Code, as now existing or hereinafter amended, or any similar law or statute, Sublandlord may (but shall not be required to) draw upon all or any portion of the Stated Amount of the Letter of Credit, and the proceeds received from such draw shall constitute Sublandlord’s property (and not Subtenant’s property or the property of the bankruptcy estate of Subtenant) and Sublandlord may then use, apply or retain all or any part of the proceeds (1) for the payment of any sum which is in default, (2) to reimburse Sublandlord for costs incurred by Sublandlord in connection with this Sublease (including, without limitation, any brokerage commissions and attorneys’ fees), (3) for the payment of any other amount which Sublandlord may spend or become obligated to spend by reason of Subtenant’s default, (4) to compensate Sublandlord for any loss or damage which Sublandlord may suffer by reason of Subtenant’s default or (5) as prepaid rent to be applied against Subtenant’s Base Subrent obligations for the last month of the Sublease Term and the immediately preceding month(s) of the Sublease Term until the remaining proceeds are exhausted. If any portion of the Letter of Credit proceeds are so used or applied, Subtenant shall, within ten (10) days after demand therefor, post an additional Letter of Credit in an amount to cause the aggregate amount of the unused proceeds and such new Letter of Credit to equal the Stated Amount required by this Section 2.3. Sublandlord shall not be required to keep any proceeds from the Letter of Credit separate from its general funds. The Letter of Credit or any remaining proceeds of the Letter of Credit held by Sublandlord, after any use, application or retention of same by Sublandlord permitted by this Section 2.3, shall be returned to Subtenant or, at Sublandlord’s option, to the last assignee of Subtenant’s interest hereunder, within sixty (60) days following (a) the expiration of the Sublease Term or (b) any earlier termination of this Sublease, provided that the Overlease has also been terminated, Overlandlord has fully released Sublandlord and all guarantors of the Overlease from liability under the Overlease and such guarantees and Overlandlord has returned to Sublandlord all deposits and other amounts due Sublandlord under the terms of the Overlease.

The use, application or retention of the Letter of Credit and/or the proceeds or any portion thereof, shall not prevent Sublandlord from exercising any other rights or remedies provided

 

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under this Sublease, it being intended that Sublandlord shall not be required to proceed against the Letter of Credit, and such use, application or retention of the Letter of Credit shall not operate as a limitation on any recovery to which Sublandlord may otherwise be entitled. No trust relationship is created herein between Sublandlord and Subtenant with respect to the Letter of Credit.

Sublandlord and Subtenant acknowledge and agree that in no event or circumstance shall the Letter of Credit, any renewal thereof or substitute therefor or the proceeds thereof be (i) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a “security deposit” within the meaning of such Section 1950.7. The parties hereto (A) recite that the Letter of Credit is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (“ Security Deposit Laws ”) shall have no applicability or relevancy thereto and (B) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws. Notwithstanding the foregoing, to the extent California Civil Code Section 1950.7 in any way: (a) is applicable to this Sublease or the Letter of Credit (or any proceeds thereof); or (b) controls Sublandlord’s rights to draw on the Letter of Credit or apply the proceeds of the Letter of Credit to any amounts due under the Sublease or any damages Sublandlord may suffer following termination of this Sublease, then Subtenant fully and irrevocably waives the benefits and protections of Section 1950.7 of the California Civil Code, it being agreed that Sublandlord may recover from the Letter of Credit (or its proceeds) all of Sublandlord’s damages under this Sublease and California law including, but not limited to, any damages accruing upon the termination of this Sublease in accordance with this Sublease and Section 1951.2 of the California Civil Code.

3. Incorporation of Overlease. The Overlease, as it relates to the Subpremises, is incorporated by reference in this Sublease, except as follows.

3.1.1. Defined Terms. Wherever the Overlease refers to a term in the left-hand column of the following table, this Sublease shall be deemed to refer to the adjacent term in the right-hand column of the table. All other defined terms in the Overlease shall be deemed appropriately modified, as necessary in, to reflect the circumstances of this Sublease.

 

Each Reference to:

  

Shall be Deemed Replaced by a Reference to:

Additional Rent    Additional Subrent
Base Rent    Base Subrent

 

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Each Reference to:

  

Shall be Deemed Replaced by a Reference to:

Landlord   

Sublandlord; except:

 

“Landlord” shall be deemed replaced by a reference to “Sublandlord and Overlandlord” for purposes of the following provisions: (1) Section 6.6, (2) the fourth sentence of Section 7.1, (3) Section 10.5, (4) the first sentence of Section 11.1, (5) Article 28 and (6) Section 29.32.

 

“Landlord” shall be replaced with “Sublandlord or Overlandlord” for purposes of the following provisions: (1) Section 5.3, and (2) Section 10.1.

 

“Landlord” shall be deemed replaced by “Overlandlord” for purposes of the following provisions: (1) Section 4.2.4, (2) Section 4.2.5.1, (3) Section 4.2.5.2, (4) Section 4.2.5.4, (5) the last sentence of Section 4.4.2, (6) Section 4.5.1, (7) Section 4.5.2, (8) Article 6, (9) the first sentence of Section 7.1, (10) Section 10.2, (11) Section 11.1 except for the reference in the first sentence thereof, (12) Section 11.2, (13) Article 23, (14) Section 29.15, (15) 29.26, (16) Section 29.30 except for the reference in the first sentence thereof, and (17) Section 29.34.

Landlord Parties    Sublandlord and Overlandlord Parties
Lease   

Sublease; except:

 

“Lease” shall be replaced by “Sublease and Overlease” for purposes of Section 29.28.

Lease Expiration Date    Sublease Expiration Date
Lease Term    Sublease Term
Lease Commencement Date    Sublease Commencement Date (except for purposes of Sections 4.2.4 and 4.2.5)
Premises    Subpremises
Sublease    Sub-Sublease
Tenant    Subtenant
Tenant Parties    Subtenant Parties

 

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In addition to the foregoing replacements, to the extent any capitalized terms used in the Overlease are defined herein, such terms shall be given the meanings ascribed to them in this Sublease.

3.1.2. Exclusions. The following Sections, Articles, Exhibits and Amendments of the Overlease shall not be incorporated herein by reference or otherwise apply to this Sublease: the preamble of the Overlease, Sections 1.2, 2.2, 4.2.5.5, 4.2.7, 4.6, 6.7 and 7.2 and Articles 18, 21, 22 and 23, Exhibits B, G and H, the First Amendment to Office Lease and Sections 2.2, 3.1(a), 3.1(c), 3.2, 4.2, 5.2, 9, 11 and Exhibit B to the Second Amendment.

3.1.3. Amendments for Purposes of Sublease Incorporation of Overlease. For purposes of incorporation herein, only, the following amendments are made to the Overlease:

A. The following sections of the “Summary of Basic Lease Information” in Section 1 of the Overlease are hereby amended and restated in their entirety as follows:

 

TERMS OF SUBLEASE

  

DESCRIPTION

1.      Date:

   January 30, 2015

2.      Subpremises:

  

2.2    Subpremises:

   Approximately 15,784 rentable (14,414 usable) square feet, located on the 6 th floor of the Building as depicted on Exhibit S-B attached hereto.

3.      Sublease Term ( Article 2 ):

  

3.1    Length of Time:

   Approximately five (5) years and two (2) months.

3.2    Sublease Commencement Date:

   The date that is the later of: (i) February 1, 2015, or (ii) one (1) business day after the date when Sublandlord delivers to Subtenant a consent to this Sublease executed by Overlandlord in accordance with Section 6.7 of the Sublease.

3.3    Sublease Expiration Date:

   March 31, 2020.

4.      Base Subrent ( Article 3 ):

   As set forth on Exhibit S-C to the Sublease.

5.      Base Year:

   2015.

 

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TERMS OF SUBLEASE

  

DESCRIPTION

6.      Tenant’s Share:

   Approximately 7.5536%.

8.      [Intentionally Omitted]

  

9.      Parking Pass Ratio ( Article 28 , as amended by Paragraph 8 of the Second Amendment):

   Four and one-half (4  1 2 ) parking passes for every 1,000 rentable square feet of the Subpremises, fourteen (14) of which may be for use on reserved covered parking spaces individually designated for particular employees of Subtenant and the balance of which may be for use on non-reserved parking spaces, all as more particularly set forth in Article 28 and the Second Amendment. Notwithstanding anything to the contrary contained herein, Sublandlord shall, during the Shared Occupancy Period, retain the exclusive rights to the use of the three (3) parking spaces numbered 1 through 3 as of the date of this Sublease.

 

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TERMS OF SUBLEASE

  

DESCRIPTION

10.    Address of Subtenant ( Section 29.18 ):

   Prior to Sublease Commencement Date:
  

EvoFem Inc.

8910 University Center Lane,

Suite 120

San Diego, CA 92122

Attention: Chief Financial Officer

   After Sublease Commencement Date:
  

EvoFem Inc.

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Chief Financial Officer

   with copy to:
  

K&L Gates LLP

1 Park Plaza, Twelfth Floor

Irvine, CA 92614

Attn: Adam C. Lenain

11.    Addresses of Sublandlord and Overlandlord:

  

11.1 Address of Sublandlord:

   Prior to Sublease Commencement Date:
  

Relational Investors LLC

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Jay Sitlani

   After Sublease Commencement Date:
  

Relational Investors LLC

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Jay Sitlani

 

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TERMS OF SUBLEASE

  

DESCRIPTION

11.2 Address of Overlandlord:

  

Kilroy Realty Corporation

12200 West Olympic Boulevard,

Suite 200

Los Angeles, California 90064

Attention: Legal Department

 

with copies to:

 

Kilroy Realty Corporation

12200 West Olympic Boulevard,

Suite 200

Los Angeles, California 90064

Attention: Mr. John Fucci

 

and

 

Kilroy Realty Corporation

3611 Valley Centre Drive, Suite 250

San Diego, California 92130

Attention: Mr. Brian Galligan

 

and

 

Allen Matkins Leck Gamble &

Mallory LLP

1901 Avenue of the Stars, Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

12.    Broker ( Section 29.24 ):

   Cassidy Turley San Diego (Tom van Betten)

B. Section 1.1.1 is hereby amended by deleting the following phrase: “and in the Tenant Work Letter attached hereto as Exhibit B (the “ Tenant Work Letter ”)” in its entirety.

C. Section 2.1 is hereby amended by deleting the following parentheticals: (i) “(i.e., December 15, 2004)”, (ii) “(i.e., November 30, 2005)”, and (iii) “(i.e., December 1 st )”, in their entirety.

D. Article 3 is hereby amended by (i) deleting the phrase “in advance on or before the first day of each and every calendar month during the Lease Term” and replacing it with “in advance on or before the second to last day of the preceding calendar month for each and every Sublease Month during the Sublease Term”; and (ii) deleting the last two sentences in the article.

 

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E. Section 4.2.4 is hereby amended by deleting the second proviso in clause (iii).

F. The first sentence of Section 4.4.1 is hereby amended and restated in its entirety as follows: “Sublandlord shall give to Subtenant following the end of each Expense Year, but in no event later than thirty (30) days after Sublandlord receives the corresponding statement from Overlandlord under the Overlease, a statement (the “ Statement ”) which shall state in general major categories the Building Direct Expenses incurred or accrued for the Base Year or such preceding Expense Year, as applicable, and which shall indicate the amount of Excess.”

G. The first sentence of Section 4.4.2 is hereby amended and restated in its entirety as follows: “In addition, Sublandlord shall give Subtenant a yearly expense estimate statement (the “ Estimate Statement ”), but in no event later than thirty (30) days after Sublandlord receives the corresponding statement from Overlandlord under the Overlease, which shall set forth in general major categories, Overlandlord’s commercially reasonable estimate (the “ Estimate ”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “ Estimated Excess ”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year.”

H. Section 6.3 is hereby amended by deleting, in its entirety, the final sentence in the Section.”

I. Section 8.1 is hereby amended by deleting the last sentence in the Section in its entirety.

J. Section 8.5 is hereby amended by deleting the following phrase in its entirety “, and/or (ii) remove any “Above Building Standard Tenant Improvements,” as that term is defined in Section 2.4 of the Tenant Work Letter, located within the Premises and replace the same with then existing “Building Standard Tenant Improvements,” as that term is defined in Section 23 of the Tenant Work Letter”.

K. The first sentence of Section 10.1 is hereby amended and restated in its entirety as follows: “To the extent not prohibited by law and except as otherwise expressly provided herein to the contrary, Subtenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Subpremises from any cause whatsoever and agrees that the Sublandlord and Overlandlord, their partners, subpartners and their respective officers, agents, servants employees, and independent contractors (collectively, “ Sublandlord and Overlandlord Parties ”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Subtenant or other persons claiming through Subtenant.”

L. Section 10.3.2(ii) is hereby amended by deleting the following phrase: “the “Tenant Improvements,” as that term is defined in Section 2.1 of the Tenant Work Letter” in its entirety.

M. Section 10.4 is hereby amended and restated in its entirety as follows:

 

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10.4 Form of Policies . The minimum limits of policies of insurance required of Subtenant under this Sublease shall in no event limit the liability of Subtenant under this Sublease. Such insurance shall (i) name the Sublandlord, the Overlandlord, and any other party the Sublandlord or Overlandlord so specify that has a material financial interest in the Project, as an additional insured, including Overlandlord’s managing agent, if any; (ii) specifically cover the liability assumed by Subtenant under this Sublease, including, but not limited to, Subtenant’s obligations under 10.1 of the Overlease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Sublandlord and Overlandlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Sublandlord and Overlandlord is excess and is non-contributing with any insurance requirement of Subtenant; (v) be in form and content reasonably acceptable to Sublandlord and Overlandlord; and (vi) provide that said insurance shall not be cancelled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Sublandlord and Overlandlord and any mortgagee of Overlandlord, the identity of whom has been provided to the Subtenant in writing. Subtenant shall deliver certificates of said policy or policies to the Sublandlord and the Overlandlord on the Execution Date and at least thirty (30) days before the expiration dates thereof. In the event Subtenant shall fail to procure such insurance, or to deliver such policies or certificates, Sublandlord or Overlandlord may, at their option, after written notice to the Subtenant and Subtenant’s failure to obtain such insurance within five (5) days thereafter, procure such policies for the account of the Subtenant, and the cost thereof shall be paid to Sublandlord or Overlandlord, as the case may be, within thirty (30) days after delivery to Subtenant of bills therefor.

N. Section 14.2 is hereby amended by deleting the last paragraph in the Section in its entirety and inserting the following:

“Sublandlord and Subtenant hereby acknowledge that Subtenant intends to sublease portions of the Subpremises to Woman Care Global Trading, Inc., a Delaware corporation (“ Woman Care Global ”), pursuant to that certain Sublease of even date herewith, a copy of which is attached hereto as Exhibit S-I (“ Woman Care Global Sublease ”). Sublandlord and Subtenant agree that Woman Care Global shall be allowed to occupy portions of the Subpremises, subject to all the terms and conditions hereof. Subtenant (and Guarantor, by virtue of Guarantor’s delivery of the Guaranty of Lease hereinafter described) shall be solely responsible for any acts or omissions of Woman Care Global and Subtenant further acknowledges that Subtenant’s indemnities contained in this Sublease shall apply to the acts or omissions of Woman Care Global. Woman Care Global’s right to occupy portions of the Subpremises shall be subject and subordinate to the provisions of the Overlease and this Sublease and if this Sublease shall be terminated or if Subtenant is in default hereinafter (after expiration of any applicable notice and cure period), the Woman Care Global Sublease and Woman Care Global’s right to occupy a portion of the Subpremises shall be immediately cancelled at the sole option of Sublandlord.”

O. Article 16 is hereby amended by deleting the first sentence of the Section in its entirety and replacing it with the following:

 

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“If Tenant holds over after the expiration of the Sublease Term or an earlier termination thereof, with or without the express or implied consent of the Sublandlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term. If Subtenant holds over after the expiration of the Sublease Term or due to an earlier termination of the Sublease, Subrent shall be payable at a monthly rate equal to 150% of the Subrent applicable under the last rental period of the Sublease Term under this Sublease; provided, however, if Subtenant holds over after the Sublease Expiration Date such that Sublandlord will be deemed to be holding over under the Overlease, Subtenant will be responsible as the Subrent due pursuant to this Sublease for any rent due under the Overlease for the Subpremises as a result of such holdover, such rent to include any applicable increases in rent pursuant to Article 16 of the Overlease.”

P. The first sentence of Article 27 is hereby amended and restated in its entirety as follows:

“Landlord and Overlandlord reserve the right at all reasonable times (during Building Hours with respect to items (i) and (ii) below) and upon at least twenty four (24) hours prior written notice to Subtenant (except in the case of an emergency) to enter the Subpremises to (i) inspect them; (ii) show the Subpremises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or during the last twelve (12) months of the Sublease Term, for to prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Subpremises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment.”

Q. Section 29.18 is hereby amended by (1) deleting the second sentence in the Section in its entirety and replacing it with the following: “Any Notice shall be sent, transmitted, or delivered, as the case may be, to Subtenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Subtenant may from time to time designate in a Notice to Sublandlord, or to Sublandlord at the address set forth in Section 11.1 of the Summary, or to such other places as the Sublandlord may from time to time designate in a Notice to Subtenant.” and (2) deleting the final sentence of the Section and replacing it with the following: “Any notices to the Overlandlord shall be sent, transmitted or delivered, as the case may be, to the address listed in Section 11.2 of the Summary or to such other places as the Sublandlord or Overlandlord may from time to time designate in a Notice to Subtenant.”

R. Section 29.24 is hereby amended and restated in its entirety as follows:

“Sublandlord and Subtenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Sublease, excepting only the real estate broker specified in Section 12 of the Summary (the “ Broker ”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Sublease. Sublandlord shall pay such Broker pursuant to a separate written agreement between Sublandlord and the Broker. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be

 

14


owing on account of any dealings with any real estate broker or agent, other than the Broker, occurring by, through, or under the indemnifying party.

3.1.4. Other. In addition, this Sublease does not incorporate by reference any other terms of the Overlease that, by their nature or purpose, are inapplicable or inappropriate to the subleasing of the Subpremises.

3.1.5. Dispute Resolution. Wherever the Overlease provides a dispute resolution procedure or a procedure to determine any matter relevant to this Sublease, and provided Subtenant is not in default of any provision of this Sublease, Sublandlord and Subtenant shall reasonably cooperate in exercising Sublandlord’s rights under or otherwise complying with such procedure pursuant to the Overlease, and Sublandlord’s rights shall be Sublandlord and Subtenant’s joint rights unless Sublandlord assigns all of its rights to Subtenant. All out of pocket costs (including, but not limited to, attorneys’ fees and costs) reasonably incurred by Sublandlord and Subtenant in complying with such procedure shall be shared equally between Sublandlord and Subtenant unless Sublandlord assigns all of its rights to Subtenant in which case they shall be paid or reimbursed by Subtenant. Subtenant shall have no separate right to invoke such procedure as between Sublandlord and Subtenant.

3.1.6. Representations and Warranties. To the extent that Overlandlord makes any representations and warranties in the Overlease: (a) Sublandlord represents and warrants to Subtenant that Sublandlord is not actually aware of any breach of such representations and warranties; and (b) if any such representations and warranties are breached, then Subtenant shall have no claim against Sublandlord except to the extent of an equitable allocation of any payment, settlement, or rent offset that Sublandlord and Subtenant may obtain from Overlandlord because of such breach. References herein to Sublandlord’s “knowledge” shall refer only to the current actual knowledge of Sublandlord’s Chief Financial Officer, without duty of investigation or further inquiry.

Further, Sublandlord represents and warrants that the Subpremises, including the improvements, fixtures, and furnishings therein, shall be broom clean on the earlier of the Early Access Date and the Sublease Commencement Date.

3.1.7. Interaction of Sublease and Overlease. Wherever this Sublease conflicts with an incorporated term of the Overlease, as incorporated in this Sublease, this Sublease shall govern, but wherever reasonably possible such a conflict shall be resolved by treating Subtenant’s and Sublandlord’s obligations under both documents as cumulative.

3.1.8. Notices. Except as otherwise provided herein, the time limits contained in the Overlease for the giving of notices, curing defaults, making payments, or demands or performing any act, condition or covenant (i) on Overtenant’s part, are changed for the purpose of incorporation herein by reference by shortening the same in each instance by three (3) business days, so that Subtenant shall have less time to observe or perform under this Sublease than Overtenant under the Overlease; provided, however, in no event shall Subtenant have less than two (2) business days to so observe or perform any such act, condition or covenant, and (ii) on Overlandlord’s part, are changed for the purpose of incorporation herein by reference by lengthening the same in each instance by three (3) business days, so that Sublandlord shall have

 

15


more time to observe or perform under this Sublease than Overlandlord under the Overlease. If Sublandlord or Subtenant receives any notice or demand from Overlandlord relating to this Sublease or the Subpremises, said party shall promptly give a copy thereof to the other.

3.2. Compliance with Overlease. Subtenant agrees, solely for the benefit of Sublandlord, to be bound by, and to fully comply with all obligations of Sublandlord arising under, the Overlease, including, but not limited to, all obligations relating to the surrender of the Subpremises to Overlandlord upon the expiration or earlier termination of the Overlease, except to the extent that this Sublease requires Sublandlord to perform any obligation under the Overlease (including Sublandlord’s payment of Sublandlord’s Rent under the Overlease, except as provided otherwise herein). Subtenant shall do nothing that violates the Overlease.

3.3. Abatement Rights. Subtenant may not assert against Sublandlord any right to abate rent that may exist under the Overlease, but if any such right becomes relevant for the Subpremises, then Sublandlord, at Subtenant’s request, shall use reasonable efforts to pursue such abatement. Subtenant shall be entitled to an abatement against Subrent only equal to the lesser of (a) the dollar amount of the abatement that Sublandlord actually recovers on behalf of Subtenant to the extent such abatement arises from Overlandlord’s acts and omissions and is allocated to the Sublease Term or (b) the amount of Subtenant’s Subrent for the portion of the Subpremises Term that such abatement affects.

3.4. Payment of Sublandlord’s Rent. Except to the extent this Sublease requires Subtenant to pay portions of same directly to Overlandlord, and provided that Subtenant complies with its payment obligations and material nonmonetary obligations under this Sublease (including payment of all Subrent when and as due), Sublandlord shall pay Overlandlord all rent required by the Overlease (“ Sublandlord’s Rent”) within the applicable cure periods under the Overlease. This does not limit any express obligation of Subtenant in this Sublease to reimburse Sublandlord for any such rent or pay any other sum.

3.5. Rights and Benefits Under Overlease. To the extent not covered specifically in this Sublease and to the extent that they apply to the Subpremises, Subtenant shall have all the rights, privileges, and benefits granted to or conferred upon Sublandlord as Tenant under the Overlease, provided that Subtenant’s exercise of such rights, privileges, and benefits shall not cause Sublandlord to be in default under the Overlease.

3.5.1. Additional Costs. To the extent Subtenant requires services beyond those provided for in this Sublease, Subtenant shall contract directly with and pay Overlandlord for such services. Such services may include additional cleaning; freight car service; and loading dock security services (the “ Additional Services”) . Subtenant shall indemnify Sublandlord for any costs associated with the Additional Services. If Overlandlord refuses to deal directly with Subtenant about Additional Services, then Sublandlord shall have no liability to Subtenant. Sublandlord shall have no responsibility for Overlandlord’s failure to provide Additional Services except as this Sublease expressly provides.

3.6. Overlandlord’s Performance. Wherever the Overlease (as incorporated by reference in this Sublease) would require Sublandlord to provide any benefit or service, Subtenant shall be entitled to receive such benefit or service directly from Overlandlord under the Overlease, and

 

16


Sublandlord shall have no obligation to provide such benefit or service. Sublandlord shall have no liability to Subtenant, and Subtenant’s obligations under this Sublease shall not be reduced, restricted, diminished, or deferred, if Overlandlord fails to provide any service or benefit required under the Overlease, or to perform any obligation under the Overlease, unless both: (a) Subtenant is not in default under this Sublease; and (b) Overlandlord’s failure results from Sublandlord’s default under the Overlease.

3.7. Preservation of Overlease. Subject to any provision of this Sublease to the contrary, so long as Subtenant is not in default under this Sublease, Sublandlord shall, with respect to all periods within the Sublease Term: (a) preserve the Overlease and keep the Overlease in full force and effect; (b) not, without Subtenant’s written consent, agree to any amendment to the Overlease that would materially adversely affect Subtenant; (c) perform all its obligations under the Overlease, except any obligations Sublandlord contests in good faith in accordance with Sublandlord’s rights under the Overlease; and (d) pay Overlandlord any sums payable to Overlandlord on account of entering into this Sublease. Following any amendment of the Overlease the definition of “ Overlease ” shall be deemed modified to reflect such amendment. Sublandlord shall continue to have the sole right to exercise any and all rights, privileges, and remedies under the Overlease provided such exercise does not materially and adversely affect the rights of Subtenant pursuant to this Sublease.

3.8. Consents. Wherever the Overlease requires Overlandlord’s consent to any action or matter (including any such consent that would be required to be obtained from Overlandlord if such action or matter arose under the Overlease), Subtenant must obtain both Sublandlord’s and Overlandlord’s consent to such action or matter. If Overlandlord consents to any action or matter requiring Overlandlord’s consent but not otherwise expressly referred to in this Sublease, then Sublandlord shall not unreasonably withhold, condition or delay its consent to such action or matter.

3.9. Representations and Warranties. Sublandlord represents and warrants that the Overlease is the entire agreement between Overlandlord and Sublandlord relating to the Premises and is in full force and effect, and neither Sublandlord nor Overlandlord is in default under the Overlease. Subtenant represents and warrants to Sublandlord that Subtenant has reviewed and is fully familiar with the Overlease and the Subpremises. Except as this Sublease provides, neither party makes any representation or warranty about the Overlease, the Subpremises or any other matter.

4. Interaction of Estates; Effect on Overlandlord.

4.1. Priorities. This Sublease is unconditionally subject and subordinate to: (i) the Overlease, as amended from time to time in compliance with this Sublease; (ii) all estates and interests to which the Overlease is subject and subordinate, including any and all underlying ground leases and mortgages affecting Overlandlord’s estate, all as amended or entered into from time to time; and (iii) all the terms, conditions and covenants of items “i” and “ii.” If, pursuant to the Overlease, Overlandlord or Overlandlord’s ground lessor(s) or mortgagee(s) request(s) additional documentation (consistent with such limitations and requirements, if any, as the Overlease provides) to confirm the foregoing subordination, then Subtenant shall promptly execute it.

 

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4.2. Event of Default. Upon an Event of Default, as such term is defined in the Overlease, Overlandlord may enforce the provisions of this Sublease, including collection of rent.

4.3. Termination of Overlease, Reentry or Repossession. In the event of termination of the Overlease for any reason, or in the event of any reentry or repossession of the Subpremises by Overlandlord, Overlandlord may, at its option, either (i) terminate this Sublease or (ii) take over all of the right, title and interest of Sublandlord, as sublessor, under such Sublease, in which case Subtenant shall attorn to Overlandlord, but nevertheless Overlandlord shall not (1) be liable for any previous act or omission of Sublandlord under such Sublease (without limiting Overlandlord’s obligation to cure a default under the Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overlandlord once Subtenant has attorned to Overlandlord, and provided that in no event shall Overlandlord be liable to Subtenant for any damages that the Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), (2) be subject to any defense or offset previously accrued in favor of the Subtenant against Sublandlord (without limiting Overlandlord’s obligation to cure a default under this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overlandlord once Subtenant has attorned to Overlandlord, and provided that in no event shall Overlandlord be liable to Subtenant for any damages that Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), or (3) be bound by any previous modification of this Sublease made without Overlandlord’s written consent, or by any previous prepayment by Subtenant of more than one month’s rent. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee, ground lessor or beneficiary, affecting any mortgage now or hereafter in force against the Building or Project (an “ Underlying Mortgage ”) in order to make such subordination effective. Subtenant, however, shall within ten (10) days of written notice from Overlandlord, execute a commercially reasonable certificate or document that Overlandlord may reasonably request to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease. Notwithstanding the forgoing, the mortgagee, ground lessor or beneficiary of an Underlying Mortgage may elect, at any time by notice given to Subtenant, to subordinate such Underlying Mortgage to this Lease, and no further instrument of subordination shall be required to make such subordination of the Underlying Mortgage effective. Subtenant, however, shall execute promptly any certificate or document requested to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease.

4.4. No Effect on Overlease, Overlandlord. Notwithstanding anything to the contrary in this Sublease, including Overlandlord’s consent to this Sublease: (a) Overlandlord shall have no obligations of any kind to Subtenant; and (b) the Overlease remains in full force and effect between Overlandlord and Sublandlord. Nothing in this Sublease (except upon termination of the Overlease if Overlandlord exercises its right to require Subtenant to recognize and attorn to Overlandlord) shall create any privity or contractual or landlord-tenant relationship of any kind between Overlandlord and Subtenant but Overlandlord shall be a third party beneficiary of Subtenant’s obligations under this Sublease that correspond to obligations of Sublandlord under the Overlease, and shall be entitled to enforce this Sublease.

 

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4.5. Termination of Overlease. If the Overlease terminates for any reason, then, as between Sublandlord and Subtenant, the Sublease Term shall automatically terminate one minute before such termination unless Overlandlord elects or agrees otherwise in writing. Sublandlord’s and Subtenant’s obligations, as between Sublandlord and Subtenant, under this Sublease shall automatically and immediately cease and terminate upon any such expiration of the Sublease Term, but this shall not limit (1) either party’s obligations and liability that accrued before the date of, or as a result of, such termination or (2) Subtenant’s obligations to vacate the Subpremises and return the Subpremises to Sublandlord in the condition required by this Sublease.

 

5. Leasing Covenants.

5.1. Delivery; FF&E; Surrender. Sublandlord shall deliver to Subtenant, and Subtenant shall accept, the Subpremises in its current “AS IS” condition and Sublandlord shall have no obligation, either as to payment or performance, to remodel or renovate the Subpremises or any portion thereof for Subtenant’s use. Sublandlord makes no representation or warranty as to the number of rentable square feet that constitute the Subpremises. Sublandlord shall deliver the Subpremises to the Subtenant vacant other than the furniture, fixtures and equipment described on Exhibit S-E attached hereto (the “ FF&E ”). Any remodeling or renovation of the Subpremises required for Subtenant’s use thereof shall be the sole responsibility of Subtenant. Subtenant shall not perform any work or alterations in preparing the Subpremises for occupancy, or otherwise during the Sublease Term of this Sublease, without the prior written consent of both Sublandlord and Overlandlord.

If the Subpremises are not tendered to Subtenant in the condition required hereby on or before the Sublease Commencement Date, for any reason whatsoever (other than Sublandlord’s willful, intentional and wrongful refusal to deliver such space and subject to the provisions of this Sublease), Sublandlord shall not be liable for any damage thereby, this Sublease shall not be void or voidable thereby, and the Sublease Term shall not commence until Sublandlord tenders possession thereof to Subtenant in the condition required hereby.

During the Sublease Term, Subtenant shall be entitled to the exclusive use of the FF&E (except the portions to be used by Sublandlord within the Sublandlord Office Area and subject to Sublandlord’s rights hereunder to use conference rooms, kitchens, patios and similar areas during such Shared Occupancy Period) for no consideration other than the payment of the Sublease Rent. Subtenant acknowledges that no representations with respect to the condition of any of the FF&E have been made or will be made to Subtenant. Upon the expiration or earlier termination of the Sublease Subtenant shall be obligated to purchase the FF&E from Sublandlord for an amount equal to the lesser of (a) then then-value of the FF&E, as agreed upon by the Sublandlord and Subtenant on or before the expiration or earlier termination of the Sublease, or if no such agreement is reached as determined by a qualified appraiser mutually chosen by Sublandlord and Subtenant and (b) Forty Nine Thousand Dollars ($49,000.00). The appraisal shall be performed no later than thirty (30) days prior to the expiration or earlier termination of this Sublease (except in the case of termination due to a default) and the payment for the purchase shall be made by Subtenant to Sublandlord in cash or other immediately-available funds prior to or concurrently with the expiration or earlier termination of this Sublease. Sublandlord and Subtenant shall share equally the cost of the appraisal.

 

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At the end of the Sublease Term Subtenant shall remove from the Subpremises all of Subtenant’s furniture, belongings, personal property, trash, debris, and all other movable items of any kind in accordance with the Overlease and shall perform, at its sole cost and expense, all other obligations under the Overlease relating to the surrender of the Subpremises. Without in any way limiting Subtenant’s obligations under Section 3.2 above or the other provisions of this Sublease, Subtenant acknowledges that it will be solely responsible for any holdover rent, indemnification obligations or other penalties or obligations under the Overlease arising from Subtenant’s failure to timely surrender the Subpremises and/or perform any other obligations under the Overlease relating to the surrender of the Subpremises.

5.2. Insurance. Subtenant shall provide all insurance required by Article 10 of the Overlease, as incorporated in this Sublease, for the Subpremises during the Sublease Term and shall deliver to Sublandlord upon execution of this Sublease and at least thirty (30) days before expiration of each insurance policy, certificates of such insurance. Such certificates shall: (a) designate Sublandlord and Overlandlord as additional insureds; and (b) provide that the insurance they evidence shall not be cancelled or terminated without thirty (30) days prior written notice to Sublandlord and Overlandlord. A copy of Subtenant’s initial certificate of insurance is attached hereto as Exhibit S-F.

5.3. Default; Remedies. Notwithstanding anything to the contrary in this Sublease, if Subtenant defaults in performing any obligation under this Sublease or commits a default under this Sublease, including the terms of the Overlease as incorporated in this Sublease, then Subtenant shall remedy such default within the applicable cure period (if any as amended by the Sublease), which period shall automatically commence to run against Subtenant at the same time it commences to run against Sublandlord provided that (in the case of a default by Subtenant under the Overlease) Sublandlord gives Subtenant, with reasonable promptness after receipt by Sublandlord, a copy of Overlandlord’s notice of default. An “ Event of Default” shall exist if (a) Subtenant fails to so remedy any such default, (b) an Event of Default occurs under the Overlease as a result of any breach, default or act by Subtenant, or (c) an Event of Default occurs under the Overlease as incorporated into this Sublease. If Subtenant fails to perform its obligations under this Sublease (including the Overlease as incorporated by reference), then Sublandlord shall be entitled to exercise against Subtenant all remedies provided for in the Overlease (as incorporated by reference) in the case of Sublandlord’s default under the Overlease, and any other remedies available at law or in equity. If an Event of Default occurs, then Sublandlord shall be entitled to exercise against Subtenant all remedies provided for in the Overlease (as incorporated by reference) in the case of Sublandlord’s Event of Default under the Overlease, and any other remedies available at law or in equity. To the extent that Subtenant’s default under this Sublease causes Sublandlord to incur liability to Overlandlord or any loss, cost, damage or expense to Overlandlord, including payment of any holdover rent or other damages to Overlandlord, Subtenant shall indemnify, defend, and hold harmless Sublandlord against all such liability, loss, cost, damage, and expense, including the payment of reasonable attorneys’ fees.

5.4. Signage. Subtenant’s sublease of the Sublease Premises includes all of Sublandlord’s rights under the Overlease to signage, subject to the terms and conditions of the Overlease and provided that Sublandlord shall have the right to continue to be listed on one name strip in the Building’s directory during the Shared Occupancy Period. Sublandlord agrees to reasonably

 

20


cooperate with Subtenant in connection with the transfer of Sublandlord’s signage rights to Subtenant pursuant to this Sublease; provided, however, any costs associated with modifications to such signage or costs or fees payable to Overlandlord in connection therewith shall be Subtenant’s sole cost and expense.

5.5 Parking. Except as set forth in the following sentence, Subtenant’s sublease of the Sublease Premises includes all of Sublandlord’s parking rights under the Overlease, subject to the terms and conditions of the Overlease. Notwithstanding the foregoing, Sublandlord shall, during the Shared Occupancy Period, retain the exclusive rights to the use of the three (3) parking spaces numbered 1 through 3 as of the date of this Sublease.

5.6 Refurbishment Allowance. Subtenant’s sublease of the Sublease Premises includes all of Sublandlord’s remaining rights under the Overlease to the “Refurbishment Allowance” referred to in Section 7 of the Second Amendment, subject to the terms and conditions of said Section 7 and any other applicable terms and conditions of the Overlease. Sublandlord represents and warrants that Sublandlord has not yet submitted any request to Overlandlord for payment of any portion of the Refurbishment Allowance, however, Sublandlord has incurred certain costs thus far, which Sublandlord shall have the right to be reimbursed from the Refurbishment Allowance. Further, the Refurbishment Allowance shall be reduced by any amount deducted by Overlandlord therefrom as permitted under the Second Amendment. Notwithstanding the foregoing, Sublandlord agrees that the Refurbishment Allowance made available to Subtenant will equal at least $8.50 per rentable square foot of the Subpremises.

 

6. Miscellaneous .

6.1. Defined Terms. Capitalized terms used herein but not defined herein shall have the meanings given to them in the Overlease (as such terms may be modified by this Sublease). Exhibit S-G attached hereto provides a list of the terms defined in this Sublease.

6.2 . Attorneys’ Fees. If this Sublease is the subject of any litigation (including litigation to enforce an indemnity), then the prevailing party shall be entitled to recover all costs incurred, including reasonable attorneys’ fees.

6.3. Further Assurances. Each party shall execute and deliver such further documents, and perform such further acts, as may be reasonably necessary to achieve the intent of the parties as expressed in this Sublease. In the case of the Overlandlord and Sublandlord, they agree to execute such documents as Subtenant’s lenders may reasonably require to preserve the lenders’ rights to access Subtenant’s personal property under certain circumstances (i.e., Landlord’s Consent to Removal of Personal Property.) Each party shall deliver reasonable estoppel certificates within ten days after request by the other party.

6.4. Interpretation. Although the first draft of this Sublease was prepared by Sublandlord, this Sublease shall not be construed against whichever party was the “drafter” of this Sublease. Wherever either party agrees not to unreasonably withhold consent to any matter, such consent shall not be unreasonably conditioned or delayed. The word “include” and its variants shall in each case be interpreted as if followed by the words: “without limitation.”

 

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6.5. Execution. This Sublease shall not be effective in any way (or create any obligations of any kind) unless and until it has been executed and delivered by both parties and approved by Overlandlord. This Sublease or any amendment hereto may be executed by facsimile transmission or by email. Any party executing this Sublease or any amendment hereto by facsimile transmission or by email covenants to promptly deliver original executed counterparts of this Sublease (or amendment hereto) to the other party. This Sublease may be executed in counterparts.

6.6. Assignment of Overlease. If Sublandlord assigns the Overlease, then Sublandlord shall simultaneously assign this Sublease to the same assignee and require such assignee to assume Sublandlord’s obligations under this Sublease, and Sublandlord shall be released from all of its obligations hereunder.

6.7. Overlandlord’s Consent. This Sublease shall be of no force or effect unless and until consented to by Overlandlord (which consent shall be deemed to include any consent to the sublease of parking spaces required under Article 28 of the Overlease, consent to the use of the Subpremises by employees of Subtenant’s affiliates as set forth in Section 3.10 hereof, and Subtenant’s rights to any remaining Refurbishment Allowance) by Overlandlord’s executing either: (a) the Overlandlord’s Consent at the end of this Sublease; or (b) Overlandlord’s standard form of sublease consent, if any, provided that such standard form of sublease consent is unconditional (other than a condition requiring execution by Sublandlord or Subtenant) and irrevocable and does not require Subtenant or Sublandlord to make any payment or assume any material obligation not expressly required by this Sublease or by the express terms of the Overlease (the “ Standard Overlandlord Consent ”). Sublandlord shall promptly submit this fully executed Sublease to Overlandlord for Overlandlord’s consent. Sublandlord shall promptly notify Subtenant if and when Sublandlord’s consent has been obtained. If Sublandlord doesn’t obtain Overlandlord’s consent on or before January 15, 2015, then at any time before such consent has actually been obtained either party may, by notice to the other, terminate this Sublease unless Sublandlord obtains Overlandlord’s consent within ten (10) business days following the receipt of such notice, and upon such termination neither party shall have any further rights or obligations under this Sublease. Sublandlord and Subtenant each agrees to execute the Standard Overlandlord Consent if required by its terms. Notwithstanding anything to the contrary in this Sublease, Subtenant shall not enter into possession of the Subpremises unless and until Overlandlord shall have consented to this Sublease. Nothing in this paragraph shall expand Overlandlord’s right to withhold consent to this Sublease beyond any such rights as Overlandlord may have under the Overlease.

6.8. Guaranty. Concurrently with its execution of this Sublease, and as a condition to Sublandlord’s obligations hereunder, Subtenant shall deliver to Landlord the Sublease Guaranty attached hereto as Exhibit S-H (the “ Guaranty ”), duly executed by EvoMed LLC, a Delaware limited liability company (“ Guarantor ”).

6.9. Financial Statements. Subtenant agrees that it shall promptly furnish to Sublandlord, following the expiration of each calendar quarter during this Sublease Term, financial statements reflecting Subtenant’s then financial condition. Such financial statements shall be the quarterly unaudited financial statements Subtenant prepares for its own purposes, and the fiscal year periods shall be prepared in accordance with generally accepted accounting principles and shall

 

22


be audited by an independent certified public accountant. Notwithstanding the foregoing, in the event that Subtenant becomes a publicly traded corporation, then for so long as Subtenant is a publicly traded corporation with financial information available on-line, Subtenant’s obligations under this Section 6.9 shall be deemed satisfied.

No Further Text on This Page.

 

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IN WITNESS WHEREOF , Sublandlord and Subtenant have executed this Sublease as of the Execution Date.

 

SUBLANDLORD

RELATIONAL INVESTORS LLC,

a Delaware limited liability company

/s/ David H. Batchelder

By:   David H. Batchelder
Its:   Managing Member

 

Date Executed: January 30, 2015

/s/ Jay N. Sitlani

By:   Jay N. Sitlani
Its:   Chief Financial Officer
Date Executed: January 30, 2015

 

SUBTENANT

EVOFEM, INC.,

a Delaware corporation

/s/ Saundra Pelletier

By:   Saundra Pelletier
Its:   Chief Executive Officer

 

Date Executed: January 30, 2015

/s/ Chad Putnam

By:   Chad Putnam
Its:   Chief Financial Officer
Date Executed: January 30, 2015

 

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     Attachments:      
Exhibit S-A   -    Overlease      
Exhibit S-B   -    Depiction of Subpremises      
Exhibit S-C   -    Subrent Schedule      
Exhibit S-D   -    Form of Letter of Credit      
Exhibit S-E   -    Furniture Inventory      
Exhibit S-F   -    Subtenant’s Initial Certificate of Insurance      
Exhibit S-G   -    Sublease Defined Terms      
Exhibit S-H   -    Sublease Guaranty      
Exhibit S-I   -    Woman Care Global Sublease      

 

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EXHIBIT S-A

OVERLEASE

[ATTACHED]

 

Exhibit S-A


OFFICE LEASE

KILROY REALTY

DEL MAR CORPORATE CENTRE

K ILROY R EALTY , L.P.,

a Delaware limited partnership,

as Landlord,

and

R ELATIONAL A DVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof,

and

R ELATIONAL I NVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof,

collectively, as Tenant.

 

     

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


TABLE OF CONTENTS

 

          Page  
ARTICLE 1    PREMISES, BUILDING, PROJECT, AND COMMON AREAS      5  
ARTICLE 2    LEASE TERM; OPTION TERM(S)      6  
ARTICLE 3    BASE RENT      10  
ARTICLE 4    ADDITIONAL RENT      11  
ARTICLE 5    USE OF PREMISES      21  
ARTICLE 6    SERVICES AND UTILITIES      22  
ARTICLE 7    REPAIRS      26  
ARTICLE 8    ADDITIONS AND ALTERATIONS      27  
ARTICLE 9    COVENANT AGAINST LIENS      30  
ARTICLE 10    INSURANCE      30  
ARTICLE 11    DAMAGE AND DESTRUCTION      34  
ARTICLE 12    NONWAIVER      36  
ARTICLE 13    CONDEMNATION      37  
ARTICLE 14    ASSIGNMENT AND SUBLETTING      37  
ARTICLE 15    SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES      43  
ARTICLE 16    HOLDING OVER      43  
ARTICLE 17    ESTOPPEL CERTIFICATES      44  
ARTICLE 18    SUBORDINATION      44  
ARTICLE 19    DEFAULTS; REMEDIES      45  
ARTICLE 20    COVENANT OF QUIET ENJOYMENT      48  
ARTICLE 21    SECURITY DEPOSIT      48  
ARTICLE 22    TELECOMMUNICATIONS EQUIPMENT      50  
ARTICLE 23    SIGNS      51  

 

   (i)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


ARTICLE 24    COMPLIANCE WITH LAW    53
ARTICLE 25    LATE CHARGES    54
ARTICLE 26    LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT    54
ARTICLE 27    ENTRY BY LANDLORD    55
ARTICLE 28    TENANT PARKING    56
ARTICLE 29    MISCELLANEOUS PROVISIONS    57

 

   (ii)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


INDEX

 

     Page(s)  

Accountant

     21  

Additional Notice

     25  

Additional Rent

     11  

Advocate Arbitrators

     9  

Affiliate

     42  

Alterations

     27  

Applicable Laws

     54  

Award

     10  

Bank Prime Loan

     54  

Base Building

     28  

Base Rent

     10  

Base Year

     11  

BOMA

     6  

Brokers

     61  

BS/BS Exception

     26  

Building Common Areas

     5  

Building Common Areas

     5  

Building Hours

     22  

Building Structure

     26  

Building Systems

     26  

Building-Top Sign

     52  

CC&Rs

     22  

CD

     49  

Comparable Area

     8  

Comparable Buildings

     8  

Comparable Deals

     7  

Comparable Term

     8  

Control

     42  

Cosmetic Alterations

     27  

Direct Expenses

     11  

Early Term Sublease

     40  

Eligibility Period

     25  

Environmental Laws

     64  

Estimate

     19  

Estimate Statement

     19  

Estimated Excess

     19  

Excess

     18  

Exercise Notice

     8  

Expense Year

     11  

Force Majeure

     59  

Hazardous Material(s)

     64  

Holidays

     22  

HVAC

     22  

Initial Notice

     25  

 

   (iii)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


     Page(s)  

Interest Rate

     54  

Landlord

     1  

Landlord Default

     25  

Landlord Parties

     30  

Landlord Repair Notice

     34  

Landlord Response Date

     9  

Landlord Response Notice

     9  

Landlord’s Option Rent Calculation

     9  

Lease

     1  

Lease Commencement Date

     6  

Lease Expiration Date

     6  

Lease Term

     6  

Lease Year

     6  

Lines

     63  

Mail

     60  

Market Rent

     7  

Neutral Arbitrator

     10  

Nondisturbance Agreement

     60  

Notices

     52  

Objectionable Name

     18  

Operating Expense Budget

     12  

Operating Expenses

     7  

Option Rent

     7  

Option Term

     8  

Option Term TI Allowance

     33  

Original Improvements

     65  

Other Improvements

     9  

Outside Agreement Date

     5  

Premises

     5  

Project Common Areas

     5  

Project Common Areas

     5  

Project Monument Sign

     52  

Proposition 13

     17  

Provider

     66  

Renovations

     62  

Rent Concessions

     8  

Rent

     11  

Repair Period Notice

     5  

Rescission

     9  

Review Period

     20  

Security Deposit

     48  

Sign Specifications

     52  

Statement

     18  

Subject Space

     38  

Summary

     1  

 

   (iv)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


     Page(s)  

Tax Expenses

     16  

Telecommunications Equipment

     50  

Tenant

     1  

Tenant Work Letter

     5  

Tenant’s Option Rent Calculation

     9  

Tenant’s Share

     18  

Tenant’s Signage

     51  

Transfer

     41  

Transfer Notice

     38  

Transfer Premium

     40  

Transferee

     38  

Transfers

     38  

 

   (v)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


DEL MAR CORPORATE CENTRE

OFFICE LEASE

This Office Lease (the “Lease”), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the “Summary” ), below, is made by and between KILROY REALTY, L.P., a Delaware limited partnership ( “Landlord” ), and RELATIONAL ADVISORS LLC, a Delaware limited liability company, acting on behalf of Series B thereof, and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (collectively, as “ Tenant ”).

SUMMARY OF BASIC LEASE INFORMATION

 

TERMS OF LEASE

  

DESCRIPTION

1.      Date:

   June 1, 2004.

2.      Premises:

  

2.1    Building:

   That certain six (6)-story, “Class-A” office building (the “ Building ”), located at 12400 High Bluff Drive, San Diego, California 92130, which Building contains 208,961 rentable (193,766 usable) square feet of space.

2.2    Premises:

   32,792 rentable (30,675 usable) square feet of space, consisting of the entire sixth (6 th ) floor of the Building, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, which Premises is commonly known, collectively, as Suite 600, as further set forth in Exhibit A to the Office Lease.

2.3    Project:

   The Building is the primary component of that certain single building office project known as “Del Mar Corporate Centre,” as further set forth in Section 1.1.2 of this Lease.

3.      Lease Term

( Article 2 ):

  

3.1    Length of Term:

   Approximately nine (9) years and eleven (11) months.

3.2    Lease Commencement Date:

   December 15, 2004.

 

     

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


3.3    Lease Expiration Date:

   November 30, 2014.

3.4    Option Term(s):

   Two (2) five (5)-year option(s) to renew, as more particularly set forth in Section 2.2 of this Lease.

4.      Base Rent ( Article 3 ):

  

 

Lease Year

   Annualized
Base Rent*
     Monthly
Installment
of Base Rent*
     Monthly
Rental Rate
per Rentable
Square Foot*
 

1

   $ 1,357,590.00      $ 113,132.50      $ 3,450  

2

   $ 1,398,318.00      $ 116,526.50      $ 3,554  

3

   $ 1,440,267.00      $ 120,022.25      $ 3,660  

4

   $ 1,483,476.00      $ 123,623.00      $ 3,770  

5

   $ 1,527,981.00      $ 127,331.75      $ 3,883  

6

   $ 1,573,821.00      $ 131,151.75      $ 3,999  

7

   $ 1,621,035.00      $ 135,086.25      $ 4,119  

8

   $ 1,669,665.00      $ 139,138.75      $ 4,243  

9

   $ 1,719,756.00      $ 143,313.00      $ 4,370  

10

   $ 1,771,350.00      $ 147,612.50      $ 4,501  

 

* The initial Annual Base Rent (and Monthly Installment of Base Rent) was calculated by multiplying the initial Monthly Rental Rate per Rentable Square Foot by the number of rentable square feet of space in the Premises. In all subsequent Lease Years, the calculation of Annual Base Rent (and Monthly Installment of Base Rent) reflects an annual increase of three percent (3.0%). Notwithstanding the calculations identified above, (i) in each instance the resulting Monthly Installment of Base Rent was rounded up or down, as applicable, to the nearest twenty-five cents ($0.25), (ii) the Annual Base Rent is, therefore, an amount equal to exactly twelve (12) times such rounded Monthly Installment of Base Rent amount, and (iii) the Monthly Rental Rate per Rentable Square Foot is, for all years following the first (1 st ) Lease Year, only an approximation for reference purposes only.

 

5.      Base Year

  

( Article 4 ):

   Calendar year 2005.

6.      Tenant’s Share

  

( Article 4 ):

   15.6929%.

7.      Permitted Use

( Article 5 ):

   Tenant shall use the Premises solely for general office use and uses incidental thereto to the extent the same comply with applicable laws and zoning and are consistent with the character of the Project as a first-class office building Project.

 

   -2-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


8.      Security Deposit

( Article 21 ):

   $113,132.50.

9.      Parking Pass Ratio

( Article 28 ):

   Four and one-half (4  1 2 ) parking passes for every 1,000 rentable square feet of the Premises, of which (i) twenty-five (25) passes shall be for the use of individually designated reserved covered parking spaces, and (ii) the remaining passes shall be for the use of non-reserved parking spaces, all as more particularly set forth in Article 28 .

10.    Address of Tenant

( Section 29.18 ):

  

Prior to Lease Commencement Date:

 

Relational Advisors, LLC

11975 El Camino Real, Suite 300

San Diego, California 92130

Attention: James J. Zehentbauer

Managing Member

 

and

 

Relational Advisors, LLC

11975 El Camino Real, Suite 300

San Diego, California 92130

Attention: Lisa Marsh

Administrative Manager

 

with a copy to:

 

Charles Marvin III, Esq.

120 Birmingham Drive, Suite 200

Cardiff, California 92207

 

After Lease Commencement Date:

 

Relational Advisors, LLC

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: James J. Zehenbaurer

Managing Member

 

and

 

Relational Advisors, LLC

12400 High Bluff, Suite 600

 

   -3-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


  

San Diego, California 92130

Attention: Lisa Marsh

Administrative Manager

   with a copy to:
  

Charles Marvin III, Esq.

120 Birmingham Drive, Suite 200

Cardiff, California 92207

11.    Address of Landlord

( Section 29.18 ):

   See Section 29.18 of the Lease.

12.    Broker(s)

( Section 29.24 ):

  

Colliers International

4660 La Jolla Village Drive, Suite 200

San Diego, California 92122

Attention: Thomas T. Nicholas

13.    Tenant Improvement Allowance

( Section 2 of Exhibit B ):

   $2,103,462.00 (which amount was calculated based upon (i) $65.00 per Rentable Square Foot for each of the 32,792 Rentable Square Feet of space in the Premises, less (ii) the sum of $28,018.00, which represents the cost of the pre-stocked drywall and metal studs previously paid for by Landlord, which is currently located on the sixth (6 th ) floor of the Building, and which shall be utilized in the construction of the Tenant Improvements).

 

   -4-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


ARTICLE 1

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

1.1 Premises, Building, Project and Common Areas .

1.1.1 The Premises . Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 2.2 of the Summary (the “ Premises ”). The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions (the “ TCCs ”) herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such TCCs by it to be kept and performed and that this Lease is made upon the condition of such performance. The outline of the Premises is set forth in Exhibit A attached hereto; provided, however, the parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises in the “ Building ,” as that term is defined in Section 1.1.2 , below, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the “ Common Areas ,” as that term is defined in Section 1.1.3 , below, or the elements thereof or of the accessways to the Premises or the “ Project ,” as that term is defined in Section 1.1.2 , below. Except as specifically set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B (the “ Tenant Work Letter ”), Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises, Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant’s business, except as specifically set forth in this Lease and the Tenant Work Letter. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were at such time in good and sanitary order, condition and repair, subject only to punchlist items, latent defects and Landlord’s obligations set forth in Article 7 of this Lease.

1.1.2 The Building and The Project . The Premises are a part of the building set forth in Section 2.1 of the Summary (the “ Building ”). The Building is part of a three (3)-building office project known as “ Del Mar Corporate Centre .” The term “ Project ,” as used in this Lease, shall mean (i) the Building and the Common Areas, and (ii) the land (which is improved with landscaping, parking facilities and other improvements) upon which the Building and the Common Areas are located.

1.1.3 Common Areas . Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “ Common Areas ”). The Common Areas shall consist of the “ Project Common Areas ” and the “ Building Common Areas .” The term “ Project Common Areas ,” as used in this Lease, shall mean the portion of the Project designated as such by Landlord. The term “ Building Common Areas ,” as used in this Lease,

 

   -5-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


shall mean the portions of the Common Areas located within the Building designated as such by Landlord; provided, however, the restrooms located on and serving the sixth (6 th ) floor of the Building shall designated for use solely by the occupants of the sixth (6 th ) floor of the Building; provided further, however, that to the extent the Premises is demised on a full-floor basis (i.e., to the extent the same is demised without any interior corridors or an interior corridor requirement), Tenant shall have (subject to the TCCs of Article 27) , sole right of access to, and use of, such restrooms. The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord and the use thereof shall be subject to such reasonable rules, regulations and restrictions as Landlord may make from time to time, provided that such rules, regulations and restrictions do not unreasonably and materially interfere with the rights granted to Tenant under this Lease and the permitted use granted under Section 5.1 , below. Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas; provided that no such changes shall unreasonably and materially interfere with the rights granted to Tenant under this Lease, the permitted use granted under Section 5.1 , below, or Tenant’s right of access to the Premises. Except when and where Tenant’s right of access is specifically excluded in this Lease, Tenant shall have the right of access to the Premises, the Building, and the Project parking facility twenty-four (24) hours per day, seven (7) days per week during the “Lease Term,” as that term is defined in Section 2.1 , below.

1.2 Stipulation of Rentable Square Feet of Premises and Building . For purposes of this Lease, “rentable square feet” of the Premises shall be deemed as set forth in Section 2.2 of the Summary and the rentable square feet of the Building shall be deemed as set forth in Section 2.1 of the Summary. Landlord and Tenant hereby acknowledge and agree that such determination was calculated pursuant to Standard Method of Measuring Floor Area in Office Building, ANSI Z65.1 - 1996 (“ BOMA ”).

ARTICLE 2

LEASE TERM; OPTION TERM(S)

2.1 Initial Lease Term . The TCCs and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “ Lease Term ”) shall be as set forth in Section 3.1 of the Summary, shall commence on the date set forth in Section 3.2 of the Summary (the “ Lease Commencement Date ”), and shall terminate on the date set forth in Section 3.3 of the Summary (the “ Lease Expiration Date ”) unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term “ Lease Year ” shall mean each consecutive twelve (12) month period during the Lease Term; provided, however, that the first Lease Year shall commence on the Lease Commencement Date (i.e., December 15, 2004) and shall end on the last day of the eleventh full calendar month following such Lease Commencement Date (i.e., November 30, 2005), and the second (2 nd ) and each succeeding Lease Year shall commence on the first day of the next calendar month (i.e., December l st ); and further provided that the last Lease Year shall end on the Lease Expiration Date. At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit C , attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) business days of receipt thereof.

 

   -6-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


2.2 Option Term(s) .

2.2.1 Option Right . Landlord hereby grants the tenants originally named in this Lease (collectively, the “ Original Tenants ” and each an “ Original Tenant ”), their “Affiliates,” as that term is set forth in Section 14.8 of this Lease, and any permitted assignee of either Original Tenant’s entire interest in this Lease approved by Landlord pursuant to Article 14 of this Lease (as so permitted, a “ Permitted Assignee ”), two (2) options to extend the Lease Term for the entire Premises, each by a period of five (5) years (each, an “ Option Term ”). Such option shall be exercisable only by Notice delivered by Tenant to Landlord as provided below, provided that, as of the date of delivery of such Notice, (i) Tenant is not then in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods), (ii) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, and (iii) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year period. Upon the proper exercise of such option to extend, and provided that, as of the end of the then applicable Lease Term, (A) Tenant is not in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods), (B) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, and (C) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year period, then the Lease Term, as it applies to the entire Premises, shall be extended for a period of five (5) years. The rights contained in this Section 2.2 shall only be exercised by either of the Original Tenants, their Affiliates and/or a Permitted Assignee (and not any other assignee, sublesee or other transferee of the Original Tenant’s interest in this Lease) if the Original Tenants (or either of them), their Affiliates and/or such Permitted Assignee is in occupancy of at least seventy-five percent (75%) of the entire then-existing Premises,

2.2.2 Option Rent . The Rent payable by Tenant during the Option Term (the “ Option Rent ”) shall be equal to the Market Rent as set forth below; provided, however, that the average annual, effective (including free rent, if applicable, on a straight line basis) base rent component of Market Rent, shall not be lower than the then existing “Base Rent,” as that term is set forth in Article 3 of this Lease, in effect immediately prior to the commencement of such Option Term. For purposes of this Lease, the term “ Market Rent ” shall mean rent (including additional rent and considering any “base year” or “expense stop” applicable thereto), including all escalations, at which tenants, as of the commencement of the applicable term are, pursuant to transactions completed within the twenty-four (24) months prior to the first day of the applicable Option Term, leasing non-sublease, non-encumbered, non-synthetic, non-equity space (unless such space was leased pursuant to a definition of “fair market” comparable to the definition of Market Rent) comparable in size, location (including freeway access and signage visibility) and quality to the Premises for a “Comparable Term,” as that term is defined in this Section 2.2.2 (the “ Comparable Deals ”), which comparable space is located in the “Comparable Buildings,” as that term is defined in this Section 2.2.2, giving appropriate consideration to the annual rental rates per rentable square foot (adjusting the base rent component of such rate to reflect a net value after accounting for whether or not utility expenses are directly paid by the tenant such as

 

   -7-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Tenant’s direct utility payments provided for in Section 6.1 of this Lease), the standard of measurement by which the rentable square footage is measured, the ratio of rentable square feet to usable square feet, and taking into consideration only, and granting only, the following concessions (provided that the rent payable in Comparable Deals in which the terms of such Comparable Deals are determined by use of a discounted fair market rate formula shall be equitably increased in order that such Comparable Deals will not reflect a discounted rate) (collectively, the “ Rent Concessions ”): (a) rental abatement concessions or build-out periods, if any, being granted such tenants in connection with such comparable spaces; (b) tenant improvements or allowances provided or to be provided for such comparable space, taking into account the value of the existing improvements in the Premises, such value to be based upon the age, quality and layout of the improvements and the extent to which the same could be utilized by general office users as contrasted with this specific Tenant, (c) Proposition 13 protection, and (d) all other monetary concessions, if any, being granted such tenants in connection with such comparable space; provided, however, that notwithstanding anything to the contrary herein, no consideration shall be given to the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with the applicable term or the fact that the Comparable Deals do or do not involve the payment of real estate brokerage commissions. The term “ Comparable Term ” shall refer to the length of the lease term, without consideration of options to extend such term, for the space in question. In addition, the determination of the Market Rent shall include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant’s rent obligations during any Option Term. Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Transactions upon tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants). If in determining the Market Rent, Tenant is entitled to a tenant improvement or comparable allowance for the improvement of the Premises (the “ Option Term TI Allowance ”), Landlord may, at Landlord’s sole option, elect any or a portion of the following: (A) to grant some or all of the Option Term TI Allowance to Tenant in the form as described above (i.e., as an improvement allowance), and/or (B) to reduce the rental rate component of the Market Rent to be an effective rental rate which takes into consideration that Tenant will not receive the total dollar value of such excess Option Term TI Allowance (in which case the Option Term TI Allowance evidenced in the effective rental rate shall not be granted to Tenant). The term “ Comparable Buildings ” shall mean the Building and other first-class office buildings which are comparable to the Building in terms of age (based upon the date of completion of construction or major renovation as to the building containing the portion of the Premises in question), quality of construction, level of services and amenities (including the type (e.g., surface, covered, subterranean) and amount of parking), size and appearance, and are located in the Del Mar area of San Diego, California (the (“ Comparable Area ”).

2.2.3 Exercise of Option . The option contained in this Section 2.2 shall be exercised by the Original Tenants (or either of them), their Affiliates and/or a Permitted Assignee, if at all, only in the manner set forth in this Section 2.2.3 . Tenant shall deliver notice (the “ Exercise Notice ”) to Landlord not more than eighteen (18) months nor less than fifteen (15) months prior to the expiration of the then-existing Lease Term, stating that Tenant is exercising its option. Concurrently with such Exercise Notice, Tenant shall deliver to Landlord

 

   -8-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Tenant’s calculation of the Market Rent (the “ Tenant’s Option Rent Calculation ”). Landlord shall deliver notice (the “ Landlord Response Notice ”) to Tenant on or before the date which is thirty (30) days after Landlord’s receipt of the Exercise Notice and Tenant’s Option Rent Calculation (the “ Landlord Response Date ”), stating that (A) Landlord is accepting Tenant’s Option Rent Calculation as the Market Rent, or (B) rejecting Tenant’s Option Rent Calculation and setting forth Landlord’s calculation of the Market Rent (the “ Landlord’s Option Rent Calculation ”). Within thirty (30) days of its receipt of the Landlord Response Notice, Tenant may, at its option, accept the Market Rent contained in the Landlord’s Option Rent Calculation. If Tenant does not affirmatively accept or Tenant rejects the Market Rent specified in the Landlord’s Option Rent Calculation, the parties shall follow the procedure, and the Market Rent shall be determined as set forth in Section 2.2.4 .

2.2.4 Determination of Market Rent . In the event Tenant objects or is deemed to have objected to the Market Rent, Landlord and Tenant shall attempt to agree upon the Market Rent using reasonable good-faith efforts. If Landlord and Tenant fail to reach agreement within sixty (60) days following Tenant’s objection or deemed objection to the Landlord’s Option Rent Calculation (the “ Outside Agreement Date ”), Tenant may rescind the Exercise Notice by delivery written notice of such election to Landlord within five (5) business days following the Outside Agreement Date (the “ Rescission ”), in which event (A) such Election Notice shall be deemed never to have been delivered, (B) Tenant shall be deemed to waive any right to extend the Lease Term pursuant to the TCCs of this Section 2.2 , and (C) this Lease shall expire on the last day of the then existing Lease Term or any earlier termination. Unless such Rescission is timely received by Landlord pursuant to the TCCs of the foregoing sentence, then the Election Notice shall be ratified and (i) in connection with the Option Rent, Landlord’s Option Rent Calculation and Tenant’s Option Rent Calculation, each as previously delivered to the other party, shall be submitted to the arbitrators pursuant to the TCCs of this Section 2.2.4, and (ii) in connection with any other contested calculation of market Rent, the parties shall each make a separate determination of the Market Rent and shall submit the same to the arbitrators pursuant to the TCCs of this Section 2.2.4 . The submittals shall be made concurrently with the selection of the arbitrators pursuant to this Section 2.2.4 and shall be submitted to arbitration in accordance with Section 2.2.4.1 through 2.2.4.7 of this Lease, but subject to the conditions, when appropriate, of Section 2.2.3 .

2.2.4.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker, appraiser or attorney who shall have been active over the five (5) year period ending on the date of such appointment in the leasing (or appraisal, as the case may be) of first-class office buildings in the Comparable Area. The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Market Rent, is the closest to the actual Market Rent as determined by the arbitrators, taking into account the requirements of Section 2.2.2 of this Lease, Each such arbitrator shall be appointed within fifteen (15) days after the applicable Outside Agreement Date. Landlord and Tenant may consult with their selected arbitrators prior to appointment and may select an arbitrator who is favorable to their respective positions. The arbitrators so selected by Landlord and Tenant shall be deemed (“ Advocate Arbitrators ”).

2.2.4.2 The two Advocate Arbitrators so appointed shall be specifically required pursuant to an engagement letter within ten (10) days of the date of the appointment of

 

   -9-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


the last appointed Advocate Arbitrator agree upon and appoint a third arbitrator (“ Neutral Arbitrator ”) who shall be qualified under the same criteria set forth hereinabove for qualification of the two Advocate Arbitrators except that neither the Landlord or Tenant or either party’s Advocate Arbitrator may, directly or indirectly, consult with the Neutral Arbitrator prior to subsequent to his or her appearance. The Neutral Arbitrator shall be retained via an engagement letter jointly prepared by Landlord’s counsel and Tenant’s counsel.

2.2.4.3 The three arbitrators shall within thirty (30) days of the appointment of the Neutral Arbitrator reach a decision as to Market Rent and determine whether the Landlord’s or Tenant’s determination of Market Rent as submitted pursuant to Section 2.2.4.1 and Section 2.2.3 of this Lease is closest to Market Rent as determined by the arbitrators and simultaneously publish a ruling (“Award”) indicating whether Landlord’s or Tenant’s submitted Market Rent is closest to the Market Rent as determined by the arbitrators. Following notification of the Award, the Landlord’s or Tenant’s submitted Market Rent determination, whichever is selected by the arbitrators as being closest to Market rent shall become the then applicable Market Rent.

2.2.4.4 The Award issued by the majority of the three arbitrators shall be binding upon Landlord and Tenant.

2.2.4.5 If either Landlord or Tenant fail to appoint an Advocate Arbitrator within fifteen (15) days after the applicable Outside Agreement Date, either party may petition the presiding judge of the Superior Court of San Diego County to appoint such Advocate Arbitrator subject to the criteria in Section 2.2.4.1 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such Advocate Arbitrator.

2.2.4.6 If the two Advocate Arbitrators fail to agree upon and appoint the Neutral Arbitrator, then either party may petition the presiding judge of the Superior Court of San Diego County to appoint the Neutral Arbitrator, subject to criteria in Section 2.2.4.1 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such arbitrator.

2.2.4.7 The cost of arbitration shall be paid by Landlord and Tenant equally.

ARTICLE 3

BASE RENT

Tenant shall pay, without prior notice or demand, to Landlord or Landlord’s agent at the management office of the Project, or, at Landlord’s option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“ Base Rent ”) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent for the first

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


full month of the Lease Term which occurs after the expiration of any free rent period shall be paid at the time of Tenant’s execution of this Lease. If any Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any such fractional month shall accrue on a daily basis during such fractional month and shall total an amount equal to the product of (i) a fraction, the numerator of which is the number of days in such fractional month and the denominator of which is the actual number of days occurring in such calendar month, and (ii) the then-applicable Monthly Installment of Base Rent. All other payments or adjustments required to be made under the TCCs of this Lease that require proration on a time basis shall be prorated on the same basis.

ARTICLE 4

ADDITIONAL RENT

4.1 General Terms . In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay “Tenant’s Share” of the annual “Direct Expenses,” as those terms are defined in Sections 4.2.6 and 4.2.2 , respectively, of this Lease, which are in excess of the amount of Direct Expenses applicable to the “Base Year,” as that term is defined in Section 4.2.1, below; provided, however, that in no event shall any decrease in Direct Expenses for any Expense Year below Direct Expenses for the Base Year entitle Tenant to any decrease in Base Rent or any credit against sums due under this Lease. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the TCCs of this Lease, are hereinafter collectively referred to as the “ Additional Rent ,” and the Base Rent and the Additional Rent are herein collectively referred to as “ Rent .” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 (to the extent accruing during the Lease Term or any holdover period pursuant to the TCCs of Article 16 of this Lease) shall survive the expiration of the Lease Term; provided, however, that Landlord shall bill Tenant for such Additional Rent within one (1) year following the calendar year in which the Lease Term expires, except to the extent such failure to timely furnish such bill as to any particular item includable as Additional Rent is beyond Landlord’s reasonable control (e.g., tax assessments that are late in arriving from the assessor), in which case such one (1) year limit shall not be applicable.

4.2 Definitions of Key Terms Relating to Additional Rent . As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

4.2.1 “ Base Year ” shall mean the period set forth in Section 5 of the Summary.

4.2.2 “ Direct Expenses ” shall mean “Operating Expenses” and “Tax Expenses.”

4.2.3 “ Expense Year ” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change,

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Tenant’s Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

4.2.4 “ Operating Expenses ” shall be calculated under accounting principles consistently applied from year to year and shall mean all expenses, costs and amounts of every kind and nature which, in accordance with sound real estate management principles (consistently applied), Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project; provided, however, that if Landlord does not carry earthquake/flood insurance for the Project and/or the Building during any part of the Base Year but subsequently obtains earthquake/flood insurance for the Project and/or the Building during the Lease Term, then from and after the date upon which Landlord obtains such earthquake/flood insurance and continuing throughout the period during which Landlord maintains such insurance, Operating Expenses for the Base Year shall be deemed to be increased by the amount of the premium Landlord reasonably estimates it would have incurred had Landlord maintained such insurance for the same period of time during the Base Year as such insurance was maintained by Landlord during such subsequent Expense Year ; provided further, however, any such earthquake/flood insurance shall be subject to Tenant’s reasonable approval (Tenant acknowledging and agreeing, however, that it shall be deemed unreasonable for Tenant to withhold such consent to the extent (A) such earthquake/flood insurance is mandated by applicable governmental entities or Landlord’s lender, or (B) landlords of Comparable Buildings are requiring such earthquake/flood insurance policies be maintained and Landlord’s earthquake/flood insurance policy is commercially reasonably vis-à-vis such third party policies); (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) costs incurred in connection with the parking areas servicing the Project; (vi) fees and other costs, including management fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project (which fees shall be commercially reasonable vis-à-vis the competitive fees being charged for similar services at Comparable Buildings in the Comparable Area); (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons (other than persons generally considered to be higher in rank than the position of Regional Asset Manager) engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Building; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization of the cost of acquiring or

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof (which amortization calculation shall include interest at the “Interest Rate,” as that term is set forth in Article 25 of this Lease); (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to effect economies in the operation or maintenance of the Project, or any portion thereof, (B) that are required to comply with present or anticipated conservation programs, (C) which are replacements or modifications of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, or (D) that are required under any governmental law or regulation by a federal, state or local governmental agency, except for capital repairs, replacements or other improvements to remedy a condition existing prior to the Lease Commencement Date which an applicable governmental authority, if it had knowledge of such condition prior to the Lease Commencement Date, would have then required to be remedied pursuant to then-current governmental laws or regulations in their form existing as of the Lease Commencement Date and pursuant to the then-current interpretation of such governmental laws or regulations by the applicable governmental authority as of the Lease Commencement Date; provided, however, that any capital expenditure shall be amortized with interest at the “Interest Rate,” as that term is set forth in Article 25 of this Lease, over the shorter of (X)  seven (7) years, or (Y) its useful life as Landlord shall reasonably determine in accordance with sound real estate management and accounting principles; (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute “Tax Expenses” as that term is defined in Section 4.2.5 , below; and (xv) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building. Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

(a) costs, including marketing costs, legal fees, space planners’ fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any common areas of the Project or parking facilities);

(b) except as set forth in items (xii), (xiii), and (xiv) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest;

(c) costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(d) any bad debt loss, rent loss, or reserves for bad debts or rent loss;

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(e) costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord’s general corporate overhead and general and administrative expenses;

(f) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;

(g) amount paid as ground rental for the Project by the Landlord;

(h) overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(i) any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

(j) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

(k) all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

(1) costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art;

(m) any costs expressly excluded from Operating Expenses elsewhere in this Lease;

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(n) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

(o) costs arising from the gross negligence or willful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services;

(p) costs incurred to comply with laws relating to the removal of hazardous material (as defined under applicable law) which was in existence, or which resulted from events or activities which occurred, in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto; and costs incurred to remove, remedy, contain, or treat hazardous material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto;

(q) advertising and promotional expenditures;

(r) costs arising from Landlord’s charitable or political contributions;

(s) supervisory fees, overhead or profit to Landlord (1) for Landlord’s repairs or maintenance services, except to the extent that (i) the percentage of the cost of such services resulting in such fees, overhead or profit is consistent with the percentage rate commonly charged by third party managers of service providers in the vicinity of the Project and (ii) the total cost of such fees, overhead or profit included in Operating Expenses is consistent with the total cost associated with such services commonly charged by comparable providers in the vicinity of the Project, or (2)  relating to Tenant’s alterations or repairs;

(t) construction costs, development fees, permits and similar costs relating to Landlord’s construction of the initial Base Shell and Core (as defined in the Tenant Work Letter), and any costs associated with correcting any defects in the construction of such Landlord Work;

(u) the cost of any after-hour utilities or other services provided to a tenant of the Project, which are available to Tenant without additional charge, or for which Landlord is entitled to receive direct payment from the requesting tenant; and

(v) operating reserves or contingency amounts in excess of the percentage of Operating Expenses allocated thereto in the Base Year.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Project is not at least ninety-five percent (95%) occupied during all or a portion of the Base Year or any Expense Year, Landlord may elect to make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been incurred had the Project been ninety-five percent (95%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. Operating Expenses for the Base Year shall not include market-wide cost increases (including utility rate increases) due to extraordinary circumstances, including, but not limited to, Force Majeure, boycotts, strikes, conservation surcharges, embargoes or shortages, or amortized costs relating to capital improvements. In no event shall the components of Direct Expenses for any Expense Year related to Project utility, services, or insurance costs be less than the components of Direct Expenses related to Project utility, services, or insurance costs in the Base Year. Landlord shall not (i) make a profit by charging items to Operating Expenses that are otherwise also charged separately to others and (ii) subject to Landlord’s right to adjust the components of Operating Expenses described above in this paragraph, collect Operating Expenses from Tenant and all other tenants in the Building in an amount in excess of what Landlord incurs for the items included in Operating Expenses. If Landlord, in any Expense Year following the Base Year, begins providing any new services, then for such period of time in which such new services apply, Operating Expenses for the Base Year shall be increased by the amount that Landlord reasonably determines it would have incurred had Landlord provided such new service during the same period of time during the Base Year as such new service was provided during such subsequent Expense Year. Notwithstanding the foregoing, no adjustment to the Operating Expenses for the Base Year shall occur to the extent such new service (1) is attributable to Tenant’s particular use of the Premises (as opposed to office use generally), in which case Landlord may elect (Y) to include the cost of such new services in Operating Expenses, or (Z) to invoice Tenant directly for such costs, depending upon the nature of the service and the extent to which the need for such service is directly attributable to Tenant’s particular use, as determined in Landlord’s reasonable discretion, (2) is being offered by landlords in the majority of Comparable Buildings, or (3) is required by “Applicable Laws,” as that Term is set forth in Article 24 . If Landlord, in any Expense Year after the Base Year, discontinues any service, then for such period of time in which such services are discontinued, Operating Expenses for the Base Year shall be decreased by the amount that Landlord reasonably determines it incurred for such service throughout the Base Year.

4.2.5 Taxes .

4.2.5.1 “ Tax Expenses ” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery,

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), excluding fines, default interest and penalties (unless due to Tenant’s failure to pay Additional Rent when due), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof. All assessments shall be paid by Landlord in the maximum number of installments permitted by law and shall not be included as Tax Expenses except in the year in which the assessment installment is actually paid.

4.2.5.2 Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (“ Proposition 13 ”) and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project’s contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises (provided that Tax Expenses shall not include any documentary transfer taxes associated with the conveyance of Landlord’s interest in any portion of the Project); provided, however, in no event shall Tax Expenses include items paid by Tenant under Section 4.5 of this Lease.

4.2.5.3 Any costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. Except as set forth in Section 4.2.5.4, below, refunds of Tax Expenses shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax Expenses included by Landlord as Building Tax Expenses pursuant to the TCCs of this Lease; provided, however, Landlord shall diligently pursue an appeal thereof should Tenant reasonably conclude that such increase is not

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


warranted. Notwithstanding anything to the contrary contained in this Section 4.2.5.3 (except as set forth in Section 4.2.5.1, above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.

4.2.5.4 Notwithstanding anything to the contrary set forth in this Lease, the amount of Tax Expenses for the Base Year and any Expense Year shall be calculated without taking into account any decreases in real estate taxes obtained in connection with Proposition 8, and, therefore, the Tax Expenses in the Base Year and/or an Expense Year may be greater than those actually incurred by Landlord, but shall, nonetheless, be the Tax Expenses due under this Lease; provided that (i) any costs and expenses incurred by Landlord in securing any Proposition 8 reduction shall not be included in Direct Expenses for purposes of this Lease, and (ii) tax refunds under Proposition 8 shall not be deducted from Tax Expenses, but rather shall be the sole property of Landlord. Landlord and Tenant acknowledge that this Section 4.2.5.4 is not intended to in any way affect (A) the inclusion in Tax Expenses of the statutory two percent (2.0%) annual increase in Tax Expenses (as such statutory increase may be modified by subsequent legislation), or (B) the inclusion or exclusion of Tax Expenses pursuant to the terms of Proposition 13, which shall be governed pursuant to the terms of Sections 4.2.5.1 through 4.2.5.3, above.

4.2.5.5 Landlord shall not voluntarily issue any assessments or bonds for the Project which would increase Tenant’s payment of Tax Expenses without Tenant’s prior written consent.

4.2.6 “ Tenant’s Share ” shall mean the percentage set forth in Section 6 of the Summary.

4.2.7 “ Operating Expense Budget ” shall mean the estimated Operating Expenses for the Base Year prepared by Landlord and attached hereto as Exhibit G . Tenant acknowledges that the Operating Expense Budget is merely an estimate and that actual Operating Expenses may exceed or be less than the Operating Expense Budget for the Base Year.

4.3 Intentionally Omitted .

4.4 Calculation and Payment of Additional Rent . If for any Expense Year ending or commencing within the Lease Term, Tenant’s Share of Direct Expenses for such Expense Year exceeds Tenant’s Share of Direct Expenses applicable to the Base Year, then Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1 , below, and as Additional Rent, an amount equal to the excess (the “ Excess ”).

4.4.1 Statement of Actual Building Direct Expenses and Payment by Tenant . Landlord shall endeavor to give to Tenant following the end of each Expense Year, but in no event later than June 1, a statement (the “ Statement ”) which shall state in general major categories the Building Direct Expenses incurred or accrued for the Base Year or such preceding

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Expense Year, as applicable, and which shall indicate the amount of the Excess. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay, within thirty (30) days after receipt of the Statement, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as “Estimated Excess,” as that term is defined in Section 4.4.2 , below, and if Tenant paid more as Estimated Excess than the actual Excess, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord from collecting the Excess for a period of one (1) year after the expiration of the Expense Year for which the Statement applies, except where the failure to timely furnish the Statement as to any particular item includable in the Statement is beyond Landlord’s reasonable control (e.g. tax assessments that are late in arriving from the assessor), in which case such one (1) year limit shall not be applicable. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Building Direct Expenses for the Expense Year in which this Lease terminates, if an Excess is present, Tenant shall, within thirty (30) days after receipt of the Statement, pay to Landlord such amount, and if Tenant paid more as Estimated Excess than the actual Excess, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term.

4.4.2 Statement of Estimated Building Direct Expenses . In addition, Landlord shall give Tenant a yearly expense estimate statement (the “ Estimate Statement ”), but in no event later than July 1, which shall set forth in general major categories Landlord’s commercially reasonable estimate (the “ Estimate ”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “ Estimated Excess ”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Additional Rent under this Article 4, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Excess theretofore delivered to the extent necessary. Thereafter, Tenant shall pay, within thirty (30) days after receipt of the Estimate Statement, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the second to last sentence of this Section 4.4.2) . Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate Statement delivered by Landlord to Tenant. Throughout the Lease Term Landlord shall maintain books and records with respect to Building Direct Expenses in accordance with generally accepted real estate accounting and management practices, consistently applied.

4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible .

4.5.1 Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant’s equipment, furniture, fixtures and any other personal property

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


located in or about the Premises. If any such taxes on Tenant’s equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

4.5.2 If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than Sixty-Five and No/100 Dollars ($65.00) per rentable square foot of the Premises, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.5.1 , above.

4.5.3 Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facility; or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.6 Landlord’s Books and Records.

4.6.1 Tenant’s Review and Audit Rights . Upon Tenant’s written request given not more than ninety (90) days after Tenant’s receipt of a Statement for a particular Expense Year, and provided that Tenant is not then in default under this Lease beyond the applicable cure period provided in this Lease, Landlord shall furnish Tenant with such reasonable supporting documentation in connection with said Building Direct Expenses as Tenant may reasonably request. Landlord shall provide said information to Tenant within sixty (60) days after Tenant’s written request therefor. Within one hundred eighty (180) days after receipt of a Statement by Tenant (the “ Review Period ”), if Tenant disputes the amount of Additional Rent set forth in the Statement, an independent certified public accountant (which accountant (A) is a member of a nationally or regionally recognized accounting firm, and (B) is not working on a contingency fee basis), designated and paid for by Tenant, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records with respect to the Statement at Landlord’s offices, provided that Tenant is not then in default under this Lease (beyond any applicable notice and cure periods) and Tenant has paid all amounts required to be paid under the applicable Estimate Statement and Statement, as the case may be. In connection with such inspection, Tenant and Tenant’s agents must agree in advance to follow Landlord’s reasonable rules and procedures regarding inspections of Landlord’s records, and shall execute a commercially reasonable confidentiality agreement regarding such inspection. Tenant’s failure to dispute the amount of Additional Rent set forth in any Statement within the Review Period shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute

 

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the amounts set forth in such Statement. If after such inspection, Tenant still disputes such Additional Rent, a determination as to the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant (the “ Accountant ”) selected by Landlord and subject to Tenant’s reasonable approval; provided that if such determination by the Accountant proves that Direct Expenses were overstated by more than five percent (5%), then the cost of the Accountant and the cost of such determination shall be paid for by Landlord. Promptly following the parties receipt of such determination, the parties shall make such appropriate payments or reimbursements, as the case may be, to each other, as are determined to be owing pursuant to such determination, together with interest at the Interest Rate (as defined in Article 25 below). Tenant hereby acknowledges that Tenant’s sole right to inspect Landlord’s books and records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Section 4.6.1 , and Tenant hereby waives any and all other rights pursuant to applicable law to inspect such books and records and/or to contest the amount of Direct Expenses payable by Tenant.

4.6.2 AMN Audit, Determination and Reconciliation . In addition to the foregoing, in the event that (i) AMN Healthcare, Inc., a Nevada corporation (“ AMN ”), continues to lease the remainder of the Building pursuant to its lease with Landlord (the “ AMN Lease ”), (ii) AMN exercises its right under the AMN Lease (which right is substantially similar to Tenant’s corresponding right pursuant to the TCCs of Section 4.6.1 , above) to have a third-party independent certified public accountant (which third-party independent certified public accountant would be referred to as the Accountant pursuant to Section 4.6.1 if Tenant, rather than AMN, were exercising such right) audit Landlord’s books and records in connection with Building Direct Expenses with respect to a particular Expense Year, and (iii) such third-party independent certified public accountant (i.e., Accountant) makes a certification which is binding on Landlord and AMN as to the actual amount of Direct Expenses applicable under the AMN Lease for such Expense Year, then within thirty (30) days following the date of such certification Landlord shall, utilizing the information set forth in such certification, make a corresponding reconciliation with Tenant.

ARTICLE 5

USE OF PREMISES

5.1 Permitted Use . Tenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which shall not be unreasonably withheld by Landlord.

5.2 Prohibited Uses . The uses prohibited under this Lease shall include, without limitation, use of the Premises or a portion thereof for (i) offices of any agency or bureau of the United States or any state or political subdivision thereof; (ii) offices or agencies of any foreign governmental or political subdivision thereof; (iii) offices of any health care professionals or service organization; (iv) schools or other training facilities which are not ancillary to corporate, executive or professional office use; (v) retail or restaurant uses; or (vi) communications firms such as radio and/or television stations. Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any

 

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[Relational Advisors/Relational Investors]


use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit D , attached hereto, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project) including, without limitation, any such laws, ordinances, regulations or requirements relating to hazardous materials or substances, as those terms are defined by applicable laws now or hereafter in effect; provided, however, Landlord shall not enforce, change or modify the Rules and Regulations in a discriminatory manner and Landlord agrees that the Rules and Regulations shall not be unreasonably modified or enforced in a manner which will unreasonably interfere with the normal and customary conduct of Tenant’s business. Tenant shall not do or permit anything to be done in or about the Premises which will in any way damage the reputation of the Project or obstruct or interfere with the rights of other tenants or occupants of the Building, or injure or annoy them or use or allow the Premises to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall comply with all recorded covenants, conditions, and restrictions now or hereafter affecting the Project.

5.3 CC&Rs . Tenant shall comply with all recorded covenants, conditions, and restrictions currently affecting the Project. Additionally, Tenant acknowledges that the Project may be subject to any future covenants, conditions, and restrictions (the “ CC&Rs ”) which Landlord, in Landlord’s discretion, deems reasonably necessary or desirable, and Tenant agrees that this Lease shall be subject and subordinate to such CC&Rs; provided, however, such future CC&R’s shall not materially adversely affect Tenant’s use or occupancy of the Premises nor any of its rights hereunder. Landlord shall have the right to require Tenant to execute and acknowledge, within fifteen (15) business days of a request by Landlord, a “Recognition of Covenants, Conditions, and Restriction,” in a form substantially similar to that attached hereto as Exhibit F , agreeing to and acknowledging the CC&Rs.

ARTICLE 6

SERVICES AND UTILITIES

6.1 Standard Tenant Services . Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.

6.1.1 Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating and air conditioning (“ HVAC ”) when necessary for normal comfort for normal office use in the Premises from 7:30 A.M. to 6:00 P.M. Monday through Friday, and on Saturdays from 9:00 A.M. to 12:00 P.M. (collectively, the “ Building Hours ”), except for the date of observation of New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and, at Landlord’s discretion, other locally or nationally recognized holidays (collectively, the “ Holidays ”); provided, however, in no event shall Martin Luther King Day, Columbus Day, or Veterans Day be included as Holidays.

6.1.2 Landlord shall provide adequate electrical wiring and facilities for connection to Tenant’s lighting fixtures and incidental use equipment, provided that (i) the

 

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[Relational Advisors/Relational Investors]


connected electrical load of the incidental use equipment does not exceed an average of five (5) watts per usable square foot of the Premises during the Building Hours on a monthly basis, and the electricity so furnished for incidental use equipment will be at a nominal one hundred twenty (120) volts and no electrical circuit for the supply of such incidental use equipment will require a current capacity exceeding twenty (20) amperes, and (ii) the connected electrical load of Tenant’s lighting fixtures does not exceed an average of one and one-half (l 1 / 2 ) watts per usable square foot of the Premises during the Building Hours on a monthly basis, and the electricity so furnished for Tenant’s lighting will be at a nominal two hundred seventy-seven (277) volts, which electrical usage shall be subject to applicable laws and regulations, including Title 24. Tenant will design Tenant’s electrical system serving any equipment producing nonlinear electrical loads to accommodate such nonlinear electrical loads, including, but not limited to, oversizing neutral conductors, derating transformers and/or providing power-line filters. Engineering plans shall include a calculation of Tenant’s fully connected electrical design load with and without demand factors and shall indicate the number of watts of unmetered and submetered loads. Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises. Tenant shall be provided access to the lighting controls for each floor of the Building within the Premises.

6.1.3 Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in the Building Common Areas.

6.1.4 Landlord shall provide janitorial services to the Premises five (5) business days per week, except the date of observation of the Holidays, in and about the Premises and window washing services on a quarterly basis in a manner consistent with other comparable buildings in the vicinity of the Building.

6.1.5 Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours, shall have one elevator available at all other times, except on the Holidays. The elevators currently have the capacity to restrict access to the various floors of the Building based upon a “key card” activation system. In connection therewith, Landlord shall cooperate with Tenant, subject to the TCCs of Article 27 , to restrict elevator access to the sixth (6 th ) floor during the non-Building Hours, unless triggered by a “card key” issued to Tenant; provided, however, any actual costs incurred by Landlord with regard to the implementation of such “card key” restricted access program shall be reimbursed by Tenant as Additional Rent within thirty (30) days of billing therefore.

Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

6.2 Above Standard Tenant Services . Notwithstanding anything to the contrary set forth in Section 4.2.4 or this Article 6, Tenant shall directly pay to Landlord one hundred percent (100%) of the total cost (including any permitting and/or other implementation costs) of providing all services (and related equipment) required by Tenant which are in excess of the services set forth in Section 6.1 , above, including, but not limited to, (i) twenty-four (24) hour security services to the Project, (ii) parking management systems, equipment and/or personnel, and (iii) twenty-four (24) hour porter service.

 

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[Relational Advisors/Relational Investors]


6.3 Direct Payment of Premises Utility Costs . Notwithstanding anything to the contrary set forth in Section 4.2.4 or this Article 6, Tenant shall pay one hundred percent (100%) of the cost of all utilities (including without limitation, electricity, gas, sewer and water) attributable to its use of the entire Premises. Tenant’s utility use shall include electricity, water, and gas use for lighting, incidental use and HVAC. All such Premises utility (as opposed to corresponding payments attributable to the Common Areas) shall be excluded from Operating Expenses and shall be paid directly by Tenant prior to the date on which the same are due to the utility provider. Landlord and Tenant hereby acknowledge and agree that the Premises shall, as part of the Tenant Improvements being constructed pursuant to the Tenant Work Letter, be separately metered.

6.4 Security . Other than as expressly set forth in this Section 6.4 , Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project. Any such security measures for the benefit of the Premises, the Building or the Project shall be provided by Tenant, at Tenant’s sole cost and expense. Landlord shall provide reasonable access control services for the Building lobby during the Building Hours (i.e., an attendant in the Building lobby); provided, however, Landlord shall in no case be liable for personal injury or property damage for any error with regard to the admission to or exclusion from the Building of any person or any thing. Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed.

6.5 Overstandard Tenant Use .

6.5.1 Generally . Tenant shall not, without Landlord’s prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If such consent is given, Landlord shall have the right to install (or to require Tenant to itself install) supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the cost thereof, including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Tenant to Landlord upon billing by Landlord, and the cost of the utility usage in connection therewith shall be paid for by Tenant in accordance with the terms and conditions of Section 6.3 , above. If Tenant uses water, electricity, heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption. Tenant’s use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation.

6.5.2 H VAC . Tenant shall be provided access to the HVAC controls for the sixth (6 th ) floor of the Building. If Tenant uses HVAC in excess of two hundred forty (240) cumulative hours during any calendar month of the Lease Term, such excess-hours of HVAC (the “ After Hours HVAC ”) shall be provided to Tenant subject to Tenant’s payment to Landlord of an amount reasonably determined by Landlord to be its actual cost of providing such service

 

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[Relational Advisors/Relational Investors]


(which cost shall specifically include, but not be limited to, a reasonable administration expense, electrical costs, and the amount directly attributable to increased wear, tear and maintenance on existing Building Systems caused by such After Hours HVAC); provided, however, promptly following Tenant’s request therefore, Landlord shall provide reasonable backup documentation in support of Landlord’s determination of such excess-hours charge. As of the execution of this Lease, the excess-hours charge is anticipated to total approximately $38.43 per floor per hour. Amounts payable by Tenant to Landlord for such excess-hours use shall be deemed Additional Rent and shall be paid within thirty (30) days after Tenant’s receipt of an invoice therefor.

6.6 Interruption of Use . Except as otherwise provided in this Lease, Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease, except as otherwise provided in this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6 .

6.7 Rent Abatement . If (i) Landlord fails to perform the obligations required of Landlord under the TCCs of this Lease, (ii) such failure causes all or a portion of the Premises to be untenantable and unusable by Tenant, and (iii) such failure relates to (A) the nonfunctioning of the heat, ventilation, and air conditioning system in the Premises, the electricity in the Premises, the nonfunctioning of the elevator service to the Premises, or the nonfunctioning of telecommunication services to the Premises, or (B) a failure to provide access to the Premises, then Tenant shall give Landlord notice (the “ Initial Notice ”), specifying such failure to perform by Landlord (the “ Landlord Default ”). If Landlord has not cured such Landlord Default within three (3) business days after the receipt of the Initial Notice (the “ Eligibility Period ”), Tenant may deliver an additional notice to Landlord (the “ Additional Notice ”), specifying such Landlord Default and Tenant’s intention to abate the payment of Rent under this Lease. If Landlord does not cure such Landlord Default within two (2) business days of receipt of the Additional Notice, Tenant may, upon written notice to Landlord, immediately abate Rent payable under this Lease for that portion of the Premises rendered untenantable and not used by Tenant, for the period beginning on the date three (3) business days after the Initial Notice to the earlier of the date Landlord cures such Landlord Default or the date Tenant recommences the use of such portion of the Premises, Such right to abate Rent shall be Tenant’s sole and exclusive remedy at law or in equity for a Landlord Default. Except as provided in this Section 6.4 . nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder.

 

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KILROY REALTY

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[Relational Advisors/Relational Investors]


ARTICLE 7

REPAIRS

7.1 In General . Landlord shall maintain in first-class condition and operating order and keep in good repair and condition the structural portions of the Building, including the foundation, floor/ceiling slabs, roof structure (as opposed to roof membrane), curtain wall, exterior glass and mullions, columns, beams, shafts (including elevator shafts), stairs, parking areas, landscaping, exterior Project signage, stairwells, elevator cab, men’s and women’s washrooms, Building mechanical, electrical and telephone closets, and all common and public areas (collectively, “ Building Structure ”) and the Base Building mechanical, electrical, life safety, plumbing, sprinkler systems and HVAC systems which were not constructed by Tenant Parties (collectively, the “ Building Systems ”) and the Project Common Areas. Notwithstanding anything in this Lease to the contrary, Tenant shall be required to repair the Building Structure and/or the Building Systems to the extent caused due to Tenant’s use of the Premises for other than normal and customary business office operations, unless and to the extent such damage is covered by insurance carried or required to be carried by Landlord pursuant to Article 10 and to which the waiver of subrogation is applicable (such obligation to the extent applicable to Tenant as qualified and conditioned will hereinafter be defined as the “ BS/BS Exception ”), Tenant shall, at Tenant’s own expense, keep the Premises, including all improvements, fixtures and furnishings therein, and the floor or floors of the Building on which the Premises are located, in good order, repair and condition at all times during the Lease Term, but such obligation shall not extend to the Building Structure and the Building Systems except pursuant to the BS/BS Exception. In addition, Tenant shall, at Tenant’s own expense, but under the supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, at Landlord’s option, or if Tenant fails to make such repairs, Landlord may, after written notice to Tenant and Tenant’s failure to repair within five (5) days thereafter, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord’s involvement with such repairs and replacements forthwith upon being billed for same. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree; provided, however, except for (i) emergencies, (ii) repairs, alterations, improvements or additions required by governmental or quasi-governmental authorities or court order or decree, or (iii) repairs which are the obligation of Tenant hereunder, any such entry into the Premises by Landlord shall be performed in a manner so as not to materially interfere with Tenant’s use of, or access to, the Premises; provided that, with respect to items (ii) and (iii) above, Landlord shall give Tenant twenty-four (24) hours prior written notice of such entry (except in the event of an emergency in which case no notice shall be required), and Landlord shall use commercially reasonable efforts to minimize interference with Tenant’s use of, or access to, the Premises. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and

 

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KILROY REALTY

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[Relational Advisors/Relational Investors]


Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

7.2 Tenant Self-Help Right . Notwithstanding any provision set forth in this Article 7 to the contrary, if Tenant provides written notice to Landlord of an event or circumstance which requires the action of Landlord with respect to repair and/or maintenance of the Premises only (and not any other portion of the Project), and Landlord fails to provide such action within a reasonable period of time, given the circumstances, after the receipt of such notice, but in no event earlier than thirty (30) days after Landlord’s receipt of such notice, then Tenant may proceed to take the required action upon delivery of an additional ten (10) days notice to Landlord specifying that Tenant is taking such required action, and if such action was required under the terms of this Lease to be taken by Landlord and was not taken by Landlord within such ten (10) day period, then Tenant shall be entitled to prompt reimbursement by Landlord of Tenant’s actual, reasonable costs in taking such action. In the event Tenant takes such action, and such work will affect the systems of the Building or the structural integrity of the Building, Tenant shall use only those contractors used by Landlord in the Project for work on such Building systems or structure unless such contractors are unwilling or unable to perform, or timely perform, such work, in which event Tenant may utilize the services of any other qualified contractor which normally and regularly performs similar work in first-class office buildings in the Del Mar Heights/UTC area.

ARTICLE 8

ADDITIONS AND ALTERATIONS

8.1 Landlord’s Consent to Alterations . Tenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “ Alterations ”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than ten (10) business days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building. Notwithstanding the foregoing, Tenant shall be permitted to make Alterations following ten (10) business days notice to Landlord, but without Landlord’s prior consent, to the extent that such Alterations do not adversely affect the systems and equipment of the Building, exterior appearance of the Building, or structural aspects of the Building (the “ Cosmetic Alterations ”). The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8 .

8.2 Manner of Construction . Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors reasonably approved by Landlord, and the requirement that upon Landlord’s timely request (as more particularly set forth in Section 8.5, below ), Tenant shall, at Tenant’s expense, remove such Alterations upon the expiration or any early termination of the Lease Term and return the affected portion of the

 

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12400 High Bluff

[Relational Advisors/Relational Investors]


Premises to a “warm shell” condition as reasonably determined by Landlord; provided, however, Landlord shall only require the removal of Alterations to the extent such Alterations are not consistent with (i) general office improvements, or (ii) the character of the Project as a first-class office project. Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the City of San Diego, all in conformance with Landlord’s construction rules and regulations; provided, however, that prior to commencing to construct any Alteration, Tenant shall meet with Landlord to discuss Landlord’s design parameters and code compliance issues. In the event Tenant performs any Alterations in the Premises which require or give rise to governmentally required changes to the “Base Building,” as that term is defined below, then Landlord shall, at Tenant’s expense, make such changes to the Base Building. The “ Base Building ” shall include the structural portions of the Building, and the public restrooms, elevators, exit stairwells and the systems and equipment located in the internal core of the Building on the floor or floors on which the Premises are located. In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project, Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord’s reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. In addition to Tenant’s obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of San Diego in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project construction manager a reproducible copy of the “as built” drawings of the Alterations, to the extent applicable, as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

8.3 Payment for Improvements . If payment is made directly to contractors, Tenant shall (i) comply with Landlord’s requirements for final lien releases and waivers in connection with Tenant’s payment for work to contractors, and (ii) sign Landlord’s standard contractor’s rules and regulations. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to three percent (3%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work. If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord’s reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord’s review of such work.

8.4 Construction Insurance . In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries “Builder’s All Risk” insurance in an amount reasonably approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Landlord may, in its reasonable discretion, require Tenant to obtain a lien and completion bond or some alternate form of

 

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[Relational Advisors/Relational Investors]


security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.

8.5 Landlord’s Property . All Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed in or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord, except that Tenant may remove any Alterations, improvements, fixtures and/or equipment which Tenant can substantiate to Landlord have not been paid for with any Tenant improvement allowance funds provided to Tenant by Landlord, provided Tenant repairs any damage to the Premises and Building caused by such removal and returns the affected portion of the Premises to a “warm shell” condition as reasonably determined by Landlord. Furthermore, Landlord may, by written notice to Tenant prior to the end of the Lease Term, or given following any earlier termination of this Lease, require Tenant, at Tenant’s expense, to (i) remove any Alterations or improvements in the Premises to the extent such Alterations are not (A) consistent with general office improvements, or (B) the character of the Project as a first-class office project, and/or (ii) remove any “Above Building Standard Tenant Improvements,” as that term is defined in Section 2.4 of the Tenant Work Letter, located within the Premises and replace the same with then existing “Building Standard Tenant Improvements,” as that term is defined in Section 2.3 of the Tenant Work Letter, and to repair any damage to the Premises and Building caused by such removal and return the affected portion of the Premises to a “warm shell” condition as reasonably determined by Landlord; provided, however, if, in connection with its notice to Landlord with respect to any such Alterations or Cosmetic Alterations, (x) Tenant requests Landlord’s decision with regard to the removal of such Alterations or Cosmetic Alterations, and (y) Landlord thereafter agrees in writing to waive the removal requirement with regard to such Alterations or Cosmetic Alterations, then Tenant shall not be required to so remove such Alterations or Cosmetic Alterations; provided further, however, that if Tenant requests such a determination from Landlord and Landlord, within ten (10) business days following Landlord’s receipt of such request from Tenant with respect to Alterations or Cosmetic Alterations, fails to address the removal requirement with regard to such Alterations or Cosmetic Alterations, Landlord shall be deemed to have agreed to waive the removal requirement with regard to such Alterations or Cosmetic Alterations. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations or improvements in the Premises, and return the affected portion of the Premises to a “warm shell” condition as reasonably determined by Landlord, then at Landlord’s option, either (1) Tenant shall be deemed to be holding over in the Premises and Rent shall continue to accrue in accordance with the terms of Article 16 , below, until such work shall be completed, or (2) Landlord may do so and may charge the cost thereof to Tenant. Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


ARTICLE 9

COVENANT AGAINST LIENS

Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys’ fees and costs) arising out of same or in connection therewith. Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under applicable laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility. Tenant shall remove any such lien or encumbrance by bond or otherwise within five (5) days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof. The amount so paid shall be deemed Additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall subject Landlord’s title to the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord’s option shall attach only against Tenant’s interest in the Premises and shall in all respects be subordinate to Landlord’s title to the Project, Building and Premises.

ARTICLE 10

INSURANCE

10.1 Indemnification and Waiver . To the extent not prohibited by law and except as otherwise expressly provided herein to the contrary, Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever and agrees that Landlord, its partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, “ Landlord Parties ”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant. Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) (collectively, “ Claims ”) incurred in connection with or arising from any cause in, on or about the Premises, any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant or any such person (collectively, the “ Tenant Parties ”), in, on or about the Project or any breach of the TCCs of this Lease, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the negligence or willful misconduct of Landlord Parties. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant’s occupancy of the Premises, and except to the extent such suit arises from the negligence or willful misconduct of Landlord, Tenant shall pay to

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as appraisers’, accountants’ and attorneys’ fees. Subject to Section 10.5 below, Landlord hereby indemnifies the Tenant Parties and holds the Tenant Parties harmless from any Claims to the extent resulting from the negligence or willful misconduct of Landlord or the Landlord Parties and not covered by insurance required to be carried under this Lease by Tenant or actually carried by Tenant; provided, however, that (i) Landlord hereby indemnifies and holds Tenant harmless from any Claims to any property outside of the Premises to the extent such Claim is covered by such insurance, even if resulting from the negligent acts or omissions of Tenant or those of its agents, contractors, or employees, and (ii) because Tenant must carry insurance pursuant to Section 10.3.2 to cover its personal property within the Premises and the Improvements, Tenant hereby indemnifies and holds Landlord harmless from any Claim to any property within the Premises, to the extent such Claim is covered by such insurance, even if resulting from the negligent acts or omissions of Landlord or those of its agents, contractors, or employees. Further, Landlord’s and Tenant’s agreement to indemnify the Tenant Parties and the Landlord Parties, respectively, pursuant to this Section 10.1 is not intended and shall not relieve any insurance carrier of its obligations under policies required to be carried by Landlord or Tenant, respectively, pursuant to the provisions of this Lease, to the extent such policies cover the matters subject to Landlord’s or Tenant’s indemnification obligations, as the case may be; nor shall they supersede any inconsistent agreement of the parties set forth in any other provision of this Lease. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination. Notwithstanding anything to the contrary contained in this Lease, nothing in this Lease shall impose any obligations on Tenant or Landlord to be responsible or liable for, and each hereby releases the other from all liability for, consequential damages other than those consequential damages incurred by Landlord in connection with a holdover of the Premises by Tenant after the expiration or earlier termination of this Lease.

10.2 Landlord’s Fire, Casualty and Liability Insurance .

10.2.1 Landlord shall maintain Commercial/Comprehensive General Liability Insurance with respect to the Building during the Lease Term covering claims for bodily injury, personal injury and property damage in the Project Common Areas and with respect to Landlord’s activities in the Premises.

10.2.2 Landlord shall insure the Building and Landlord’s remaining interest in the Tenant Improvements and Alterations with a policy of Physical Damage Insurance including building ordinance coverage, written on a standard Causes of Loss — Special Form basis (against loss or damage due to fire and other casualties covered within the classification of fire and extended coverage, vandalism, and malicious mischief, sprinkler leakage, water damage and special extended coverage), covering the full replacement cost of the Base Building, Premises and other improvements (including coverages for enforcement of Applicable Laws requiring the upgrading, demolition, reconstruction and/or replacement of any portion of the Building as a result of a covered loss) without deduction for depreciation.

10.2.3 Landlord shall maintain Boiler and Machinery/Equipment Breakdown Insurance covering the Building against risks commonly insured against by a Boiler &

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Machinery/Equipment Breakdown policy and such policy shall cover the full replacement costs, without deduction for depreciation.

10.2.4 The foregoing coverages shall contain commercially reasonable deductible amounts from such companies, and on such other terms and conditions, as Landlord may from time to time reasonably determine.

10.2.5 Additionally, at the option of Landlord, such insurance coverage may include the risk of (i) earthquake, (ii) flood damage and additional hazards, (iii) a rental loss endorsement for a period of up to two (2) years, (iv) one or more loss payee endorsements in favor of holders of any mortgages or deeds of trust encumbering the interest of Landlord in the Building, or any portion thereof.

10.2.6 Notwithstanding the foregoing provisions of this Section 10.2 , the coverage and amounts of insurance carried by Landlord in connection with the Building shall, at a minimum, be comparable to the coverage and amounts of insurance which are carried by reasonably prudent landlords of Comparable Buildings, and Worker’s Compensation and Employer’s Liability coverage as required by applicable law. Tenant shall, at Tenant’s expense, comply with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.3 Tenant’s Insurance . Tenant shall maintain the following coverages in the following amounts.

10.3.1 Commercial/Comprehensive General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) arising out of Tenant’s operations, and contractual liabilities (covering the performance by Tenant of its indemnity agreements) including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than:

 

Bodily Injury and    $5,000,000 each occurrence
Property Damage Liability   

$5,000,000 annual aggregate, or

        any combination of primary

        insurance and excess insurance

Personal Injury Liability    $5,000,000 each occurrence
  

$5,000,000 annual aggregate, or

        any combination of primary

        insurance and excess insurance

0% Insured’s participation

10.3.2 Property Insurance covering (i) all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant,

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(ii) the “Tenant Improvements,” as that term is defined in Section 2.1 of the Tenant Work Letter, and any other improvements which exist in the Premises as of the Lease Commencement Date (excluding the Base Building) (the “Original Improvements” ), and (iii) all other improvements, alterations and additions to the Premises. Such insurance shall be written on an “all risks” of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion, and providing business interruption coverage for a period of one year.

10.3.3 Worker’s Compensation or other similar insurance pursuant to all applicable state and local statutes and regulations, and Employer’s Liability Insurance or other similar insurance pursuant to all applicable state and local statutes and regulations, with a waiver of subrogation endorsement and with minimum limits of One Million and No/100 Dollars ($1,000,000.00) per employee and One Million and No/100 Dollars ($1,000,000.00) per occurrence.

10.3.4 Comprehensive Automobile Liability Insurance covering all owned, hired, or non-owned vehicles with the following limits of liability: One Million Dollars ($1,000,000.00) combined single limit for bodily injury and property damage.

10.3.5 Business Interruption, loss of income and extra expense insurance in such amounts as will reimburse Tenant for actual direct or indirect loss of earnings for up to one (1) year attributable to the risks outlined in Section 10.3.2 , above.

10.4 Form of Policies . The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, and any other party the Landlord so specifies that has a material financial interest in the Project, as an additional insured, including Landlord’s managing agent, if any; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Landlord and any mortgagee of Landlord, the identity of whom has been provided to Tenant in writing. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Lease Commencement Date and at least thirty (30) days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, after written notice to Tenant and Tenant’s failure to obtain such insurance within five (5) days thereafter, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within thirty (30) days after delivery to Tenant of bills therefor.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


10.5 Subrogation . Landlord and Tenant intend that their respective property loss risks shall be borne by reasonable insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. The parties agree that their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor.

10.6 Additional Insurance Obligations . Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord. Notwithstanding the foregoing, Landlord’s request shall only be considered reasonable if such increased coverage amounts and/or such new types of insurance are consistent with the requirements of a majority of Comparable Buildings, and Landlord shall not so increase the coverage amounts or require additional types of insurance during the first five (5) years of the Lease Term and thereafter no more often than one time in any five (5) year period.

ARTICLE 11

DAMAGE AND DESTRUCTION

11.l Repair of Damage to Premises by Landlord . Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11 , restore the Base Building and such Common Areas. Such restoration shall be to substantially the same condition of the Base Building and the Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project, provided that access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Upon the occurrence of any damage to the Premises, upon notice (the “Landlord Repair Notice” ) to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under Section 10.3 of this Lease, and Landlord shall repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord’s commencement of repair of the damage. In the event that Landlord does not deliver the Landlord Repair Notice within

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


sixty (60) days following the date the casualty becomes known to Landlord, Tenant shall, at its sole cost and expense, repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition. Whether or not Landlord delivers a Landlord Repair Notice, prior to the commencement of construction, Tenant shall submit to Landlord, for Landlord’s review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, and the Premises are not occupied by Tenant as a result thereof, then during the time and to the extent the Premises are unfit for occupancy, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the purposes permitted under this Lease bears to the total rentable square feet of the Premises. In the event that Landlord shall not deliver the Landlord Repair Notice, Tenant’s right to rent abatement pursuant to the preceding sentence shall terminate as of the date which is reasonably determined by Landlord to be the date Tenant should have completed repairs to the Premises assuming Tenant used reasonable due diligence in connection therewith.

11.2 Landlord’s Option to Repair . Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage is not fully covered by Landlord’s insurance policies (excluding deductible amounts), and such shortfall exceeds Five Hundred Thousand Dollars ($500,000.00); (iv) the damage occurs during the last twelve (12) months of the Lease Term; or (v) any owner of any other portion of the Project, other than Landlord, does not intend to repair the damage to such portion of the Project; provided, however, that if Landlord does not elect to terminate this Lease pursuant to Landlord’s termination right as provided above, and the repairs cannot, in the reasonable opinion of Landlord, be completed within one hundred eighty (180) days after being commenced, then Landlord shall provide written notice to Tenant (the “ Repair Period Notice ”) within sixty (60) days after the date of discovery of the damage, which Repair Period Notice shall set forth Landlord’s opinion of the repair period, and thereafter Tenant may, within thirty (30) days of its receipt of such Repair Period Notice, elect to terminate this Lease by written notice to Landlord effective as of the date specified in Tenant’s termination notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such termination notice is given by Tenant. At any time, from time to time, after the date occurring sixty (60) days after the date of the damage, Tenant may request that Landlord inform Tenant of Landlord’s reasonable opinion of the date of completion of the repairs and Landlord shall

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


respond to such request within five (5) business days. Notwithstanding the provisions of this Section 11.2 , Tenant shall have the right to terminate this Lease under this Section 11.2 only if each of the following conditions is satisfied: (a) the damage to the Project by fire or other casualty was not caused by the gross negligence or intentional act of Tenant or its partners or subpartners and their respective officers, agents, servants, employees, and independent contractors; (b) Tenant is not then in default under this Lease; and, (c) as a result of the damage, Tenant cannot reasonably conduct business from the Premises. In the event this Lease is terminated in accordance with the terms of this Section 11.2 , Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under items (ii) and (iii) of Section 10.3.2 of this Lease.

11.3 Waiver of Statutory Provisions . The provisions of this Lease, including this Article 11 , constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.

ARTICLE 12

NONWAIVER

No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

 

   -36-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


ARTICLE 13

CONDEMNATION

If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. If (i) more than ten percent (10%) of the rentable square feet of the Premises is taken (ii) more than ten percent (10%) of Tenant’s parking spaces are taken (and Landlord does not provide Tenant with substitute parking spaces within thirty (30) days after such taking sufficient to cause the total number of parking spaces available to Tenant to be at least ninety percent (90%) of Tenant’s total allocated parking spaces), or (iii) access to the Premises is substantially impaired, in each case for a period in excess of one hundred twenty (120) days, then Tenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the light to file any separate claim available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant, All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure. Notwithstanding anything to the contrary contained in this Article 13 , in the event of a temporary taking of all or any portion of the Premises for a period of one hundred twenty (120) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

14.1 Transfers . Subject to the TCCs of Section 14.8 , below, Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as “ Transfers ” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “ Transferee ”). If Tenant desires Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “ Transfer Notice ”) shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “ Subject Space ”), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the “ Transfer Premium ”, as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, provided that Landlord shall have the right to require Tenant to utilize Landlord’s standard Transfer documents in connection with the documentation of such Transfer, (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee’s business and proposed use of the Subject Space and (v) an executed estoppel certificate from Tenant in the form attached hereto as Exhibit E . Any Transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant under this Lease. Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord’s review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys’, accountants’, architects’, engineers’ and consultants’ fees) incurred by Landlord, within thirty (30) days after written request by Landlord, in an amount not to exceed One Thousand Five Hundred and No/100 Dollars ($1,500.00) in the aggregate, for a Transfer in the ordinary course of business. Landlord and Tenant hereby agree that a proposed Transfer shall not be considered “in the ordinary course of business” if such Transfer involves the review of documentation by Landlord on more than two (2) occasions. In connection with Tenant’s expectation that it will, at the beginning of the Lease Term, attempt to sublease a portion of the Premises, Tenant may, subject to (A) Landlord’s prior written approval (which shall not be unreasonably withheld, conditioned or delayed), (B) the “Sign Specifications” set forth in Section 23.5.1 , below, be permitted to install and maintain during the first nine (9) months of the initial Lease Term one (1) standard brokerage sign in an exterior location to be mutually and reasonably designated by Landlord and Tenant to market sublease space to third-party subtenants.

14.2 Landlord’s Consent . Landlord shall not unreasonably withhold its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply:

14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project;

 

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14.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;

14.2.3 The Transferee is either a governmental agency or instrumentality thereof;

14.2.4 The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested;

14.2.5 The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease;

14.2.6 The terms of the proposed Transfer will allow the Transferee (except to the extent a Permitted Assignee) to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Tenant (or will allow the Transferee to occupy space leased by Tenant pursuant to any such right); or

14.2.7 Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) is negotiating with Landlord to lease space in the Project at such time, or (ii) has negotiated with Landlord during the twelve (12)-month period immediately preceding the Transfer Notice; provided, however, this Section 14.2.7 shall only apply to the extent Landlord has available space in the Building suitable for such proposed Transferee; or

14.2.8 The Transferee does not intend to occupy the entire Subject Space and conduct its business therefrom for a substantial portion of the term of the Transfer.

If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord’s consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2 , or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenant’s original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord’s right of recapture, if any, under Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee. Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims, damages, costs, expenses, causes of action and proceedings involving any third party or

 

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parties (including without limitation Tenant’s proposed subtenant or assignee) who claim they were damaged by Landlord’s wrongful withholding or conditioning of Landlord’s consent, except to the extent that a court of competent jurisdiction determines that Landlord unreasonably withheld or delayed its consent to a Transfer under this Article 14 .

Landlord and Tenant hereby acknowledge that Tenant anticipates subleasing portions of the Premises during the Lease Term and therefore, notwithstanding anything to the contrary set forth in this Section 14.2, Landlord and Tenant hereby agree that to the extent (i) Tenant desires to enter into a sublease during the initial Lease Term, (ii) such sublease is not a subterfuge by Tenant to avoid its obligations under this Lease, (iii) such sublease otherwise satisfies all of the applicable TCCs of this Article 14, and (iv) thereafter, no more than 8,000 rentable square feet of space in the Premises, based upon the total of all then-existing subleases, is so subleased (as applicable, an “ Excess Capacity Sublease ”), then for purposes of Landlord’s consent thereto, the TCCs of Sections 14.2.4 , 14.2.7 and 14.2.8 of this Lease, above, shall not apply.

14.3 Transfer Premium . If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3, received by Tenant from such Transferee, “Transfer Premium” shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any free base rent or other economic concessions reasonably provided to the Transferee, and (iii) any brokerage commissions in connection with the Transfer. “Transfer Premium” shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for (A) services rendered by Tenant to Transferee, or (B) for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. In the calculations of the Rent (as it relates to the Transfer Premium calculated under this Section 14.3) , and the Transferee’s Rent and Quoted Rent under Section 14.2 of this Lease, the Rent paid during each annual period for the Subject Space, and the Transferee’s Rent and the Quoted Rent, shall be computed after adjusting such rent to the actual effective rent to be paid, taking into consideration any and all leasehold concessions granted in connection therewith, including, but not limited to, any rent credit and tenant improvement allowance. For purposes of calculating any such effective rent all such concessions shall be amortized on a straight-line basis over the relevant term. Notwithstanding anything to the contrary set forth in this Section 14.3 , the TCCs of this Section 14.3 with regard to the Transfer Premium shall not apply to any Excess Capacity Sublease to the extent such Excess Capacity Sublease is entered into and approved pursuant to the TCCs of this Article 14 during the first thirty-six (36) months of the initial Lease Term.

14.4 Landlord’s Option as to Subject Space . In the event that a proposed Transfer, if consented to, would cause forty percent (40%) or more of the Premises to be subleased or licensed to a party (or parties) other than the Original Tenants (or either of them), their Affiliates and/or a Permitted Assignee, then notwithstanding anything to the contrary contained in this Article 14 , Landlord shall have the option, by giving written notice to Tenant within thirty (30)

 

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days after receipt of any Transfer Notice, to recapture the Subject Space; provided, however, in the event Landlord so elects to recapture the Subject Space, Tenant may rescind its Transfer Notice (in which no Landlord-recapture shall result) by delivering written notice of Tenant’s rescission election to Landlord within ten (10) business days following Tenant’s receipt of Landlord’s recapture notice. Unless so rescinded by Tenant pursuant to the immediately preceding sentence, such recapture notice shall cancel and terminate this Lease with respect to the Subject Space as of the date stated in the Transfer Notice as the effective date of the proposed Transfer until the last day of the term of the Transfer as set forth in the Transfer Notice (or at Landlord’s option, shall cause the Transfer to be made to Landlord or its agent, in which case the parties shall execute the Transfer documentation promptly thereafter). In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner to recapture the Subject Space under this Section 14.4 , then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject Space to the proposed Transferee, subject to provisions of this Article 14 , Notwithstanding anything to the contrary set forth in this Section 14.4 , to the extent of an Excess Capacity Sublease, the TCCs of this Section 14.4 with regard to recapture shall not apply to such Excess Capacity Sublease.

14.5 Effect of Transfer . If Landlord consents to a Transfer, (i) the TCCs of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord’s request a complete statement, certified by an independent certified public accountant, or Tenant’s chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space. Landlord or its authorized representatives shall have the right at all reasonable times, and upon forty-eight (48) hours advance written notice to Tenant, to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than three percent (3%), Tenant shall pay Landlord’s costs of such audit.

14.6 Additional Transfers . For purposes of this Lease, the term “ Transfer ” shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of fifty percent (50%) or more of partnership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant (a

 

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Reorganization ”) which would have a material adverse economic impact on the business of Tenant or would otherwise materially adversely alter Tenant’s ability to satisfy Tenant’s financial obligations set forth in this Lease, or (B) the sale or other transfer of an aggregate of fifty percent (50%) or more of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12)-month period (a “ Sale ”) which would have a material adverse economic impact on the business of Tenant or would otherwise materially adversely alter Tenant’s ability to satisfy Tenant’s financial obligations set forth in this Lease, or (C) the sale, mortgage, hypothecation or pledge of an aggregate of fifty percent (50%) or more of the value of the unencumbered assets of Tenant within a twelve (12)-month period; provided, however, in the event of any such Reorganization or Sale (regardless of whether or not the remaining requirements of this Section 14.6 are satisfied in connection therewith), Tenant shall nevertheless notify Landlord in writing with regard to such Reorganization or Sale and shall promptly supply Landlord with any documents or information reasonably requested by Landlord regarding such Reorganization or Sale.

14.7 Occurrence of Default . Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to: (i) treat such Transfer as cancelled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer. If Tenant shall be in default under this Lease, Landlord is hereby irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such default is cured. Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Landlord’s enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord’s right to enforce any term of this Lease against Tenant or any other person. If Tenant’s obligations hereunder have been guaranteed, Landlord’s consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

14.8 Non-Transfers . Notwithstanding anything to the contrary contained in this Article 14, (i) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant or the principals of either of the Original Tenants), (ii) an assignment of the Premises to an entity which acquires all or substantially all of the assets or interests (partnership, stock or other) of Tenant, or (iii) an assignment of the Premises to an entity which is the resulting entity of a merger or consolidation of Tenant, shall not be deemed a Transfer under this Article 14 , provided that Tenant notifies Landlord of any such assignment or sublease and promptly supplies Landlord with any documents or information requested by Landlord regarding such assignment or sublease or such affiliate, and further provided that such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease. The transferee under a transfer specified in items (i), (ii) or (iii) above shall be referred to as a “ Affiliate ,” “ Control ,” as used in

 

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this Section 14.8 , shall mean the ownership, directly or indirectly, of at least fifty-one percent (51%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty-one percent (51%) of the voting interest in, any person or entity.

ARTICLE 15

SURRENDER OF PREMISES; OWNERSHIP AND

REMOVAL OF TRADE FIXTURES

15.1 Surrender of Premises . No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated, The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

15.2 Removal of Tenant Property by Tenant . Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15 , quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, business and trade fixtures, free-standing cabinet work, movable partitions and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.

ARTICLE 16

HOLDING OVER

If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Rent shall be payable at a monthly rate equal to the product of (i) the Rent applicable during the last rental period of the Lease Term under this Lease, and (ii) a percentage equal to one hundred ten percent (110%) during the first two (2) months immediately following the expiration or earlier termination of the Lease Term, and one hundred twenty percent (120%) thereafter. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this Article 16 shall be

 

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construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom.

ARTICLE 17

ESTOPPEL CERTIFICATES

Within ten (10) days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E , attached hereto (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord’s mortgagee or prospective mortgagee. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes. On or before May 1 st of each calendar year during the Lease Term, Tenant shall provide Landlord with a current (i.e., for the most recently completed fiscal year), combined and audited financial statement (the Financial Statements ); provided, however, together with its first delivery of such Financial Statements during the Lease Term, Tenant shall concurrently provide Landlord with the Financial Statements attributable to the two (2) immediately preceding years. In addition, at any other time during the Lease Term (but in no event more one (1) additional time in any Lease Year), Landlord may require Tenant to provide Landlord with unaudited financial statements (otherwise consistent with such Financial Statements) promptly following Landlord’s delivery of a written request therefore. Such Financial Statements shall be prepared in accordance with generally accepted accounting principles. Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception.

ARTICLE 18

SUBORDINATION

Subject to Tenant’s receipt of an appropriate non-disturbance agreement(s) as set forth below, this Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and

 

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to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. As of the date of this Lease, and except with regard to that certain construction loan which matures in August 2004, Landlord covenants that no other deed of trust, mortgage, other encumbrance, or ground or underlying lease encumbers the Premises, Building or Project. Landlord’s delivery to Tenant of commercially reasonable non-disturbance agreement(s) (the “ Nondisturbance Agreement ”) in favor of Tenant from any ground lessor, mortgage holders or lien holders of Landlord who later come into existence at any time prior to the expiration of the Lease Term shall be in consideration of, and a condition precedent to, Tenant’s agreement to be bound by the terms and conditions of this Article 18 . Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as Tenant timely pays the rent and observes and performs the TCCs of this Lease to be observed and performed by Tenant. Landlord’s interest herein may be assigned as security at any time to any lienholder. Tenant shall, within ten (10) business days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Subject to Tenant’s receipt of the Nondisturbance Agreement described herein, Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.

ARTICLE 19

DEFAULTS; REMEDIES

19.1 Events of Default . The occurrence of any of the following shall constitute a default of this Lease by Tenant:

19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease within five (5) business days of Tenant’s receipt of written notice from Landlord that the same was not paid when due; or

19.1.2 Except where a specific time period is otherwise set forth for Tenant’s performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2 , any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify

 

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and cure such default, but in no event exceeding a period of time in excess of sixty (60) days after written notice thereof from Landlord to Tenant; or

19.1.3 To the extent permitted by law, a general assignment by Tenant or any guarantor of this Lease for the benefit of creditors, or the taking of any corporate action in furtherance of bankruptcy or dissolution whether or not there exists any proceeding under an insolvency or bankruptcy law, or the filing by or against Tenant or any guarantor of any proceeding under an insolvency or bankruptcy law, unless in the case of a proceeding filed against Tenant or any guarantor the same is dismissed within sixty (60) days, or the appointment of a trustee or receiver to take possession of all or substantially all of the assets of Tenant or any guarantor, unless possession is restored to Tenant or such guarantor within thirty (30) days, or any execution or other judicially authorized seizure of all or substantially all of Tenant’s assets located upon the Premises or of Tenant’s interest in this Lease, unless such seizure is discharged within thirty (30) days; or

19.1.4 Abandonment or vacation of all or a substantial portion of the Premises by Tenant; or

19.1.5 The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease where such failure continues for more than five (5) business days after notice from Landlord; or The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

19.2 Remedies Upon Default . Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:

(a) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

(b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(c) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

 

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(d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

(e) At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term “ rent ” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 19.2.1 (a) and (b) , above, the “worth at the time of award” shall be computed by allowing interest at the Interest Rate. As used in Section 19.2.1 (c) , above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due,

19.2.3 Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

19.3 Subleases of Tenant . Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19 , Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements, In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

19.4 Form of Payment After Default . Following the occurrence of an event of default by Tenant, Landlord shall have the right to require that any or all subsequent amounts paid by Tenant to Landlord hereunder, whether to cure the default in question or otherwise, be paid in the form of cash, money order, cashier’s or certified check drawn on an institution

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


acceptable to Landlord, or by other means approved by Landlord, notwithstanding any prior practice of accepting payments in any different form.

19.5 Efforts to Relet . No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord’s interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

19.6 Landlord Default . Notwithstanding anything to the contrary set forth in this Lease, Landlord shall be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease if Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord’s failure to perform; provided, however, if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursues the same to completion. Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity. Any award from a court or arbitrator in favor of Tenant requiring payment by Landlord which is not paid by Landlord within the time period directed by such award, may be offset by Tenant from Rent next due and payable under this Lease; provided, however, Tenant may not deduct the amount of the award against more than fifty percent (50%) of Base Rent next due and owing (until such time as the entire amount of such judgment is deducted) to the extent following a foreclosure or a deed-in-lieu of foreclosure.

ARTICLE 20

COVENANT OF QUIET ENJOYMENT

Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other TCCs, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the TCCs, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

ARTICLE 21

SECURITY DEPOSIT

21.1 In General . Concurrent with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a security deposit (the “ Security Deposit ”) in the amount set forth in Section 8 of the Summary (the “ Security Deposit Amount ”), as security for the faithful

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


performance by Tenant of all of its obligations under this Lease. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, the removal of property and the repair of resultant damage, Landlord may, without notice to Tenant, but shall not be required to apply all or any part of the Security Deposit for the payment of any Rent or any other sum in default and Tenant shall, upon demand therefor, restore the Security Deposit to its original amount. Any unapplied portion of the Security Deposit shall be returned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder, within forty -five (45) days following the expiration of the Lease Term. Landlord shall hold Tenant’s Security Deposit (i.e., the entire Security Deposit Amount) in an interest bearing short-term certificate of deposit account (the “ CD ”), maintained at a bank selected by Landlord, which CD shall be in Landlord’s name; provided, however, such CD shall provide for all interest to be payable to Tenant. Any penalty assessed by the financial institution for the early withdrawal from such account due to a default by Tenant shall be borne by Tenant. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, or any successor statute.

21.2 Conditional Reduction of Security Deposit Amount . Landlord and Tenant hereby acknowledge and agree that, to the extent Tenant satisfies the TCCs of this Section 21.2 , the Security Deposit Amount is subject to an annual reduction equal to ten percent (10%) of the initial Security Deposit Amount throughout the Lease Term. Notwithstanding anything to the contrary set forth in this Section 21.2 , Tenant shall only be entitled to such conditional reduction to the extent (1) Tenant is not then in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods), (2) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, (3) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year period, (4) Tenant has timely delivered to Landlord the applicable annual Financial Statement in accordance with the TCCs of Article 17 , above, and (5) Landlord receives the auditor’s opinion letter, delivered in connection with the annual Financial Statements, confirming that Tenant continues to have the financial ability as an ongoing concern to satisfy Tenant’s then-remaining economic obligations set forth in this Lease. For purposes of example only, and assuming that upon each anniversary of the Lease Commencement Date Tenant is entitled to the conditional reduction pursuant to the TCCs of this Section 21.2 , then the Security Deposit Amount would be reduced pursuant to the foregoing schedule.

 

Reduction Date:    Security Deposit Amount:  

First (1 st ) anniversary of
Lease Commencement Date

   $ 101,819.25  

Second (2 nd ) anniversary of
Lease Commencement Date

   $ 90,506,00  

Third (3 rd ) anniversary of
Lease Commencement Date

   $ 79,192.75  

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Fourth (4 th ) anniversary of
Lease Commencement Date

   $ 67,879.50  

Fifth (5 th ) anniversary of
Lease Commencement Date

   $ 56,566.25  

Sixth (6 th ) anniversary of
Lease Commencement Date

   $ 45,253.00  

Seventh (7 th ) anniversary of
Lease Commencement Date

   $ 33,939.75  

Eighth (8 th ) anniversary of
Lease Commencement Date

   $ 22,626.50  

Ninth (9 th ) anniversary of
Lease Commencement Date

   $ 11,313.25  

ARTICLE 22

TELECOMMUNICATIONS EQUIPMENT

At any time during the Lease Term, subject to the TCCs of this Article 22 and Article 8 of this Lease, Tenant may install, at Tenant’s sole cost and expense, but without the payment of any Rent or a license or similar fee or charge, up to one (1) twenty-four inch (24”) satellite dish (and reasonable equipment related thereto), servicing the business conducted by Tenant from within the Premises (all such equipment is defined collectively as the “ Telecommunications Equipment ”) upon the portion of the roof of the Building designated by Landlord for such equipment. The physical appearance and the size of the Telecommunications Equipment shall be subject to Landlord’s reasonable approval, the location of any such installation of the Telecommunications Equipment shall be designated by Tenant subject to Landlord’s reasonable approval and Landlord may require Tenant to install screening around such Telecommunications Equipment, at Tenant’s sole cost and expense, as reasonably designated by Landlord. Tenant shall maintain such Telecommunications Equipment, at Tenant’s sole cost and expense. In the event Tenant elects to exercise its right to install the Telecommunication Equipment, then Tenant shall give Landlord prior notice thereof. Tenant shall reimburse to Landlord the actual costs reasonably incurred by Landlord in approving such Telecommunications Equipment, provided, however, such reimbursement shall not exceed Five Hundred and No/100 Dollars ($500.00) per approval. Tenant shall remove such Telecommunications Equipment upon the expiration or earlier termination of this Lease and shall return the affected portion of the rooftop and the Building to the condition the rooftop and the Building would have been in had no such Telecommunications Equipment been installed (reasonable wear and tear accepted). Such Telecommunications Equipment shall be installed pursuant to plans and specifications approved by Landlord, which approval will not be unreasonably withheld, conditioned, or delayed. Such Telecommunications Equipment shall, in all instances, comply with applicable governmental

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


laws, codes, rules and regulations. Tenant shall not be entitled to license its Communication Equipment to any unrelated third party, nor shall Tenant be permitted to receive any revenues, fees or any other consideration for the use of such Communication Equipment by an unrelated third party. Tenant’s right to install such Telecommunication Equipment shall be non-exclusive, and Tenant hereby expressly acknowledges Landlord’s continued right (i) to itself utilize any rooftop space, and (ii) to re-sell, license or lease any rooftop space to an unaffiliated third party; provided, however, such Landlord (or third-party) use shall not materially interfere with (or preclude the installation of) Tenant’s Telecommunications Equipment

ARTICLE 23

SIGNS

23.1 Full Floors . Subject to Landlord’s prior written approval, in its reasonable discretion, and provided all such signs are in keeping with the quality, design and style of the Building and Project, Tenant may, to the extent the Premises comprises an entire floor of the Building and at Tenant’s sole cost and expense, install identification signage anywhere in the Premises including in the elevator lobby of the Premises; provided, however, in no event shall such signs be visible from the exterior of the Building.

23.2 Multi-Tenant Floors . If other tenants occupy space on the floor on which the Premises is located, Tenant’s identifying signage shall be provided by Landlord, at Tenant’s cost, and such signage shall be comparable to that used by Landlord for other similar floors in the Building and shall comply with Landlord’s Building standard signage program.

23.3 Prohibited Signage and Other Items . Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant. Except as expressly set forth in Section 23.5 , below, Tenant may not install any signs on the exterior or roof of the Project or the Common Areas. Any signs (subject to the TCCs of Section 23.5 of this Lease), window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion.

23.4 Building Directory . Tenant shall have the right, at Tenant’s sole cost and expense, to use three (3) name strips on the building directory located in the lobby of the Building, with which to identify Tenant and the location of the Premises within the Building (i.e., “Suite 600”).

23.5 Tenant’s Signage . In connection with Tenant’s lease of the Premises, and subject to the remaining TCCs of this Section 23.5 , Tenant shall be entitled to the following signage in connection with Tenant’s lease of the Premises (collectively, the “Tenant’s Signage ”):

 

  (i) One (1) non-exclusive building-top sign (maximum size being 100 square feet) identifying Tenant’s name or logo located at the top of the south-facing elevation of the Building (the “ Building-Top Sign ”)

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


  (ii) Two (2) strips on the existing monument sign for the Project (the “ Project Monument Sign ”), which strips shall initially reference the two (2) Original Tenants under this Lease; provided, however, to the extent the same satisfies the remaining TCCs of this Section 23.5 , Tenant may use one (1) such strip to reference an approved Transferee pursuant to the TCCs of Article 14 ; provided further, however, Landlord shall be able to locate its standard identification signage on the Project Monument Sign (with a relative size equal to no greater than twenty-five percent (25%) of Tenant’s signage thereon)

23.5.1 Specifications and Permits . Tenant’s Signage shall set forth Tenant’s name and logo as determined by Tenant in its sole discretion; provided, however, in no event shall Tenant’s Signage include an “Objectionable Name,” as that term is defined in Section 23.5.2 , of this Lease. The graphics, materials, color, design, lettering, lighting, size, illumination, specifications and exact location of Tenant’s Signage (collectively, the “ Sign Specifications ”) shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, and shall be consistent and compatible with the quality and nature of the Project and the Building Standard Signage Specifications. For purposes of this Section 23.5.1 , the reference to “name” shall mean name and/or logo. In addition, Tenant’s Signage shall be subject to Tenant’s receipt of all required governmental permits and approvals and shall be subject to all Applicable Law and to any covenants, conditions and restrictions affecting the Project. Landlord shall use commercially reasonable efforts to assist Tenant in obtaining all necessary governmental permits and approvals for Tenant’s Signage. Tenant hereby acknowledges that, notwithstanding Landlord’s approval of Tenant’s Signage, Landlord has made no representation or warranty to Tenant with respect to the probability of obtaining all necessary governmental approvals and permits for Tenant’s Signage. In the event Tenant does not receive the necessary governmental approvals and permits for Tenant’s Signage, Tenant’s and Landlord’s rights and obligations under the remaining TCCs of this Lease shall be unaffected.

23.5.2 Objectionable Name . To the extent either of the Original Tenants, their Affiliates and/or a Permitted Assignee desires to change the name and/or logo set forth on Tenant’s Signage, such name and/or logo shall not have a name which relates to an entity which is of a character or reputation, or is associated with a political faction or orientation, which is inconsistent with the quality of the Project, or which would otherwise reasonably offend a landlord of the Comparable Buildings (an “ Objectionable Name ”). The parties hereby agree that the name “Relational Group” or any reasonable derivation thereof, shall not be deemed an Objectionable Name.

23.5.3 Termination of Right to Tenant’s Signage . The rights contained in this Section 23.4 shall be personal to the Original Tenants, and may only be exercised by the Original Tenants (or either of them), their Affiliates, a Permitted Assignee (and not any other assignee, sublessee or other transferee of either of the Original Tenant’s interest in this Lease) if (i) the Original Tenants, their Affiliates, a Permitted Assignee and/or any subtenant under an Excess Capacity Sublease are, collectively, in occupancy of no less than ninety percent (90%) of the then existing Premises, (ii) Tenant is not then in economic default or material non-economic

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


default under this Lease (beyond any applicable notice and cure periods), (iii) Tenant has not been in economic default or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, and (iv) Tenant has not been in economic default or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year’ period.

23.5.4 Cost and Maintenance . The costs of the actual signs comprising Tenant’s Signage and the installation, design, construction, and any and all other costs associated with Tenant’s Signage, including, without limitation, utility charges and hook-up fees, permits, and maintenance and repairs, shall be the sole responsibility of Tenant; provided that Landlord shall construct and install the Project Monument Sign(s) (including, but not limited to, running sufficient power and utilities to the site of the Project Monument Sign), at Tenant’s sole cost and expense, and Tenant shall be responsible for the cost of Tenant’s sign on the Project Monument Sign(s), but Landlord shall maintain all monument signs set forth in this Article 23 in good condition and repair, the cost of which in connection with the Project Monument Sign(s) shall be included in Operating Expenses. Should Tenant’s Signage require repairs and/or maintenance, as determined in Landlord’s reasonable judgment, Landlord shall have the right to provide Notice thereof to Tenant and Tenant (except as set forth above) shall cause such repairs and/or maintenance to be performed within thirty (30) days after receipt of such Notice from Landlord, at Tenant’s sole cost and expense; provided, however, if such repairs and/or maintenance are reasonably expected to require longer than thirty (30) days to perform, Tenant shall commence such repairs and/or maintenance within such thirty (30) day period and shall diligently prosecute such repairs and maintenance to completion, Should Tenant fail to perform such repairs and/or maintenance within the periods described in the immediately preceding sentence, Landlord shall, upon the delivery of an additional five (5) business days’ prior written notice, have the right to cause such work to be performed and to charge Tenant as Additional Rent for the Actual Cost of such work. Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, cause Tenant’s Signage to be removed and shall cause the areas in which such Tenant’s Signage was located to be restored to the condition existing immediately prior to the placement of such Tenant’s Signage. If Tenant fails to timely remove such Tenant’s Signage or to restore the areas in which such Tenant’s Signage was located, as provided in the immediately preceding sentence, then Landlord may perform such work, and all Actual Costs incurred by Landlord in so performing shall be reimbursed by Tenant to Landlord within thirty (30) days after Tenant’s receipt of an invoice therefor. The TCCs of this Section 23.5.4 shall survive the expiration or earlier termination of this Lease.

ARTICLE 24

COMPLIANCE WITH LAW

Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, “ Applicable Laws ”). At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws which relate to (i) Tenant’s use of the Premises for non-general office use, (ii) the Alterations or Tenant Improvements in the Premises, or (iii) the Base

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Building, but, as to the Base Building, only to the extent such obligations are triggered by Tenant’s Alterations, the Tenant Improvements, or use of the Premises for non-general office use. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant, Landlord shall comply with all Applicable Laws relating to the Base Building, provided that compliance with such Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord’s failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably and materially affect the safety of Tenant’s employees or create a significant health hazard for Tenant’s employees. Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent consistent with the terms of Section 4.2.4 , above.

ARTICLE 25

LATE CHARGES

If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) business days after Tenant’s receipt of written notice from Landlord that the same was not paid when due, then Tenant shall pay to Landlord a late charge equal to three (3%) of the overdue amount plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at the “ Interest Rate ,” For purposes of this Lease, the “Interest Rate” shall be an annual rate equal to the lesser of (i) the annual “ Bank Prime Loan ” rate cited in the Federal Reserve Statistical Release Publication G.13(415), published on the first Tuesday of each calendar month (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published), plus four (4) percentage points, and (ii) the highest rate permitted by applicable law.

ARTICLE 26

LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

26.1 Landlord’s Cure . All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


excess of the time allowed under Section 19.1.2 , above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be obligated to, following prior written notice to Tenant, make any such payment or perform any such act on Tenant’s part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder.

26.2 Tenant’s Reimbursement . Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, upon delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant’s defaults pursuant to the provisions of Section 26.1 ; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all reasonable legal fees and other amounts so expended. Tenant’s obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.

ARTICLE 27

ENTRY BY LANDLORD

Landlord reserves the right at all reasonable times (during Building Hours with respect to items (i) and (ii) below) and upon at least twenty-four (24) hours prior written notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or during the last twelve (12) months of the Lease Term, to prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment, A representative of Tenant shall accompany Landlord in connection with any such entry; provided, however, the foregoing shall not apply in the case of an emergency where a representative of Tenant is not readily available to accompany Landlord. Notwithstanding anything to the contrary contained in this Article 27 , Landlord may enter the Premises at any time to (A) perform services required of Landlord, including janitorial service; (B) take possession due to any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform. Landlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and may take such reasonable steps as required to accomplish the stated purposes; provided, however, except for (i) emergencies, (ii) repairs, alterations, improvements or additions required by governmental or quasi-governmental authorities or court order or decree, or (iii) repairs which are the obligation of Tenant hereunder, any such entry shall be performed in a manner so as not to materially interfere with Tenant’s use of, or access to, the Premises and shall be performed after normal business hours if reasonably practical. With respect to items (ii) and (iii) above, Landlord shall not materially interfere with Tenant’s use of, or access to, the Premises. Except as otherwise set forth in Section 6.4 , Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


in the Premises, excluding Tenant’s vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. No provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed to be performed by Landlord herein.

ARTICLE 28

TENANT PARKING

Tenant shall have the right to use, at no cost to Tenant during the entire Lease Term, commencing on the Lease Commencement Date, the amount of parking passes set forth in Section 9 of the Summary, on a monthly basis throughout the Lease Term, which parking passes shall pertain to the Project parking facility. Notwithstanding the foregoing, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by Tenant or the use of the parking facility by Tenant. Except to the extent expressly identified to the contrary herein, each parking pass shall be for unreserved parking within the Project parking facility. Twenty-five (25) of such passes shall be applicable to reserved covered parking spaces individually designated for particular employees of Tenant (the “ Individually Reserved Spaces ”), the location of which spaces shall be mutually and reasonable determined by Landlord and Tenant prior to the Lease Commencement Date. Tenant’s continued right to use the parking passes is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the parking facility where the parking passes are located, including any sticker or other identification system established by Landlord, Tenant’s cooperation in seeing that Tenant’s employees and visitors also comply with such rules and regulations and Tenant not being in default under this Lease. Except as expressly set forth below to the contrary, Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project parking facility at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Project parking facility for purposes of permitting or facilitating any such construction, alteration or improvements; provided, however, Landlord and Tenant hereby acknowledge and agree that the current configuration and location of exclusive, reserved and unreserved parking spaces in the Project parking facility are as set forth on the diagram attached hereto as Exhibit H ; provided further, however, Landlord shall not make or permit any material modifications to such configuration without Tenant’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes rented by Tenant pursuant to this Article 28 are provided to Tenant solely for use by Tenant’s own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord’s prior approval. Tenant may validate visitor parking by such method or methods as the Landlord may establish, at the validation rate from time to time generally applicable to visitor parking. Notwithstanding

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


anything to the contrary set forth in this Article 28 , above, Landlord shall not grant any “permanent” parking rights in the Project parking facility to any third-party that is not a tenant or other occupant of the Project, except to the extent of Tenant’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, for purposes of this Article 28, “permanent” parking rights shall mean parking rights for a period in excess of one hundred twenty (120) days; provided further, however, the location of any permitted third-party parking rights (whether temporary or approved by Tenant) shall be limited to the top level of the Project parking facility.

ARTICLE 29

MISCELLANEOUS PROVISIONS

29.1 Terms; Captions . The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

29.2 Binding Effect . Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

29.3 No Air Rights . No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.

29.4 Modification of Lease . Should any current or prospective mortgagee or ground lessor for the Building or Project require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) days following a request therefor. At the request of Landlord or any mortgagee or ground lessor, Tenant agrees to execute a short form of Lease and deliver the same to Landlord within ten (10) days following the request therefor.

29.5 Transfer of Landlord’s Interest . Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


performance of Landlord’s obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee. Tenant further acknowledges that Landlord may assign its interest in this Lease to a mortgage lender as additional security and agrees that such an assignment shall not release Landlord from its obligations hereunder and that Tenant shall continue to look to Landlord for the performance of its obligations hereunder.

29.6 Prohibition Against Recording . Except as provided in Section 29.4 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant.

29.7 Landlord’s Title . Landlord’s title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

29.8 Relationship of Parties . Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant.

29.9 Application of Payments . Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

29.10 Time of Essence . Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

29.11 Partial Invalidity . If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

29.12 No Warranty . In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.

29.13 Landlord Exculpation . The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the net interest of Landlord (following payment of any outstanding liens and/or mortgages, whether attributable to sales or insurance proceeds or otherwise) in the Building

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(including any sales or insurance proceeds which Landlord receives). Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section 29.13 shall inure to the benefit of Landlord’s and the Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord’s obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

29.14 Entire Agreement . It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties’ entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

29.15 Right to Lease . Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

29.16 Force Majeure . Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except as to Tenant’s obligations under Articles 5 and 24 of this Lease (collectively, a “ Force Majeure ”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

29.17 Waiver of Redemption by Tenant . Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


29.18 Notices . All notices, demands, statements, designations, approvals or other communications (collectively, “Notices”) given or required to be given by either party to the other hereunder or by law shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested (“Mail”), (B) transmitted by telecopy, if such telecopy is promptly followed by a Notice sent by Mail , (C) delivered by a nationally recognized overnight courier, or (D) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the telecopy is transmitted, (iii) the date the overnight courier delivery is made, or (iv) the date personal delivery is made or attempted to be made. If Tenant is notified of the identity and address of Landlord’s mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease by registered or certified mail, and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such default prior to Tenant’s exercising any remedy available to Tenant. As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

 

 

Kilroy Realty Corporation

12200 West Olympic Boulevard

Suite 200

 
 

Los Angeles, California 90064

Attention: Legal Department

 

with copies to:

 
 

Kilroy Realty Corporation

3611 Valley Centre Drive, Suite 550

San Diego, California 92130

 
 

Attention: Ms. Jennifer Young

 

and

 
 

Allen Matkins Leck Gamble & Mallory LLP

1901 Avenue of the Stars, Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

 

29.19 Joint and Several . If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several.

29.20 Authority . If Tenant is a corporation, trust or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


is authorized to do so. In such event, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord satisfactory evidence of such authority and, if a corporation, upon demand by Landlord, also deliver to Landlord satisfactory evidence of (i) good standing in Tenant’s state of incorporation and (ii) qualification to do business in California.

29.21 Attorneys’ Fees . In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

29.22 Governing Law; WAIVER OF TRIAL BY JURY . This Lease shall be construed and enforced in accordance with the laws of the State of California. IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

29.23 Submission of Lease . Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

29.24 Brokers . Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 12 of the Summary (the “Brokers”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Landlord shall pay such Broker pursuant to separate written agreements between Landlord and the Broker. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


29.25 Independent Covenants . This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

29.26 Project or Building Name and Signage . Landlord shall have the right at any time to change the name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord’s sole discretion, desire; provided, however, Landlord shall not change the name of the Project or Building to the name of a third-party tenant to the extent such third-party tenant (i) is one of Tenant’s direct competitors, and (ii) leases less than two (2) full floors of the Building. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.

29.27 Counterparts . This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease.

29.28 Confidentiality . Tenant acknowledges that the content of this Lease and any related documents are confidential information. Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant’s financial, legal, and space planning consultants.

29.29 Transportation Management . Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.

29.30 Building Renovations . It is specifically understood and agreed that Landlord has made no representation or warranty to Tenant and has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, or any part thereof and that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant except as specifically set forth herein or in the Tenant Work Letter. However, Tenant hereby acknowledges that Landlord is currently renovating or may during the Lease Term renovate, improve, alter, or modify (collectively, the “Renovations” ) the Project, the Building and/or the Premises including without limitation the parking structure, common areas, systems and equipment, roof, and structural portions of the same, which Renovations may include, without limitation, (i) installing sprinklers in the Building common areas and tenant spaces, (ii) modifying the common areas and tenant spaces to comply with applicable laws and regulations, including regulations relating to the physically disabled, seismic conditions, and building safety and security, and (iii) installing new floor covering, lighting, and wall coverings

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


in the Building common areas, and in connection with any Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in the Building, limit or eliminate access to portions of the Project, including portions of the common areas, or perform work in the Building, which work may create noise, dust or leave debris in the Building. Tenant hereby agrees that such Renovations and Landlord’s actions in connection with such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant’s business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant’s personal property or improvements resulting from the Renovations or Landlord’s actions in connection with such Renovations, or for any inconvenience or annoyance occasioned by such Renovations or Landlord’s actions. Landlord shall use commercially reasonable efforts to minimize any interference to Tenant’s use of, or access to, the Premises resulting from such Renovations.

29.31 No Violation . Tenant hereby warrants and represents that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, arising from Tenant’s breach of this warranty and representation.

29.32 Communications and Computer Lines . Tenant may install, maintain, replace, remove or use any communications or computer wires and cables (collectively, the “ Lines ”) at the Project in or serving the Premises, provided that (i) Tenant shall obtain Landlord’s prior written consent, which consent shall not be unreasonably withheld, use an experienced and qualified contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Project, as determined in Landlord’s reasonable opinion, (iii) the Lines therefor (including riser cables) shall be (x) appropriately insulated to prevent excessive electromagnetic fields or radiation, (y) surrounded by a protective conduit reasonably acceptable to Landlord, and (z) identified in accordance with the “Identification Requirements,” as that term is set forth hereinbelow, (iv) any new or existing Lines servicing the Premises shall comply with all applicable governmental laws and regulations, (v) as a condition to permitting the installation of new Lines, Tenant shall remove existing Lines located in or serving the Premises and repair any damage in connection with such removal, and (vi) Tenant shall pay all costs in connection therewith. All Lines shall be clearly marked with adhesive plastic labels (or plastic tags attached to such Lines with wire) to show Tenant’s name, suite number, telephone number and the name of the person to contact in the case of an emergency (A) every four feet (4’) outside the Premises (specifically including, but not limited to, the electrical room risers and other Common Areas), and (B) at the Lines’ termination point(s) (collectively, the “ Identification Requirements ”), Landlord reserves the right to require that Tenant remove any Lines located in or serving the Premises which are installed in violation of these provisions, or which are at any time (1) are in violation of any Applicable Laws, (2) are inconsistent with then-existing industry standards (such as the standards promulgated by the National Fire Protection Association (e.g., such organization’s

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


“2002 National Electrical Code”)), or (3) otherwise represent a dangerous or potentially dangerous condition.

29.33 Hazardous Substances .

29.33.l Definitions . For purposes of this Lease, the following definitions shall apply: “ Hazardous Material(s) ” shall mean any solid, liquid or gaseous substance or material that is described or characterized as a toxic or hazardous substance, waste, material, pollutant, contaminant or infectious waste, or any matter that in certain specified quantities would be injurious to the public health or welfare, or words of similar import, in any of the “Environmental Laws,” as that term is defined below, or any other words which are intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity or reproductive toxicity and includes, without limitation, asbestos, petroleum (including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas, nuclear or radioactive matter, medical waste, soot, vapors, fumes, acids, alkalis, chemicals, microbial matters (such as molds, fungi or other bacterial matters), biological agents and chemicals which may cause adverse health effects, including but not limited to, cancers and /or toxicity. “ Environmental Laws ” shall mean any and all federal, state, local or quasi-governmental laws (whether under common law, statute or otherwise), ordinances, decrees, codes, rulings, awards, rules, regulations or guidance or policy documents now or hereafter enacted or promulgated and as amended from time to time, in any way relating to (i) the protection of the environment, the health and safety of persons (including employees), property or the public welfare from actual or potential release, discharge, escape or emission (whether past or present) of any Hazardous Materials or (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Materials.

29.33.2 Compliance with Environmental Laws . Landlord covenants that during the Lease Term, Landlord shall comply with all Environmental Laws in accordance with, and as required by, the TCCs of Article 24 of this Lease. Tenant represents and warrants that, except as herein set forth, it will not use, store or dispose of any Hazardous Materials in or on the Premises. However, notwithstanding the preceding sentence, Landlord agrees that Tenant may use, store and properly dispose of commonly available household cleaners and chemicals to maintain the Premises and Tenant’s routine office operations (such as printer toner and copier toner) (hereinafter the “Permitted Chemicals”). Landlord and Tenant acknowledge that any or all of the Permitted Chemicals described in this paragraph may constitute Hazardous Materials. However, Tenant may use, store and dispose of same, provided that in doing so, Tenant fully complies with all Environmental Laws.

29.33.3 Landlord’s Right of Environmental Audit . Landlord may, upon reasonable notice to Tenant, be granted access to and enter the Premises no more than once annually to perform or cause to have performed an environmental inspection, site assessment or audit. Such environmental inspector or auditor may be chosen by Landlord, in its sole discretion, and be performed at Landlord’s sole expense. To the extent that the report prepared upon such inspection, assessment or audit, indicates the presence of Hazardous Materials in violation of Environmental Laws, or provides recommendations or suggestions to prohibit the release,

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


discharge, escape or emission of any Hazardous Materials at, upon, under or within the Premises, or to comply with any Environmental Laws, Tenant shall promptly, at Tenant’s sole expense, comply with such recommendations or suggestions, including, but not limited to performing such additional investigative or subsurface investigations or remediation(s) as recommended by such inspector or auditor. Notwithstanding the above, if at any time, Landlord has actual notice or reasonable cause to believe that Tenant has violated, or permitted any violations of any Environmental Law, then Landlord will be entitled to perform its environmental inspection, assessment or audit at any time, notwithstanding the above mentioned annual limitation, and Tenant must reimburse Landlord for the cost or fees incurred for such as Additional Rent.

29.33.4 Indemnifications . Landlord agrees to indemnify, defend, protect and hold harmless the Tenant Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys’ fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials to the extent such liability, obligation, damage or costs was a result of actions caused or permitted by Landlord or a Landlord Party. Tenant agrees to indemnify, defend, protect and hold harmless the Landlord Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys’ fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials or breach of any provision of this section, to the extent such liability, obligation, damage or costs was a result of actions caused or permitted by Tenant or a Tenant Party.

29.34 Development of the Project .

29.34.1 Subdivision . Landlord reserves the right to further subdivide all or a portion of the Project. Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from such subdivision.

29.34.2 The Other Improvements . If portions of the Project or property adjacent to the Project (collectively, the “ Other Improvements ”) are owned by an entity other than Landlord, Landlord, at its option, may enter into an agreement with the owner or owners of any or all of the Other Improvements to provide (i) for reciprocal rights of access and/or use of the Project and the Other Improvements, (ii) for the common management, operation, maintenance, improvement and/or repair of all or any portion of the Project and the Other Improvements, (iii) for the allocation of a portion of the Direct Expenses to the Other Improvements and the operating expenses and taxes for the Other Improvements to the Project, and (iv) for the use or improvement of the Other Improvements and/or the Project in connection with the improvement, construction, and/or excavation of the Other Improvements and/or the Project, Nothing contained herein shall be deemed or construed to limit or otherwise affect Landlord’s right to convey all or any portion of the Project or any other of Landlord’s rights described in this Lease.

29.34.3 Construction of Project and Other Improvements . Tenant acknowledges that portions of the Project and/or the Other Improvements may be under construction following Tenant’s occupancy of the Premises, and that such construction may result in levels of noise, dust, obstruction of access, etc. which are in excess of that present in a

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


fully constructed project, Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction. Landlord shall use commercially reasonable efforts to minimize any interference to Tenant’s use of, or access to, the Premises resulting from such construction.

29.35 Office and Communications Services .

29.35.1 The Provider . Landlord has advised Tenant that SBC and Time Warner currently offer certain office and communications services to tenants of the Building (“Provider”). Tenant shall be permitted to contract with Provider for the provision of any or all of such services on such terms and conditions as Tenant and Provider may agree.

29.35.2 Other Terms . Tenant acknowledges and agrees that: (i) Landlord has made no warranty or representation to Tenant with respect to the availability of any such services, or the quality, reliability or suitability thereof; (ii) the Provider is not acting as the agent or representative of Landlord in the provision of such services, and Landlord shall have no liability or responsibility for any failure or inadequacy of such services, or any equipment or facilities used in the furnishing thereof, or any act or omission of Provider, or its agents, employees, representatives, officers or contractors; (iii) Landlord shall have no responsibility or liability for the installation, alteration, repair, maintenance, furnishing, operation, adjustment or removal of any such services, equipment or facilities; and (iv) any contract or other agreement between Tenant and Provider shall be independent of this Lease, the obligations of Tenant hereunder, and the rights of Landlord hereunder, and, without limiting the foregoing, no default or failure of Provider with respect to any such services, equipment or facilities, or under any contract or agreement relating thereto, shall have any effect on this Lease or give to Tenant any offset or defense to the full and timely performance of its obligations hereunder, or entitle Tenant to any abatement of rent or additional rent or any other payment required to be made by Tenant hereunder, or constitute any accrual or constructive eviction of Tenant, or otherwise give rise to any other claim of any nature against Landlord.

29.36 Consents . To the extent no particular standard is expressly set forth with regard to any consent or approval of Landlord or Tenant required under this Lease (e.g., “which consent may be granted, withheld or conditioned in Tenant’s sole and absolute discretion”), then such consent or approval shall be deemed to require Landlord and/or Tenant’s reasonable determination (i.e., the same shall not be unreasonably withheld, conditioned or delayed).

29.37 No Discrimination . Tenant covenants by and for itself, its heirs, executors, administrators and assigns, and all persons claiming under or through Tenant, and this Lease is made and accepted upon and subject to the following conditions: that there shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, sex, religion, marital status, ancestry or national origin in the leasing, subleasing, transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any person claiming under or through Tenant, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy, of tenants, lessees, sublessees, subtenants or vendees in the Premises.

[signature page follows]

 

   -66-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

 

“LANDLORD”:
KILROY REALTY, L.P.,
a Delaware limited partnership
By:  

Kilroy Realty Corporation,

a Maryland corporation,

General Partner

By:  

 

  Its:  

 

By:  

 

  Its:  

 

“TENANT”:
RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

By:  

/s/ James J. Zehentbauer

  Its:   Principal
By:  

/s/ David H. Batchelder

  Its:   Principal
RELATIONAL INVESTORS LLC,

Delaware limited liability company,

acting on behalf of Series A thereof

,By:  

/s/ James J. Zehentbauer

  Its:   Principal
By:  

/s/ David H. Batchelder

  Its:   Principal

 

   -67-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT A

DEL MAR CORPORATE CENTRE

OUTLINE OF PREMISES

[ATTACHED]

 

  

EXHIBIT A

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


LOGO


EXHIBIT B

DEL MAR CORPORATE CENTRE

TENANT WORK LETTER

This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the tenant improvements in the Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Tenant Work Letter to Articles or Sections of “this Lease” shall mean the relevant portion of Articles 1 through 29 of the Office Lease to which this Tenant Work Letter is attached as Exhibit B and of which this Tenant Work Letter forms a part, and all references in this Tenant Work Letter to Sections of “this Tenant Work Letter” shall mean the relevant portion of Sections 1 through 5 of this Tenant Work Letter.

SECTION 1

LANDLORD’S INITIAL CONSTRUCTION IN THE PREMISES

1.1 In General . Landlord has constructed (or will construct), at its sole cost and expense, the base, shell, and core (i) of the Premises and (ii) of the floor of the Building on which the Premises is located (collectively, the ‘ Base, Shell, and Core ”). The Base, Shell and Core shall consist of those portions of the Premises which are in existence in the Premises for the prior tenant of the Premises, and shall also include the items set forth on Schedule 2 attached to this Tenant Work Letter.

1.2 Life Safety . Landlord has previously constructed a life safety system for the sixth (6 th ) floor of the Building which Landlord shall, at Landlord’s sole cost and expense (except as set forth hereinbelow), upgrade and/or modify to the extent necessary to integrate with the existing life safety system in the remainder of the Building (the “ Life Safety Work ”) which Life Safety Work is more particularly set forth on Schedule 2. Notwithstanding the foregoing, to the extent the Premises is not demised on a full-floor basis (i.e., to the extent the same is demised with any interior corridors or an interior corridor requirement), then to the extent the actual cost to perform the Life Safety Work exceeds $20,000.00, then Tenant shall pay for such excess as a deduction from the “Tenant Improvement Allowance” (as defined in Section 2 , below) (the amount of such excess, the “ Life Safety Excess ”).

SECTION 2

TENANT IMPROVEMENTS

2.1 Tenant Improvement Allowance . Tenant shall be entitled to a one-time tenant improvement allowance (the “ Tenant Improvement Allowance ”) in the amount of $2,103,462.00 (which amount was calculated based upon (i) $65.00 per Rentable Square Foot for each of the 32,792 Rentable Square Feet of space in the Premises, less (ii) the sum of $28,018.00, which represents the cost of the pre-stocked drywall and metal studs previously paid

 

  

EXHIBIT B

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


for by Landlord, which is currently located on the sixth (6 th ) floor of the Building, and which shall be utilized in the construction of the Tenant Improvements) for the costs relating to the initial design and construction of Tenant’s improvements which are permanently affixed to the Premises (the “ Tenant Improvements ”). Landlord shall not be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance. All Tenant Improvements for which the Tenant Improvement Allowance has been made available shall be deemed Landlord’s property under the terms of the Lease.

2.2 Disbursement of the Tenant Improvement Allowance . Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord’s disbursement process) for costs related to the construction of the Tenant Improvements and for the following items and costs (collectively, the “ Tenant Improvement Allowance Items ”): (i) payment of the fees of the “Architect” and the “Engineers,” as those terms are defined in Section  3.1 of this Tenant Work Letter, payment of any fees of any project manager hired by Tenant in connection with the construction of the Tenant Improvements (but not in an amount in excess of $1.50 per usable square foot of the Premises), and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord’s consultants in connection with the preparation and review of the “Construction Drawings,” as that term is defined in Section  3.1 of this Tenant Work Letter; (ii) the cost of any changes in the Base, Shell and Core when such changes are required by the Construction Drawings; (iii) the cost of any changes to the Construction Drawings or Tenant Improvements required by all applicable building codes (the “ Code ”); (iv) the cost of any voice and/or data cabling installed in the Premises in connection with Tenant’s phone and computer systems (but not in an amount in excess of $5.00 per usable square foot of the Premises), (v) the “Landlord Supervision Fee”, as that term is defined in Section  4.3.2 of this Tenant Work Letter; (vi) the cost of Landlord-approved window coverings installed within the Premises, (vii) the cost to refurbish/replace the existing floor and wall coverings in the sixth (6 th ) floor elevator lobby (the “ Elevator Lobby Improvements ”), which Elevator Lobby Improvements shall be deemed Tenant Improvements subject to the terms and conditions of this Tenant Work Letter, and (viii) the Life Safety Excess, if any.

2.3 Standard Tenant Improvement Package . Landlord has established specifications (the “ Building Standard Tenant Improvements ”) for the Building standard components to be used in the construction of the Tenant Improvements in the Premises; provided, however, to the extent that Tenant elects, in conjunction with the construction of the Tenant Improvements, to demise the Premises on a multi-tenant basis (as opposed to demising the Premises on a full-floor basis without any interior corridor or corridor requirement), then Tenant shall apply no less than $45.00 dollars of the Tenant Improvement Allowance per rentable square foot of each demised portion of the Premises (in the aggregate, on a suite-by-suite basis) towards the cost of construction of the Tenant Improvements. The quality of Tenant Improvements shall be equal to or of greater quality than the quality of the Building Standard Tenant Improvements, provided that Landlord may, at Landlord’s option, require the Tenant Improvements to comply with certain Building Standard Tenant Improvements. Landlord may make reasonable changes to the Specifications for the Standard Improvement Package from time to time provided Landlord gives Tenant reasonable prior written notice thereof.

 

  

EXHIBIT B

-2-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


2.4 Removal of Above Building Standard Tenant Improvements . “Above Standard Tenant Improvements” shall mean (i) any part of the Tenant Improvements which are not consistent (functionally and aesthetically) with the Building Standard Tenant Improvements, including, but not limited to, plumbing and millwork; and (ii) a configuration of the Tenant Improvements which is not usual and customary for normal “general office” occupancy; provided, however, Landlord shall identify any such Tenant Improvements (or changes thereto) as “Above Building Standard Tenant Improvements” concurrently with Landlord’s review and approval of the Approved Working Drawings (or on a timely basis following Tenant’s request for such change/addition identified above); provided further, however, Landlord and Tenant hereby acknowledge and agree that the Elevator Lobby Improvements, if so identified by Landlord on a timely basis pursuant to the immediately preceding clause, would be deemed to constitute Above Standard Tenant Improvements. If so directed by Landlord prior to the end of the Term of this Lease, Tenant, at its sole cost and expense, shall (A) remove from the Premises any Above Standard Tenant Improvements so identified for removal, (B) repair any damage caused by the removal of such Above Standard Tenant Improvements, and (C) return the affected portion of the Premises to a building-standard “warm shell” condition as reasonably determined by Landlord; provided, however, to the extent the Elevator Lobby Improvements are timely identified by Landlord as Above Standard Tenant Improvements, Tenant shall remove the same upon the expiration or earlier termination of this Lease, and following such removal, Tenant shall return the affected portions of the sixth (6 th ) floor elevator lobby to the condition existing prior to Tenant’s construction of such Elevator Lobby Improvements. Such removal and replacement of Above Standard Tenant Improvements shall be performed promptly and shall be completed by Tenant on or before the end of the Term of this Lease if notice of removal is given at least thirty (30) days prior to the end of the Term, and if Tenant fails to remove and/or return the affected portion of the Premises to a building-standard “warm shell” condition, Landlord may do so and Tenant shall reimburse Landlord for the cost of such removal and/or replacement.

SECTION 3

CONSTRUCTION DRAWINGS

3.1 Selection of Architect/Construction Drawings . Tenant shall retain Howard Sneed (the “ Architect ”) to prepare the “Construction Drawings,” as that term is defined in this Section  3.1 . Tenant shall promptly notify Landlord in writing of Tenant’s selection of Architect. Tenant shall retain the engineering consultants designated by Landlord (the “ Engineers ”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work of the Tenant Improvements. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “ Construction Drawings. ” All Construction Drawings shall comply with the drawing format and specifications as determined by Landlord, and shall be subject to Landlord’s approval, which approval shall not be unreasonably withheld; provided, however, it shall be deemed reasonable for Landlord to disapprove Construction Drawings for the following reasons: (i) such Construction Drawing would have an adverse effect on the structural integrity of the Building; (ii) such Construction Drawing fails to comply with applicable Code and or other applicable governmental regulations; (iii) such Construction Drawing would have an adverse effect on the systems and equipment of the Building; or (iv) such Construction Drawing would have an adverse effect on the exterior appearance of the

 

  

EXHIBIT B

-3-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Building (individually or collectively, a “ Design Problem ”). Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base Building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord’s review of the Construction Drawings as set forth in this Section 3 , shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenant’s waiver and indemnity set forth in this Lease shall specifically apply to the Construction Drawings.

3.2 Final Space Plan . On or before the date set forth in Schedule 1 , attached hereto, Tenant and the Architect shall prepare the final space plan for Tenant Improvements in the Premises (collectively, the “ Final Space Plan ”), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver the Final Space Plan to Landlord for Landlord’s approval pursuant to the terms of Section 3.1 , above. Landlord shall advise Tenant within three (3) business days after Landlord’s receipt of the Final Space Plan for the Premises if the same is unsatisfactory as the result of a Design Problem or is otherwise incomplete in any respect (based upon a commercially reasonable standard). If Tenant is so advised, Tenant shall promptly direct the Architect to cause the Final Space Plan to be revised to correct any deficiencies or other matters Landlord may reasonably require, and immediately thereafter Architect shall promptly re-submit the Final Space Plan to Landlord for its approval. Such procedure shall continue until the Final Space Plan is approved by Landlord. Landlord’s failure to object to the Final Space Plan within such three (3) business days shall constitute Landlord’s approval of the Final Space Plan.

3.3 Final Working Drawings . On or before the date set forth in Schedule 1 , Tenant, the Architect and the Engineers shall complete the architectural and engineering drawings for the Premises, and the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “ Final Working Drawings ”) and shall submit the same to Landlord for Landlord’s approval pursuant to the terms of Section 3.1 , above. Landlord shall, within five (5) business days after Landlord’s receipt of all of the Final Working Drawings, either (i) approve the Final Working Drawings, (ii) approve the Final Working Drawings subject to specified conditions which must be stated in a reasonably clear and complete manner to be satisfied by Tenant prior to submitting the Approved Working Drawings for permits as set forth in Section 3.4 , below of this Tenant Work Letter, to the extent the Final Working Drawings contain a Design Problem, or (iii) disapprove and return the Final Working Drawings to Tenant with requested revisions to the extent the Final Working Drawings contain a Design Problem; provided, however, any such conditions and/or disapprovals shall only be made by Landlord pursuant to commercially reasonable standards. If Landlord disapproves the Final Working Drawings, Tenant may resubmit the Final Working Drawings to Landlord at any time, and Landlord shall approve or disapprove the resubmitted Final Working Drawings, based upon the

 

  

EXHIBIT B

-4-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


criteria set forth in this Section 3.3 , within three (3) business days after Landlord receives such resubmitted Final Working Drawings. Such procedure shall be repeated until the Final Working Drawings are approved. Landlord’s failure to timely respond to Tenant within any applicable response period referenced herein shall be deemed Landlord’s approval of the Final Working Drawings.

3.4 Permits . The Final Working Drawings shall be approved by Landlord (the “ Approved Working Drawings ”) prior to the commencement of the construction of the Tenant Improvements. Tenant shall cause Architect to immediately submit the Approved Working Drawings to the appropriate municipal authorities for all applicable building permits necessary to allow “Contractor,” as that term is defined in Section 4.1 , below, to commence and fully complete the construction of the Tenant Improvements (the “ Permits ”), and, in connection therewith, Tenant shall coordinate with Landlord in order to allow Landlord, at its option, to take part in all phases of the permitting process and shall supply Landlord, as soon as possible, with all plan check numbers and dates of submittal and obtain the Permits on or before the date set forth in Schedule 1 . Notwithstanding anything to the contrary set forth in this Section 3.4 , Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that the obtaining of the same shall be Tenant’s responsibility; provided however that Landlord shall, in any event, cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord.

3.5 Time Deadlines . Tenant shall use good faith efforts and all due diligence to cooperate with the Architect, the Engineers, and Landlord to complete all phases of the Construction Drawings and the permitting process and to receive the permits, and with Contractor for approval of the “Cost Proposal,” as that term is defined in Section  4.2 of this Tenant Work Letter, as soon as possible after the execution of the Lease, and, in that regard, shall meet with Landlord on a scheduled basis to be determined by Landlord. The applicable dates for approval of items, plans and drawings as described in this Section 3 , Section 4 , below, and in this Tenant Work Letter are set forth and further elaborated upon in Schedule 1 (the “ Time Deadlines ”), attached hereto. Tenant agrees to comply with the Time Deadlines.

SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1 Contractor . Reno Contracting (“ Contractor ”) shall construct the Tenant Improvements.

4.2 Cost Proposal . After the Approved Working Drawings are signed by Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in accordance with the Approved Working Drawings, which cost proposal shall include, as nearly as possible, the cost of all Tenant Improvement Allowance Items to be incurred by Tenant in connection with the design and construction of the Tenant Improvements (the “ Cost Proposal ”). Tenant shall approve and deliver the Cost Proposal to Landlord within five (5) business days of the receipt of

 

  

EXHIBIT B

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


the same, and upon receipt of the same by Landlord, Landlord shall be released by Tenant to purchase the items set forth in the Cost Proposal and to commence the construction relating to such items. The date by which Tenant must approve and deliver the Cost Proposal to Landlord shall be known hereafter as the “Cost Proposal Delivery Date”. The Cost Proposal shall be accompanied by a subcontractor “back-up” and a “scope sheet” recapping all bids for each trade. The Contractor shall obtain a minimum of three (3) bids per for each major trade. Contractor’s contracting fee shall be determined pursuant to that certain Reno GC&Fee Proposal dated May 10, 2004.

4.3 Construction of Tenant Improvements by Contractor under the Supervision of Landlord.

4.3.1 Over-Allowance Amount . On the Cost Proposal Delivery Date, Tenant and Landlord shall identify the amount (the “ Over-Allowance Amount ”) equal to the difference between (i) the amount of the Cost Proposal and (ii) the amount of the Tenant Improvement Allowance. Tenant shall pay, within five (5) business days of written notice from Landlord, a percentage of each amount disbursed by Landlord to the Contractor or otherwise disbursed under this Tenant Work Letter, which percentage shall be equal to the amount of the Over-Allowance Amount divided by the amount of the Cost Proposal, and such payment by Tenant shall be a condition to Landlord’s obligation to pay any amounts of the Tenant Improvement Allowance. In the event that, after the Cost Proposal Delivery Date, any revisions, changes, or substitutions shall be made to the Construction Drawings or the Tenant Improvements, any additional costs which arise in connection with such revisions, changes or substitutions or any other additional costs shall be paid by Tenant to Landlord immediately upon Landlord’s request as an addition to the Over-Allowance Amount. In addition, if the Final Working Drawings or any amendment thereof or supplement thereto shall require alterations in the Base, Shell and Core (as contrasted with the Tenant Improvements), and if Landlord in its sole and exclusive discretion agrees to any such alterations, and notifies Tenant of the need and cost for such alterations, then Tenant shall pay the cost of such required changes upon receipt of bills therefor. Tenant shall pay all direct architectural and/or engineering fees in connection therewith.

4.3.2 Landlord’s Retention of Contractor . Landlord shall independently retain Contractor, on behalf of Tenant, to construct the Tenant Improvements in accordance with the Approved Working Drawings and the Cost Proposal and Landlord shall supervise the construction by Contractor, and Tenant shall pay a construction supervision and management fee (the “ Landlord Supervision Fee ”) to Landlord in an amount equal to the product of (i) one percent (1%) and (ii) an amount equal to the hard costs incurred in connection with the construction of the Tenant Improvement, which Landlord Supervision Fee shall be (A) a Tenant Improvement Allowance Item as set forth in Section  2.2(v) of this Tenant Work Letter and (B) deducted from the Tenant Improvement Allowance.

4.3.3 Contractor’s Warranties and Guaranties . Landlord hereby assigns to Tenant all warranties and guaranties by Contractor relating to the Tenant Improvements, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements. Landlord shall use commercially reasonable efforts to cooperate with Tenant in the enforcement of such warranties and guaranties.

 

  

EXHIBIT B

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


4.3.4 Tenant’s Covenants . Tenant hereby indemnifies Landlord for any loss, claims, damages or delays arising from the actions of Architect on the Premises or in the Building. Within ten (10) days after completion of construction of the Tenant Improvements, Contractor may cause a Notice of Completion to be recorded in the office of the County Recorder of the county in which the Building is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute and furnish a copy thereof to Landlord upon recordation, failing which, Landlord may itself execute and file the same on behalf of Tenant as Tenant’s agent for such purpose. In addition, immediately after the substantial completion of the Premises, Tenant shall have prepared and delivered to the Building a copy of the “as built” plans and specifications (including all working drawings) for the Tenant Improvements.

4.3.5 Construction Meetings . During the construction of the Tenant Improvements, Landlord and Tenant shall meet on a scheduled basis to be determined by Landlord, to discuss the progress in the construction of the Tenant Improvements.

SECTION 5

INTENTIONALLY OMITTED

SECTION 6

MISCELLANEOUS

6.1 Tenant’s Entry Into the Premises Prior to Substantial Completion . Provided that Tenant and its agents do not interfere with Contractor’s work in the Building and the Premises, Contractor shall allow Tenant reasonable access to the Premises prior to the Lease Commencement Date for the purpose of Tenant installing overstandard equipment or fixtures (including Tenant’s data and telephone equipment) in the Premises. Prior to Tenant’s entry into the Premises as permitted by the terms of this Section 6.1 , Tenant shall submit a schedule to Landlord and Contractor, for their approval, not be unreasonably withheld or delayed, which schedule shall detail the timing and purpose of Tenant’s entry. In addition, Contractor shall allow Tenant reasonable site visitation rights during the construction of the Tenant Improvements in order to allow Tenant to reasonably monitor such construction; provided that Tenant shall be required to schedule all such site visits in advance with Contractor. Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises and against injury to any persons caused by Tenant’s actions pursuant to this Section 6.1 .

6.2 Tenant’s Representative . Tenant has designated Mr. Kirt Gilliland of Irving Hughes as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

6.3 Landlord’s Representative . Landlord has designated Mr. Jim Edwards as “Project Manager” who shall be responsible for the implementation of all Tenant Improvements to be performed by Landlord in the Premises. With regard to all matters

 

  

EXHIBIT B

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


involving such Tenant Improvements, Tenant shall communicate with the Project Manager rather than with the Contractor. Landlord shall not be responsible for any statement, representation or agreement made between Tenant and the Contractor or any subcontractor. It is hereby expressly acknowledged by Tenant that such Contractor is not Landlord’s agent and has no authority whatsoever to enter into agreements on Landlord’s behalf or otherwise bind Landlord. The Project Manager will furnish Tenant with notices of substantial completion, cost estimates for Above Standard Tenant Improvements, Landlord’s approvals or disapprovals of all documents to be prepared by Tenant pursuant to this Tenant Work Letter and changes thereto.

6.4 Tenant’s Agents . Landlord and Tenant shall reasonably cooperate with each other, the Contractor, and other contractors and vendors performing the construction or installation of the Tenant Improvements in the Premises to promote labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment to the extent that, notwithstanding the good faith efforts of the parties to maintain labor harmony, the use of such contractors, services, workmen, labor, materials or equipment would disturb such labor harmony.

6.5 Time of the Essence in This Tenant Work Letter . Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord’s sole option, at the end of such period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.

6.6 Tenant’s Lease Default . Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in the Lease, or a default by Tenant under this Tenant Work Letter, has occurred at any time on or before the substantial completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease.

 

  

EXHIBIT B

-8-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


SCHEDULE 1 TO EXHIBIT B

TIME DEADLINES

 

   

Dates

  

Actions to be Performed

A.   June 7, 2004    Final Space Plan to be completed by Tenant and delivered to Landlord.
B.   July 23, 2004    Tenant to deliver Final Working Drawings to Landlord for submittal to City.
C.   September 3, 2004    Tenant to deliver Permits to Contractor.
D.   Five (5) business days after the receipt of the Cost Proposal by Tenant    Tenant to approve Cost Proposal and deliver Cost Proposal to Landlord.

 

  

SCHEDULE 1 TO EXHIBIT B

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


SCHEDULE 2 TO EXHIBIT B

BASE, SHELL AND CORE WORK

Landlord shall cause the Base, Shell and Core to include the following:

HVAC :

 

1. Main supply air duct loop for the entire sixth (6 th ) floor of the Building.

 

2. Main hot water re-heat loop piping.

Electrical :

1. One (1) four inch (4”) conduit from the Building’s main electrical room to the Building’s sixth (6 th ) floor electrical distribution room; provided, however, Tenant acknowledges that Tenant shall install, as part of the Tenant Improvements and as a Tenant Improvement Allowance Item, a separate electrical meter (or meters) in the Building’s main electrical room with regard to the Premises electricity.

2. One (1) four inch (4”) conduit from the Building’s main telephone room (MPOE) to the Tenant telephone room on the sixth (6 th ) floor of the Building.

Life Safety :

The Building is equipped with a life safety system including horns, strobes and pull stations. As part of the Base, Shell and Core, Landlord has provided, or will provide pursuant to the terms and conditions of Section  1.2 of the Tenant Work Letter, life safety systems within the sixth (6 th ) floor elevator lobby, restrooms and stairways which are consistent and compatible with the life safety systems in the remainder of the Building. To the extent such life safety systems on the remainder of the sixth (6 th ) floor of the Building must be modified in order (i) to be integrated into the life safety systems within the remainder of the Building. or (ii) for Tenant to obtain or maintain a certificate suitable for general office occupancy, then such modification shall be performed by Landlord pursuant to the terms and conditions of Section  1.2 of the Tenant Work Letter.

Drywall Systems :

1. Core and shaft walls shall be taped and finished to a level 4 trim and ready to receive paint.

2. Perimeter walls shall be insulated.

 

  

SCHEDULE 2 TO EXHIBIT B

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT C

DEL MAR CORPORATE CENTRE

NOTICE OF LEASE TERM DATES

 

To:  

 

 

 

 

 

 

 

 

  Re: Office Lease dated          , 200      between                  , a                  (“Landlord”), and                  , a                  (“Tenant”) concerning Suite              on floor(s)                  of the office building located at                  , California.

Gentlemen:

In accordance with the Office Lease (the “Lease”), we wish to advise you and/or confirm as follows:

 

  1. The Lease Term shall commence on or has commenced on                  for a term of                  ending on                  .

 

  2. Rent commenced to accrue on                  , in the amount of                  .

 

  3. If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease.

 

  4. Your rent checks should be made payable to                  at                  .

 

  5. The exact number of rentable/usable square feet within the Premises is                  square feet.

 

   EXHIBIT C    KILROY REALTY
   -112-    12400 High Bluff
      [Relational Advisors/Relational Investors]


  6. Tenant’s Share as adjusted based upon the exact number of usable square feet within the Premises is              %.

 

“Landlord”:
                                                                                     ,
a                                                                                    
By:                                                                                
  Its:                                                                          

 

Agreed to and Accepted

as of              , 200      .

“Tenant”:

 

a  

 

By:  

 

  Its:  

 

 

   EXHIBIT C    KILROY REALTY
   -2-    12400 High Bluff
      [Relational Advisors/Relational Investors]


EXHIBIT D

DEL MAR CORPORATE CENTRE

RULES AND REGULATIONS

Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.

1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord’s prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. Upon the termination of this Lease, Tenant shall restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant and in the event of the loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.

2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.

3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the San Diego, California area. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building, register. Access to the Building may be refused unless the person seeking access has proper identification or bas a previously arranged pass for access to the Building. Landlord will furnish passes to persons for whom Tenant requests same in writing. Tenant shall be responsible for all persons for whom Tenant requests passes and shall be liable to Landlord for all acts of such persons. The Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.

4. No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates.

 

   EXHIBIT D    KILROY REALTY
   -1-    12400 High Bluff
      [Relational Advisors/Relational Investors]


Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.

5. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours, in such specific elevator and by such personnel as shall be designated by Landlord.

6. The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

7. No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord. Tenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same.

8. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.

9. Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws (other than typical types of hardware required to hang normal, customary types of artwork in the Premises), or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlord’s prior written consent.

10. Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

11. Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline, explosive material, corrosive material, material capable of emitting toxic fumes, or other inflammable or combustible fluid chemical, substitute or material. Tenant shall provide material safety data sheets for any Hazardous Material used or kept on the Premises.

12. Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord.

13. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a

 

   EXHIBIT D    KILROY REALTY
   -2-    12400 High Bluff
      [Relational Advisors/Relational Investors]


manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein, whether by the use of any musical instrument, radio, phonograph, or in any other way. Tenant shall not throw anything out of doors, windows or skylights or down passageways.

14. Tenant shall not bring into or keep within the Project, the Building or the Premises any animals, birds, aquariums, or, except in areas designated by Landlord, bicycles or other vehicles.

15. No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

16. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises provided for in the Summary. Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Landlord. Tenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.

17. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

18. Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises.

19. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building’s heating and air conditioning system, and shall refrain from attempting to adjust any controls. Tenant shall participate in recycling programs undertaken by Landlord.

20. Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in San Diego, California without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate. If the Premises

 

   EXHIBIT D    KILROY REALTY
   -3-    12400 High Bluff
      [Relational Advisors/Relational Investors]


is or becomes infested with vermin as a result of the use or any misuse or neglect of the Premises by Tenant, its agents, servants, employees, contractors, visitors or licensees, Tenant shall forthwith, at Tenant’s expense, cause the Premises to be exterminated from time to time to the satisfaction of Landlord and shall employ such licensed exterminators as shall be approved in writing in advance by Landlord.

21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

22. Any persons employed by Tenant to do janitorial work shall be subject to the prior written approval of Landlord, and while in the Building and outside of the Premises, shall be subject to and under the control and direction of the Building manager (but not as an agent or servant of such manager or of Landlord), and Tenant shall be responsible for all acts of such persons.

23. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard drapes. All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Landlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord. Tenant shall be responsible for any damage to the window film on the exterior windows of the Premises and shall promptly repair any such damage at Tenant’s sole cost and expense. Tenant shall keep its window coverings closed during any period of the day when the sun is shining directly on the windows of the Premises. Prior to leaving the Premises for the day, Tenant shall draw or lower window coverings and extinguish all lights. Tenant shall abide by Landlord’s regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas.

24. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

25. Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.

26. Tenant must comply with any applicable “ NO-SMOKIN G ” ordinances. If Tenant is required under the ordinance to adopt a written smoking policy, a copy of said policy shall be on file in the office of the Building. Additionally, Tenant must provide at least one area within the Premises in which its employees, invitees and visitors may smoke.

27. Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures (other than the lobby attendant during Building Hours as set forth in Section 6.4 of this Lease) for the benefit of the Premises, the Building or the Project Tenant hereby assumes all responsibility for the protection of Tenant and its agents,

 

   EXHIBIT D    KILROY REALTY
   -4-    12400 High Bluff
      [Relational Advisors/Relational Investors]


employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof. Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences. Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by law.

28. All office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise and annoyance.

29. Tenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.

30. No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Landlord.

31. No tenant shall use or permit the use of any portion of the Premises for living quarters, sleeping apartments or lodging rooms.

32. Tenant shall not purchase spring water, towels, janitorial or maintenance or other similar services from any company or persons not approved by Landlord. Landlord shall approve a sufficient number of sources of such services to provide Tenant with a reasonable selection, but only in such instances and to such extent as Landlord in its judgment shall consider consistent with the security and proper operation of the Building.

33. Tenant shall install and maintain, at Tenant’s sole cost and expense, an adequate, visibly marked and properly operational fire extinguisher next to any duplicating or photocopying machines or similar heat producing equipment, which may or may not contain combustible material, in the Premises.

Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

 

   EXHIBIT D    KILROY REALTY
   -5-    12400 High Bluff
      [Relational Advisors/Relational Investors]


EXHIBIT E

DEL MAR CORPORATE CENTRE

FORM OF TENANT’S ESTOPPEL CERTIFICATE

The undersigned as Tenant under that certain Office Lease (the “Lease”) made and entered into as of                      , 200      by and between                      as Landlord, and the undersigned as Tenant, for Premises on the                      floor(s) of the office building located at                          ,                          , California                      , certifies as follows:

1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

2. The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on                      , and the Lease Term expires on                      , and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.

3. Base Rent became payable on                      .

4. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A .

5. Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:

6. Tenant shall not modify the documents contained in Exhibit A without the prior written consent of Landlord’s mortgagee.

7. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through                      . The current monthly installment of Base Rent is $                                  .

8. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder.

9. No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.

 

   EXHIBIT E    KILROY REALTY
   -1-    12400 High Bluff
      [Relational Advisors/Relational Investors]


10. As of the date hereof, there are no existing defenses or offsets, or, to the undersigned’s knowledge, claims or any basis for a claim, that the undersigned has against Landlord.

11. If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

12. There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

13. Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises.

14. To the undersigned’s knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full.

The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

Executed at                  on the          day of              , 200      .

 

“Tenant”:
                                                                                 ,
a                                                                                
By:                                                                          
  Its:                                                                     
By:                                                                          
  Its:                                                                       .

 

   EXHIBIT E    KILROY REALTY
   -2-    12400 High Bluff
      [Relational Advisors/Relational Investors]


EXHIBIT F

DEL MAR CORPORATE CENTRE

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

ALLEN MATKINS LECK GAMBLE

    & MALLORY LLP

1901 Avenue of the Stars, 18th Floor

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

 

 

RECOGNITION OF COVENANTS,

CONDITIONS, AND RESTRICTIONS

This Recognition of Covenants, Conditions, and Restrictions (this “ Agreement ”) is entered into as of the      day of                  , 200      , by and between                                      (“Landlord”), and                                  (“Tenant”), with reference to the following facts:

A. Landlord and Tenant entered into that certain Office Lease Agreement dated              , 200      (the “Lease”). Pursuant to the Lease, Landlord leased to Tenant and Tenant leased from Landlord space (the “ Premises ”) located in an office building on certain real property described in Exhibit A attached hereto and incorporated herein by this reference (the “ Property ”).

B. The Premises are located in an office building located on real property which is part of an area owned by Landlord containing approximately      (      ) acres of real property located in the City of                      , California (the “ Project ”), as more particularly described in Exhibit B attached hereto and incorporated herein by this reference.

C. Landlord, as declarant, has previously recorded, or proposes to record concurrently with the recordation of this Agreement, a Declaration of Covenants, Conditions, and Restrictions (the “ Declaration ”), dated                          , 200      , in connection with the Project.

D. Tenant is agreeing to recognize and be bound by the terms of the Declaration, and the parties hereto desire to set forth their agreements concerning the same.

NOW, THEREFORE, in consideration of (a) the foregoing recitals and the mutual agreements hereinafter set forth, and (b) for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows,

1. Tenant’s Recognition of Declaration . Notwithstanding that the Lease has been executed prior to the recordation of the Declaration, Tenant agrees to recognize and by bound by all of the terms and conditions of the Declaration.

 

  

EXHIBIT F

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


2. Miscellaneous.

2.1 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, estates, personal representatives, successors, and assigns.

2.2 This Agreement is made in, and shall be governed, enforced and construed under the laws of, the State of California.

2.3 This Agreement constitutes the entire understanding and agreements of the parties with respect to the subject matter hereof, and shall supersede and replace all prior understandings and agreements, whether verbal or in writing. The parties confirm and acknowledge that there are no other promises, covenants, understandings, agreements, representations, or warranties with respect to the subject matter of this Agreement except as expressly set forth herein.

2.4 This Agreement is not to be modified, terminated, or amended in any respect, except pursuant to any instrument in writing duly executed by both of the parties hereto.

2.5 In the event that either party hereto shall bring any legal action or other proceeding with respect to the breach, interpretation, or enforcement of this Agreement, or with respect to any dispute relating to any transaction covered by this Agreement, the losing party in such action or proceeding shall reimburse the prevailing party therein for all reasonable costs of litigation, including reasonable attorneys’ fees, in such amount as may be determined by the court or other tribunal having jurisdiction, including matters on appeal.

2.6 All captions and heading herein are for convenience and ease of reference only, and shall not be used or referred to in any way in connection with the interpretation or enforcement of this Agreement.

2.7 If any provision of this Agreement, as applied to any party or to any circumstance, shall be adjudged by a court of competent jurisdictions to be void or unenforceable for any reason, the same shall not affect any other provision of this Agreement, the application of such provision under circumstances different form those adjudged by the court, or the validity or enforceability of this Agreement as a whole.

2.8 Time is of the essence of this Agreement.

2.9 The Parties agree to execute any further documents, and take any further actions, as may be reasonable and appropriate in order to carry out the purpose and intent of this Agreement.

2.10 As used herein, the masculine, feminine or neuter gender, and the singular and plural numbers, shall each be deemed to include the others whenever and whatever the context so indicates.

 

  

EXHIBIT F

-2-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


SIGNATURE PAGE OF RECOGNITION OF

COVENANTS, CONDITIONS AND RESTRICTIONS

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

 

“LANDLORD”:

KILROY REALTY, L.P.,

a Delaware limited partnership

By:  

Kilroy Realty Corporation,

a Maryland corporation,

  General Partner
  By:                                                          
          Its:                                                  
  By:                                                          
          Its:                                                  
“TENANT”:

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

By: /s/ James J. Zehentbauer                            

          Its: Principal                                

By: /s/ David H. Batchelder                            

          Its: Principal                                

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By: /s/ James J. Zehentbauer                            

          Its: Principal                                

By: /s/ David H. Batchelder                            

          Its: Principal                                

 

  

EXHIBIT F

-3-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT G

OPERATING EXPENSE BUDGET

[ATTACHED]

 

  

EXHIBIT G

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


LOGO     

Del Mar Corporate Centre III

12400 High Bluff Drive

Estimated 2004 Operating Budget

 

            216,968 r.s.f.

 

 

 

 

     Amount      $/RSF      

Property Mgmt. G&A

   $ 43,200.00      $ 0.20    

Utilities: Electric

   $ 100,000.00      $ 0.46     Includes four level porking structure

Utilities: Water & Sewer

   $ 9,500.00      $ 0.04    

Utilities: Rubbish

   $ 13,000.00      $ 0.06    

Contract Services: Elevators

   $ 14,400.00      $ 0.07    

Contract Services: Landscaping

   $ 32,064.00      $ 0.15    

Contract Services: Security

   $ 53,684.00      $ 0.25    

Contract Services: Window Cleaning

   $ 18,000.00      $ 0.08    

Contract Services: Parking

   $ 8,600.00      $ 0.04    

Contract Services: Other

   $ 75,000.00      $ 0.35    

Contract Services: Janitorial

   $ 169,235.00      $ 0.78    

Janitorial Supplies

   $ 26,400.00      $ 0.12    

Dayporter

   $ 54,300.00      $ 0.25    

Contract Services: HVAC Monitoring

   $ 3,866.00      $ 0.02    

Contract Services: FLS Monitoring

   $ 600.00      $ 0.00    

Contract Services: Pest Control

   $ 2,220.00      $ 0.01    

Office of the Building

   $ —        $ —      

Communications

   $ 3,400.00      $ 0.02    

Other Direct Expenses

   $ —        $ —      

Fees, Permits and Licenses

   $ 600.00      $ 0.00    

Association Assessments

   $ 19,236.00      $ 0.09    

Property Tax: Other

   $ 360.00      $ 0.00    

Property Tax: Amortization

   $ 646,158.00      $ 2.98    

Insurance: Amortization

   $ 68,570.00      $ 0.32    

Repairs & Maintenance: Supplies

   $ 3,000.00      $ 0.01    

Repairs & Maintenance: Repairs

   $ 4,000.00      $ 0.02    

Repairs & Maintenance: Other

   $ —        $ —      

Repairs & Maintenance: Elevator Repairs

   $ —        $ —      

Repairs & Maintenance: Electrical Repairs

   $ 3,600.00      $ 0.02    

Repairs & Maintenance: HVAC Repairs

   $ 2,000.00      $ 0.01    

Repairs & Maintenance: Landscape Repairs

   $ 800.00      $ 0.00    

Repairs & Maintenance: Plumbing Repairs

   $ 150.00      $ 0.00    

Repairs & Maintenance: Roof Repairs

   $ —        $ —      

Management Cost

   $ 318,942.96      $ 1.47     Note: Based on $3.50 + utilities and management fee of 3.5%
  

 

 

    

 

 

   
   $ 1,694,885.96      $ 7.81    


EXHIBIT H

PARKING LOCATIONS IN PROJECT PARKING FACILITY

[ATTACHED]

 

 

  

EXHIBIT H

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


LOGO


SIGNATURE PAGE OF RECOGNITION OF

COVENANTS, CONDITIONS AND RESTRICTIONS

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

 

“LANDLORD” :

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   Kilroy Realty Corporation,
  a Maryland corporation,
  General Partner
  By:   

 

      Its:   

 

  By:   

 

      Its:   

 

“TENANT” :

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

By:   

/s/ James J. Zehentbauer

  Its:    Principal
By:   

/s/ David H. Batchelder

  Its:   Principal

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By:   

/s/ James J. Zehentbauer

  Its:   Principal
By:   

/s/ David H. Batchelder

  Its:   Principal

 

  

EXHIBIT F

-3-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

 

LANDLORD ”:

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   Kilroy Realty Corporation,
  a Maryland corporation,
  General Partner
  By:  

/s/ [ILLEGIBLE]

  Its: Senior Vice President
  By:  

/s/ Jeffrey C. Hawken

 

Its: Executive Vice President

     Chief Operating Officer

TENANT ”:

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

 
By:  

/s/ James J. Zehentbauer

  Its: Principal
By:  

/s/ David H. Batchelder

  Its: Principal

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By:  

/s/ James J. Zehentbauer

  Its: Principal
By:  

/s/ David H. Batchelder

  Its: Principal

 

   -67-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


FIRST AMENDMENT TO OFFICE LEASE

This FIRST AMENDMENT TO OFFICE LEASE (“ First Amendment ”) is made and entered into as of the 23 rd day of July 2004, by and between KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), and RELATIONAL ADVISORS LLC, a Delaware limited liability company, acting on behalf of Series B thereof, and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (collectively, as “ Tenant ”).

R E C I T A L S :

A.    Landlord and Tenant entered into that certain Office Lease dated June 1, 2004 (the “ Lease ”), whereby Landlord leases to Tenant and Tenant leases from Landlord approximately 32,792 rentable (30,675 usable) square feet of space consisting of the entire sixth (6 th ) floor of the building (the “ Building ”) located at 12400 High Bluff Drive, San Diego, California 92130, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, which Premises is commonly known, collectively, as Suite 600 (the “ Premises ”),

B.     Article 21 of the Lease required Tenant to deposit with Landlord a security deposit (the “ Security Deposit ”) with Landlord in the initial amount of One Hundred Thirteen Thousand One Hundred Thirty-Two and 50/100 Dollars ($113,132.50), which Security Deposit would be held by Landlord in an interest bearing short-term certificate of deposit account (the “ CD ”) in accordance with the terms and conditions of such Article 21 . The parties acknowledge that while Tenant has itself established a CD in the applicable amount with the intent of satisfying its obligations under Article 21 of the Lease, Tenant has never actually delivered the Security Deposit amount to Landlord pursuant to the terms of Article 21 .

C.     Landlord and Tenant desire that, instead of the Security Deposit and CD obligations set forth in Article 21 of the Lease, Tenant substitute therefore a letter of credit (the “L-C”) on the terms and conditions set forth in this First Amendment, and the parties therefore desire to amend the Lease accordingly.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Capitalized Terms . All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Agreement unless expressly provided otherwise in this First Amendment.

2. Letter of Credit .

2.1 Delivery of Letter of Credit . Tenant shall deliver to Landlord, concurrently with Tenant’s execution of this First Amendment, an unconditional, clean,

 

 

   -1-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


irrevocable letter of credit (the “ L-C ”) in an amount equal to One Hundred Thirteen Thousand One Hundred Thirty-Two and 50/100 Dollars ($113,132.50) (the “ L-C Amount ”), which L-C shall be issued by a money-center bank (a bank which accepts deposits, maintains accounts, has a Southern California office which will negotiate a letter of credit, and whose deposits are insured by the FDIC) reasonably acceptable to Landlord, and which L-C shall be in the form of Exhibit A , attached hereto; provided, however, Landlord hereby pre-approves Wells Fargo Bank as such a money-center bank. Tenant shall pay all expenses, points and/or fees incurred by Tenant in obtaining the L-C. Immediately following (i) the full execution and delivery of this First Amendment, and (ii) Landlord’s receipt of the L-C for the L-C Amount, (A) Tenant’s obligations under Article 21 of the Lease to deliver the Security Deposit to Landlord shall be deemed satisfied, (B) Tenant shall be deemed to have been in satisfaction of the terms and conditions of Article 21 of the Lease from the effective date of the Lease through the date of this First Amendment, (C) Tenant shall, following the date hereof, have no further obligations with respect to Article 21 of the Lease (which Article 21 of the Lease is hereby terminated in its entirety), and (D) Tenant shall, as of the date hereof, be deemed to be in satisfaction of the terms and conditions of this Section  2 of this First Amendment.

2.2 Conditional Reduction of L-C Amount . Landlord and Tenant hereby acknowledge and agree that, to the extent Tenant satisfies the TCCs of this Section 2.2 , the L-C Amount is subject to an annual reduction equal to ten percent (10%) of the initial L-C Amount throughout the Lease Term. Notwithstanding anything to the contrary set forth in this Section 2.2 , Tenant shall only be entitled to such conditional reduction to the extent (1) Tenant is not then in economic or material non-economic default under the Lease (as hereby amended; beyond any applicable notice and cure periods), (2) Tenant has not been in economic or material non-economic default under the Lease (as hereby amended; beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, (3) Tenant has not been in economic or material non-economic default under the Lease (as hereby amended; beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year period, (4) Tenant has timely delivered to Landlord the applicable annual Financial Statement in accordance with the TCCs of Article 17 of the Lease, and (5) Landlord receives the auditor’s opinion letter, delivered in connection with the annual Financial Statements, confirming that Tenant continues to have the financial ability as an ongoing concern to satisfy Tenant’s then-remaining economic obligations set forth in the Lease (as hereby amended). For purposes of example only, and assuming that upon each anniversary of the Lease Commencement Date Tenant is entitled to the conditional reduction pursuant to the TCCs of this Section 2.2 , then the L-C Amount would be reduced pursuant to the foregoing schedule.

 

Reduction Date:

   L-C Amount:  

First (1 st ) anniversary of Lease Commencement Date

   $ 101,819.25  

Second (2 nd ) anniversary of Lease Commencement Date

   $ 90,506.00  

Third (3 rd ) anniversary of Lease Commencement Date

   $ 79,192.75  

 

   -2-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


Fourth (4 th ) anniversary of Lease Commencement Date

   $ 67,879.50  

Fifth (5 th ) anniversary of Lease Commencement Date

   $ 56,566.25  

Sixth (6 th ) anniversary of Lease Commencement Date

   $ 45,253.00  

Seventh (7 th ) anniversary of Lease Commencement Date

   $ 33,939.75  

Eighth (8 th ) anniversary of Lease Commencement Date

   $ 22,626.50  

Ninth (9 th ) anniversary of Lease Commencement Date

   $ 11,313.25  

2.3 Application of Letter of Credit . Landlord shall have the immediate right to draw upon the L-C, in whole or in part and without prior notice to Tenant, other than that required under the Lease, at any time and from time to time: (i) if a default occurs under the Lease (as hereby amended; beyond any applicable notice and cure period), or (ii) Tenant either files a voluntary petition, or an involuntary petition is filed against Tenant by an entity other than Landlord, under any chapter of the Federal Bankruptcy Code or Tenant executes an assignment for the benefit of creditors. No condition or term of the Lease (as hereby amended) shall be deemed to render the L-C conditional, thereby justifying the issuer of the L-C in failing to honor a drawing upon such L-C in a timely manner. The L-C and its proceeds shall constitute Landlord’s sole and separate property (and not Tenant’s property or, in the event of a bankruptcy filing by Tenant, property of Tenant’s bankruptcy estate) and Landlord may immediately upon any draw (and without notice to Tenant) apply or offset the proceeds of the L-C: (a) against any amounts payable by Tenant under the Lease (as hereby amended) that are not paid when due, after the expiration of any applicable notice and cure period; (b) against all losses and damages that Landlord has suffered or may reasonably estimate that it may suffer as a result of any default by Tenant under the Lease (as hereby amended), including any damages arising under Section 1951.2 of the California Civil Code for rent due following termination of the Lease (as hereby amended); and (c) against any costs incurred by Landlord in connection with the Lease (as hereby amended) (including attorneys’ fees). Provided Tenant has performed all of its obligations under the Lease (as hereby amended), Landlord agrees to pay to Tenant within thirty (30) days after the Lease Expiration Date the amount of any proceeds of the L-C received by Landlord and not applied as allowed above, and return the L-C to Tenant within the foregoing thirty (30) day period; provided that if prior to the Lease Expiration Date a voluntary petition is filed by Tenant, or an involuntary petition is filed against Tenant by any of Tenant’s creditors other than Landlord, under the Federal Bankruptcy Code, or Tenant executes an assignment for the benefit of creditors, then Landlord shall not be obligated to return the L-C or any proceeds of the L-C until all statutes of limitations for any preference avoidance statutes applicable to such

 

   -3-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


bankruptcy or assignment for the benefit of creditors have elapsed or the bankruptcy court or assignee, whichever is applicable, has executed a binding release releasing the Landlord of any and all liability for preferential transfers relating to payments made under the Lease (as hereby amended), and Landlord may retain and offset against any remaining L-C proceeds the full amount Landlord is required to pay to any third party on account of preferential transfers relating to this Lease. If Landlord draws on the L-C as permitted in this Section  2.3 , then, upon demand of Landlord, Tenant shall restore the amount available under the L-C to the then-current L-C Amount set forth in Section  2.2 , above, by providing Landlord with an amendment to the L-C evidencing that the amount available under the L-C has been restored to the then-current L-C Amount set forth in Section 2.2 , above. In the alternative, Tenant may provide Landlord with cash, to be held by Landlord in accordance with this Section  2.3 in an amount equal to the restoration amount required under this Section  2.3 . Tenant shall pay all expenses, points and fees incurred by Tenant or Landlord in renewing, replacing, drawing or transferring the L-C. Landlord and Tenant (1) acknowledge and agree that in no event or circumstance shall the L-C or any renewal thereof or substitute therefor or any proceeds thereof be deemed to be or treated as a “security deposit” under any law applicable to security deposits in the commercial context, including, but not limited to, Section 1950.7 of the California Civil Code, as such Section now exists or as it may be hereafter amended or succeeded (the “ S ecurity Deposit Laws ”), (2) acknowledge and agree that the L-C (including any renewal thereof or substitute therefor or any proceeds thereof) is not intended to serve as a security deposit, and the Security Deposit Laws shall have no applicability or relevancy thereto, and (3) waive any and all rights, duties and obligations that any such party may now, or in the future will, have relating to or arising from the Security Deposit Laws. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code and all other provisions of law, now or hereafter in effect, which (A) establish the time frame by which a landlord must refund a security deposit under a lease, and/or (B) provide that a landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a tenant or to clean the premises, it being agreed that Landlord may, in addition, claim those sums specified in this Section  2.3 and/or those sums reasonably necessary to compensate Landlord for any loss or damage caused by Tenant’s breach of this Lease (as hereby amended), including any damages Landlord suffers following termination of this Lease (as hereby amended).

3. No Further Modification . Except as specifically set forth in this First Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

[ the remainder of this page intentionally left blank ]

 

   -4-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


IN WITNESS WHEREOF, this First Amendment has been executed as of the day and year first above written.

 

“LANDLORD”:

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   Kilroy Realty Corporation,
  a Maryland corporation,
  General Partner
  By:  

/s/ Jeffrey C. Hawken

      Its:  

Jeffrey C. Hawken

Executive Vice President

Chief Operating Officer

  By:   

/s/ John T. Fucci

      Its:  

Sr. Vice President

Asset Management

“TENANT”:

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

By:   

/s/ James J. Zehentbauer

    Its:   

 

By:   

/s/ David H. Batchelder

    Its:   

 

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By:   

/s/ James J. Zehentbauer

    Its:   

 

By:   

/s/ David H. Batchelder

    Its:   

 

 

   -5-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHIBIT A

12400 HIGH BLUFF

FORM OF LETTER OF CREDIT

(Letterhead of a money center bank

acceptable to the Landlord)

                                          , 200     

                                                                                      

                                                                                      

                                                                                      

                                                                                      

Gentlemen:

We hereby establish our Irrevocable Letter of Credit and authorize you to draw on us at sight for the account of                         , a                        , the aggregate amount of                                                                               ($                                ).

Funds under this Letter of Credit are available to the beneficiary hereof as follows:

Any or all of the sums hereunder may be drawn down at any time and from time to time from and after the date hereof by a representative of                                                      (“Beneficiary”) when accompanied by this Letter of Credit and a written statement signed by a representative of Beneficiary, certifying that such moneys are due and owing to Beneficiary.

This Letter of Credit is transferable in its entirety at no cost to Beneficiary. Should a transfer be desired, such transfer will be subject to the return to us of this advice, together with written instructions.

The amount of each draft must be endorsed on the reverse hereof by the negotiating bank. We hereby agree that this Letter of Credit shall be duly honored upon presentation and delivery of the certification specified above.

This Letter of Credit shall expire on                            .

Notwithstanding the above expiration date of this Letter of Credit, the term of this Letter of Credit shall be automatically renewed for successive, additional one (1) year periods unless, at least thirty (30) days prior to any such date of expiration, the undersigned shall give written notice to Beneficiary, by certified mail, return receipt requested and at the address set forth above or at such other address as may be given to the undersigned by Beneficiary, that this Letter of Credit will not be renewed.

 

  

EXHIBIT A

-1-

  

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


This Letter of Credit is governed by the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication 500.

 

Very truly yours,

(Name of Issuing Bank)

 

By:                                                                                                  

 

  

EXHIBIT A

-2-

  

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


RELEASE AGREEMENT

This RELEASE AGREEMENT (this “ Agreement ”) is entered into as of the 22 nd day of December, 2005, by and among KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), RELATIONAL ADVISORS LLC, a Delaware limited liability company, acting on behalf of Series B thereof (“ Advisors ”), and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (“ Investors ”).

R E C I T A L S :

A. Advisors and Investors, collectively, as tenant ( “Tenant” ), and Landlord, as landlord, entered into that certain Office Lease dated June 1, 2004 (the “Office Lease” ), as amended by the terms of that certain First Amendment to Office Lease dated as of July 23, 2004 (the “First Amendment” ) (the Office Lease and the First Amendment are, collectively, the “ Lease ”), whereby Landlord leased to Tenant, and Tenant leased from Landlord, approximately 32,792 rentable (30,675 usable) square feet of space consisting of the entire sixth (6 th ) floor of the building (the “Building” ) located at 12400 High Bluff Drive, San Diego, California 92130, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, which Premises is commonly known, collectively, as Suite 600 (the “Premises” ).

B. Advisors, Investors and Landlord desire to enter into this Agreement in order to (i) terminate Advisors’ right, title and interest in and to the Lease, and (ii) release Advisors from further obligations under the Lease, except as otherwise provided herein.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing recitals and the conditions and the covenants hereinafter contained, and for other consideration hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, Landlord, Advisors and Investors hereby agree as follows.

1. Termination of Advisors’ Interest in Lease; Continuation of Investors ’ Interest in Lease . Commencing as of 11:59 p.m. on December 31, 2005 (the “ Release Date ”), all of Advisors’ right, title and interest in and to the Lease and the Premises shall terminate and, as between Landlord and Advisors only, the Lease shall be of no further force or effect. Both Advisors and Investors expressly acknowledge and agree that notwithstanding the foregoing, (i) the Lease shall not terminate and shall continue on in full force and effect between Landlord and Investors only, and (ii) commencing as of the Release Date, Investors shall be fully and solely liable for the performance of all the obligations of Tenant under the Lease.

 

     

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


2. Release of Liability . Except as otherwise provided in Section  3 below, and conditioned on the performance by the parties of the provisions of this Agreement:

(a) Commencing as of the Release Date, Advisors shall be released from any obligation or liability under the Lease to the extent attributable to the period following such Release Date; provided, however, Advisors shall remain fully liable, on a joint and several basis with Investors, for the payment of rents and for the performance of all other obligations of Tenant under the Lease (including, without limitation, Tenant’s payment of reconciliation of Operating Expenses) to the extent attributable to the period preceding and including to the Release Date.

(b) This Agreement shall fully and finally settle all demands, charges, claims, accounts or causes of action of any nature, including, without limitation, both known and unknown claims and causes of action that may arise out of or in connection with the obligations of Advisors, and the obligations of Landlord with respect to Advisors, after the Release Date.

Each of the parties hereto expressly waives the provisions of California Civil Code Section 1542, which provides:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

Each party acknowledges that it has received the advice of legal counsel with respect to the aforementioned waiver and understands the terms thereof.

3. Representations of Advisors . Advisors represents and warrants to Landlord that (a) except with regard to (i) that certain sublease to Del Mar Heritage, LLC (“ Heritage ”) dated as of February 25, 2005 (consented to by Landlord pursuant to that certain Consent to Standard Sublease dated as of March 29, 2005), and (ii) that certain sublease to RSF Management Services, Inc. ( “RSF” ) dated as of July 27, 2005 (consented to by Landlord pursuant to that certain Consent to dated as of August 2, 2005), Advisors has not heretofore assigned or sublet all or any portion of its interest in the Lease; (b) other than with respect to Investors, Heritage and RSF, no other person, firm or entity has any right, title or interest in the Lease; (c) Advisors has the full right, legal power and actual authority to enter into this Agreement and to terminate its rights in and to the Lease and the Premises without the consent of any person, firm or entity; and (d) Advisors has the full right, legal power and actual authority to bind Advisors to the terms and conditions hereof. Advisors further represents and warrants to Landlord that, as of the date hereof and to its actual knowledge, there are no, and as of the Release Date there shall not be any, mechanic’s liens or other liens encumbering all or any portion of the Premises, by virtue of any act or omission on the part of Advisors, its predecessors, contractors, agents, employees, successors or assigns. Notwithstanding the termination of Advisors’ rights in and to the Lease and the release of liability provided for herein, the representations and warranties set forth in this

 

   -2-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


Section  3 shall survive the Release Date and Advisors shall be liable to Landlord for any inaccuracy or any breach thereof.

4. Attorneys’ Fees . Should any dispute arise between the parties hereto or their legal representatives, successors and assigns concerning any provision of this Agreement or the rights and duties of any person in relation thereto, the party prevailing in such dispute shall be entitled, in addition to such other relief that may be granted, to recover reasonable attorneys’ fees and legal costs in connection with such dispute.

5. Governing Law . This Agreement shall be governed and construed under the laws of the State of California.

6. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but such counterparts, when taken together, shall constitute one agreement.

7. Binding Effect . This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective legal representatives, successors and assigns.

8. Time of the Essence . Time is of the essence of this Agreement and the provisions contained herein.

9. Further Assurances . Landlord, Advisors and Investors hereby agree to execute such further documents or instruments as may be necessary or appropriate to carry out the intention of this Agreement.

10. Voluntary Agreement . The parties have read this Agreement and mutual release as contained herein, and on the advice of counsel they have freely and voluntarily entered into this Agreement.

[ signature page immediately follows ]

 

   -3-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


IN WITNESS WHEREOF, Landlord, Advisors and Investors have executed this Agreement as of the day and year first above written.

 

“LANDLORD”:

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   

 

Kilroy Realty Corporation,

 

a  Maryland  corporation,

General Partner

  By:  

/s/ Jeffrey C. Hawken

   

Its: Executive Vice President

     Chief Operating Officer

  By:  

/s/ John T. Fucci

   

Its: Sr. Vice President

     Asset Management

“ADVISORS”:

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

By:  

/s/ James J. Zehentbauer

  Its:  

 

By:  

 

  Its:  

 

“INVESTORS”:

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By:  

/s/ [ILLEGIBLE]

  Its:   CAO
By:  

 

  Its:  

 

 

   -4-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


SECOND AMENDMENT TO OFFICE LEASE

This SECOND AMENDMENT TO OFFICE LEASE (the “ Second Amendment ”) is made and entered into as of the 1 st day of May 2014, by and between KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (“ Tenant ”).

R   E   C   I   T   A   L   S :

A. Landlord, Tenant and Relational Advisors LLC entered into that certain Office Lease dated June 1, 2004 (the “ Office Lease ”), as amended by that certain First Amendment to Office Lease dated as of July 13, 2004 (the “ First Amendment ”), and as further amended by that certain Release Agreement dated as of December 22, 2005 (the “ Release ”, together with the Office Lease and the First Amendment, collectively the “ Lease ”), whereby Landlord leases to Tenant and Tenant leases from Landlord approximately 32,792 rentable (30,675 usable) square feet of space consisting of the entire sixth (6 th ) floor of the building (the “ Building ”) located at 12400 High Bluff Drive, San Diego, California 92130, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, which Remaining Premises is commonly known, collectively, as Suite 600 (the “ Existing Premises ”).

B. Landlord and Tenant desire to (i) extend the Lease Term (beyond the currently scheduled termination date of November 30, 2014) with respect to an anticipated portion of the Existing Premises consisting of approximately 15,784 rentable (14,414 usable) square feet of space located on the sixth (6th) floor of the Building, the exact size, location and configuration of which shall be determined in accordance with the provisions more particularly set forth in Section 2 of this Second Amendment (the “ Remaining Premises ”), (ii) allow the Lease Term with respect to the balance of the Existing Premises (the “ Expiration Space ”) to expire on the currently scheduled termination date of November 30, 2014, and (iii) otherwise amend the Lease on the terms and conditions set forth in this Second Amendment.

A   G   R   E   E   M   E   N   T :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Capitalized Terms . All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Agreement unless expressly provided otherwise in this Second Amendment.

2. Anticipated Configuration of Remaining Premises . Landlord and Tenant hereby acknowledge and agree that the size, location and configuration of the Remaining Premises and the Expiration Space will be dependent on whether or not Landlord enters into a direct lease with Tenant’s current sub-tenant, Zogenix, in a form acceptable to Landlord in its sole and absolute discretion (such direct lease, the “ Zogenix Lease ”) by June 1, 2014 or any later date to which Tenant provides its written consent (the “ Remaining Premises Condition ”).

 

   -1-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


Landlord shall notify Tenant in writing promptly following any execution of such Zogenix Lease whenever consummated (the “ Direct Lease Notice ”), and if such notice has not been provided by June 1, 2014, Landlord shall provide Tenant a status report within five (5) business days following such date.

2.1 Configuration of Remaining Premises if Remaining Premises Condition Occurs . To the extent the Remaining Premises Condition timely occurs, Landlord shall separately demise the Existing Premises as depicted on Exhibit A . In such event, Tenant’s resulting portion of the Existing Premises shall, for purposes of the remaining provisions of this Second Amendment, constitute the “Remaining Premises” and the remainder of the Existing Premises shall constitute the “Expiration Space.”

2.2 Configuration of Remaining Premises if Remaining Premises Condition does not Occur . To the extent the Remaining Premises Condition is not timely achieved, Landlord shall separately demise the Existing Premises as so depicted on Exhibit B . In such event, Tenant’s resulting portion of the Existing Premises shall, for purposes of the remaining provisions of this Second Amendment, constitute the “Remaining Premises” and the remainder of the Existing Premises shall constitute the “Expiration Space” for the remainder of this Second Amendment.

2.3 Remeasurement . Regardless of whether the Exhibit A or Exhibit B demising shall have occurred in accordance with the foregoing provisions of this Section  2 , the resulting rentable square feet and usable square feet attributable to the Remaining Premises shall be calculated pursuant to the Office Buildings: Standard Methods of Measurement and Calculating Rentable Area—2010 (Method B), and its accompanying guidelines (collectively, “ BOMA ”). Within sixty (60) days after the completion of the “Demising Work” (as defined in Exhibit C attached hereto), Landlord’s space planner/architect shall measure the rentable and usable square feet of the Remaining Premises. The determination of Landlord’s space planner/architect shall be conclusive and binding upon the parties. All amounts, percentages and figures appearing or referred to in this Second Amendment based upon the presently contemplated configuration (as identified in Recital B , above), shall be modified in accordance with such determination. Upon such determination, the same will be confirmed in writing by Landlord to Tenant.

3. Reduction of Currently-Existing Premises .

3.1 Give Back of Expiration Space . Landlord and Tenant hereby acknowledge and agree that Tenant’s lease with respect to the Expiration Space shall expire on November 30, 2014 (the “ 2014 Expiration Date ”), and Tenant shall then quit and surrender and deliver exclusive possession of such Expiration Space to Landlord in accordance with the terms of the Lease. Effective as of the day immediately following the 2014 Expiration Date (the “ Reduction Date ”), (i) the Expiration Space shall no longer constitute a part of the Premises, and (ii) the “ Premises ” (as that term is used in the Lease) shall thereupon and thereafter consist only of the Remaining Premises. In the event Tenant does not timely vacate the Expiration Space in accordance with the terms hereof, then, notwithstanding any contrary provision of the Lease, Tenant shall be deemed to be in holdover with respect to the Expiration Space, and the terms and conditions of Article 16 of the Office Lease shall apply with respect thereto.

 

   -2-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


(a) Marketing of the Expiration Space . Notwithstanding any provision to the contrary in this Second Amendment, to the extent the direct Zogenix Lease is not consummated by June 1, 2014, Landlord and any third parties designated by Landlord shall be permitted to enter the Expiration Space upon reasonable advance notice to show the same to prospective tenants.

(b) Surrender of the Expiration Space . Tenant hereby agrees to vacate the Expiration Space and surrender and deliver exclusive possession of the Expiration Space to Landlord, on or before the 2014 Expiration Date in accordance with the terms and conditions of Sections 8.5 and 15.2 of the Office Lease (which surrender requirements shall be deemed to include the removal of any and all communications or computer wires and cables located in the Expiration Space and the delivery of the Expiration Space to Landlord in broom clean condition; provided, however, the foregoing obligation shall not apply to the extent Landlord enters into the Zogenix Lease prior to the Expiration Date). In the event Tenant does not timely vacate the Expiration Space in accordance with the terms hereof, then, notwithstanding any contrary provision of the Lease, Tenant shall be deemed to be in holdover with respect to the Expiration Space, and the terms and conditions of Article 16 of the Office Lease shall apply with respect thereto.

(c) Storage Use . In the event that Landlord does not enter into the Zogenix Lease prior to the 2014 Expiration Date, Tenant shall be permitted to store personal property, including but not limited to furniture, within an approximately four thousand (4,000) square foot portion of the Expiration Space to be reasonably designated by Landlord and Tenant (the “ Storage Area ”) until the earlier to occur of (i) December 14, 2014, and (ii) the date which is thirty (30) days after Landlord notifies Tenant in writing that a third-party lease for the Expiration Space has been consummated pursuant to which Landlord must deliver possession of such Storage Area (the “ Storage Use Term ”). Tenant’s use of the Storage Area for the Storage Use Term shall be subject to the insurance, use and indemnification provisions of the Lease, but otherwise shall not constitute: (a) a holdover by Tenant; (b) a failure to quit, vacate, surrender or deliver exclusive possession of the Expiration Space to Landlord, or (c) any other breach of this Section 3.1 or the provisions of the Lease.

3.2 Representations and Warranties . Tenant represents and warrants to Landlord that, as of the date hereof, (a) Tenant has not heretofore assigned or otherwise sublet all or any portion of its interest in the Expiration Space (excepting only pursuant to that certain Sublease dated March 12, 2012, between Zogenix, Inc., a Delaware corporation, and Relational Investors LLC, a Delaware limited liability company (the “ Zogenix Sublease ”), which Zogenix Sublease expires by its terms on or before such 2014 Expiration Date); (b) no other person, firm or entity has any right, title or interest in the Expiration Space; (c) Tenant has the full right, legal power and actual authority to enter into this Second Amendment and to have Tenant’s lease of the Expiration Space expire as contemplated herein without the consent of any person, firm or entity; and (d) Tenant has the full right, legal power and actual authority to bind Tenant to the terms and conditions hereof. Tenant further represents and warrants to Landlord that as of the date hereof there are no, and as of the Effective Date, there shall be no, mechanic’s liens or other liens encumbering all or any portion of the Expiration Space by virtue of any act or omission on the part of Tenant, its predecessors, contractors, agents, employees, successors, assigns or subtenants. The representations and warranties set forth in this Section  3.2 shall survive the

 

   -3-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


termination of Tenant’s lease of the Expiration Space and Tenant shall be liable to Landlord for any inaccuracy or any breach thereof.

4. Remaining Premises Extended Term; Option to Extend .

4.1 Remaining Premises Extended Term . Landlord and Tenant acknowledge that the Lease with respect to the entire Premises (including all of the Remaining Premises) is scheduled to expire on November 30, 2014. Notwithstanding the foregoing, the Lease Term is hereby extended with respect only to the Remaining Premises (which, on and following the “RP Extended Term Commencement Date” (defined below), shall be known for purposes of the Lease as the Premises) for a period of five (5) years and four (4) months commencing as of December 1, 2014 (the “ RP Extended Term Commencement Date ”), and ending as of March 31, 2020 (the “ RP Extended Term Expiration Date ”), on the terms and conditions set forth in this Second Amendment. The period of time commencing on December 1, 2014, and ending on March 31, 2020, shall be referred to herein as the “ RP Extended Term .”

4.2 Option to Further Extend Term . Notwithstanding any provision to the contrary contained in the Lease (as amended), Landlord and Tenant acknowledge and agree that Tenant shall continue to have two (2) options to extend the Lease Term with regard to the Remaining Premises, each for a period of five (5) years in accordance with, and pursuant to the terms and conditions of, Section  2 of the Office Lease.

5. Rent .

5.1 Base Rent . Prior to the RP Extended Term Commencement Date, Tenant shall continue paying to Landlord monthly installments of Base Rent in accordance with the terms and conditions of the Lease. Notwithstanding any provision to the contrary contained in the Lease, commencing as of the RP Extended Term Commencement Date, and continuing thereafter through the RP Extended Term Expiration Date, Tenant shall pay to Landlord monthly installments of Base Rent for the Remaining Premises (subject to adjustment based on the actual, determined square footage pursuant to the remeasurement set forth in Section  2.3 of this Second Amendment) in the event that the Condition Precedent is not satisfied (which payment shall otherwise be in accordance with the terms of Article 3 of the Office Lease) as follows:

 

Period During the

RP Extended Term

   Annual
Base Rent
     Monthly
Installment of
Base Rent
     Approximate
Monthly
Rental Rate
per Rentable
Square Foot
 

December 1, 2014 – November 30, 2015

   $ 795,513.60      $ 66,292.80      $ 4.20  

December 1, 2015 – November 30, 2016

   $ 819,378.96      $ 68,281.58      $ 4.33  

December 1, 2016 – November 30, 2017

   $ 843,960.36      $ 70,330.03      $ 4.46  

 

   -4-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


December 1, 2017 – November 30, 2018

   $ 869,279.16      $ 72,439.93      $ 4.59  

December 1, 2018 – November 30, 2019

   $ 895,357.56      $ 74,613.13      $ 4.73  

December 1, 2019 – March 31, 2020

     N/A      $ 74,613.13      $ 4.73  

5.2 Abated Base Rent . Provided that no event of default is occurring during the four (4) month period commencing on the first (1st) day of the first (1st) full calendar month of the RP Extended Term and ending on the last day of the fourth (4th) full calendar month of the RP Extended Term (such four (4) month period, the “ Base Rent Abatement Period ”), Tenant shall not be obligated to pay any Base Rent otherwise attributable to the Remaining Premises during such Base Rent Abatement Period (the “ Base Rent Abatement ”). Landlord and Tenant acknowledge that the aggregate amount of the Base Rent Abatement equals Two Hundred Sixty-Five Thousand One Hundred Seventy-One and 20/100 ($265,171.20) (i.e., $66,292.80 per month). Tenant acknowledges and agrees that during such Base Rent Abatement Period, such abatement of Base Rent for the Remaining Premises shall have no effect on the calculation of any future increases in Base Rent or Direct Expenses payable by Tenant pursuant to the terms of the Lease, as amended, which increases shall be calculated without regard to such Base Rent Abatement. Additionally, Tenant shall be obligated to pay all “Additional Rent” (as that term is defined in Section  4.1 of the Office Lease) during the Base Rent Abatement Period. Tenant acknowledges and agrees that the foregoing Base Rent Abatement has been granted to Tenant as additional consideration for entering into this Second Amendment, and for agreeing to pay the Base Rent and perform the terms and conditions otherwise required under the Lease, as amended. If Tenant shall be in default under the Lease, as amended, and shall fail to cure such default within the notice and cure period, if any, permitted for cure pursuant to the Lease, as amended, or if the Lease, as amended, is terminated for any reason other than Landlord’s breach of the Lease, as amended, then the dollar amount of the unapplied portion of the Base Rent Abatement as of the date of such default or termination, as the case may be, shall be converted to a credit to be applied to the Base Rent applicable at the end of the RP Extended Term and Tenant shall immediately be obligated to begin paying Base Rent for the Remaining Premises in full. The foregoing Base Rent Abatement right set forth in this Section  6.2 shall be personal to the tenant named above (the “ Original Tenant ”) and shall only apply to the extent that the Original Tenant (and not any assignee, or any sublessee or other transferee of the Original Tenant’s interest in the Lease, as amended) is the Tenant under the Lease, as amended during such Base Rent Abatement Period.

5.3 Direct Expenses . With respect to the period of the Lease Term occurring prior to December 1, 2014, Tenant shall continue paying to Landlord Tenant’s Share of Direct Expenses that arise or accrue during such period in accordance with the terms of the Lease. Notwithstanding any provision to the contrary contained in the Lease, commencing on RP Extended Term Commencement Date, and continuing thereafter through the RP Extended Term Expiration Date, Tenant shall pay to Landlord Tenant’s Share of Direct Expenses arising or accruing on or following RP Extended Term Commencement Date, and continuing through the

 

   -5-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


RP Extended Term Expiration Date in accordance with the terms of Article 4 of the Office Lease, provided that with respect to the calculation of Tenant’s Share of Direct Expenses attributable to the Remaining Premises, the following shall apply (subject to adjustment based on the actual, determined square footage pursuant to the remeasurement set forth in Section  2.3 of this Second Amendment):

(a) Tenant’s Share of Direct Expenses shall be approximately 7.5536%; and

(b) the Base Year shall be the calendar year 2015.

6. Condition of the Remaining Premises . Tenant acknowledges that Tenant has been and is in occupancy of the Remaining Premises pursuant to the Lease, and is fully aware of the condition of the Remaining Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Remaining Premises or the Building, or with respect to the suitability of the Remaining Premises or the Building for the conduct of Tenant’s business. Tenant acknowledges and agrees that Landlord is not in default or violation of any covenant, provision, obligation, agreement or condition contained in the Lease. Therefore, as of the date hereof and during the period ending on the RP Extended Term Expiration Date, Tenant shall continue to accept the Remaining Premises in its then existing, “as is” condition, and Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Remaining Premises, subject only to the terms of this Section  6 and the Work Letter attached hereto as Exhibit C (the “ Work Letter ”).

7. Refurbishment Allowance .

7.1 In General . Notwithstanding the foregoing, Tenant shall be entitled to a one-time refurbishment allowance (the “ Refurbishment Allowance ”) in the amount of Fifteen and No/100 Dollars ($15.00) per rentable square foot of the Remaining Premises, for the costs relating to the construction of any improvements, which are permanently affixed to the Remaining Premises (the “ Refurbishment Improvements ”). In addition, Tenant shall be entitled to use a portion of the Refurbishment Allowance, in an amount not to exceed Three and No/100 Dollars ($3.00) per rentable square foot of the Remaining Premises (the “ Optional Allowance Cost ”), to be applied toward the cost of built-in and movable furniture, computer and telecommunication cabling, telephone systems, moving expenses and other relocation costs reasonably incurred by Tenant (the “ Optional Allowance Improvements ”). Notwithstanding any provision to the contrary set forth in the Lease and except as provided herein, in no event shall Landlord be obligated to make disbursements from the Refurbishment Allowance for costs which are unrelated to the Refurbishment Improvements or the Optional Allowance Improvements, or in a total amount which exceeds the Refurbishment Allowance. Except as otherwise provided in this Section  7 , Tenant shall perform the Refurbishment Improvements and/or Optional Allowance Improvements at its sole cost and expense and in accordance with the terms of Article 8 of the Lease.

7.2 Landlord Supervision . Notwithstanding any provision to the contrary set forth in the Lease, Tenant shall pay a construction supervision and management fee (the

 

   -6-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


Landlord Supervision Fee ”) to Landlord in an amount equal to three percent (3%) of the total hard construction costs (as opposed to soft costs) for the Refurbishment Improvements and/or the Optional Allowance Improvements, which Landlord Supervision Fee shall be applied against and deducted from the Refurbishment Allowance. Such Landlord Supervision Fee shall compensate Landlord for engaging the project space planner, engineers and contractor, all through a competitive process, and to contract directly with, and make associated payments to, such parties. In connection therewith, Landlord shall lead all project meetings, provide project budgeting, accounting and reconciliation reporting. Landlord shall coordinate with all furniture, technology and moving vendors to coordinate the Refurbishment Improvements, and the remodeling of the Premises, as commercially reasonably required to implement the Refurbishment Improvement process. Such Landlord Supervision Fee shall be the sole compensation paid by Tenant for the supervision of the Refurbishment of the Premises, and no other fees or markup’s shall be due to Landlord.

7.3 Disbursement of Refurbishment Allowance . Subject to the provisions of this Section 7 above, following the completion of the Refurbishment Improvements in accordance with the terms of Article 8 of the Lease, Landlord shall deliver a check made payable to Tenant in payment for the applicable portion of the Refurbishment Allowance, provided that (i) Landlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenant’s use of such other tenant’s leased premises in the Building, (ii) Tenant delivers to Landlord all invoices, marked as having been paid, from all general contractors, subcontractors, laborers, materialmen, and suppliers used by Tenant for labor tendered and materials delivered to the Remaining Premises in connection with the Refurbishment Improvements, and (iii) Tenant delivers to Landlord properly executed unconditional mechanics lien releases in compliance with both California Civil Code Section 8134 and Section 8138. As of January 31, 2015, any portion of the Refurbishment Allowance which has not been previously incurred or in respect of which services have not been performed in connection with the Refurbishment Improvements shall be retained by Landlord, and Tenant shall have no right to use such amount for any remaining improvements or alterations, nor as a Rent credit or a cash allowance or for any other purpose.

8. Parking . Notwithstanding any parking rights or allocations to the contrary set forth in the Lease, commencing as of the RP Extended Term Commencement Date, and continuing through the RP Extended Term Expiration Date, Tenant shall have the right (but not the obligation) to use up to sixty-eight (68) unreserved parking passes (i.e., four and one-half (4  1 2 ) unreserved parking permits per 1,000 usable square feet of the Remaining Premises) on a monthly basis, in accordance with the terms and conditions set forth in this Section  7 and the non-conflicting terms and conditions set forth in Article 28 of the Office Lease. In addition, Tenant shall continue to have the right, for the entire duration of the RP Extended Term only, to use fourteen (14) of such passes as reserved covered parking spaces individually designated for particular employees of Tenant, otherwise in accordance with the terms and conditions of Article 28 of the Office Lease, and such reserved covered parking spaces shall continue to be those numbered one through fourteen as of the date of this Second Amendment.

 

   -7-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


9. Letter of Credit . Landlord and Tenant acknowledge that in accordance with the First Amendment, Tenant has previously delivered an unconditional, clean, irrevocable letter of credit (the “ L-C ”) in an amount equal to One Hundred Thirteen Thousand One Hundred Thirty-Two and 50/100 Dollars ($113,132.50) (the “ Original L-C Amount ”) to Landlord as security for the faithful performance by Tenant of the terms, covenants and conditions of the Lease. From and after December 1, 2014, while Tenant shall remain obligated to maintain such L-C, the original L-C Amount shall be reduced to Seventy-Two Thousand Four Hundred Thirty-Nine and 93/100 Dollars ($72,439.93) (the “ RP L-C Amount ”), which L-C shall be otherwise in accordance with the terms and conditions of the Lease.

10. Notices . Notwithstanding anything to the contrary contained in the Lease, as of the date of this Second Amendment, any notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

Kilroy Realty, L.P.

c/o Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200

Los Angeles, California 90064

Attention: Legal Department

with copies to:

Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200

Los Angeles, California 90064

Attention: Mr. John Fucci

and

Kilroy Realty Corporation

3661 Valley Centre Drive, Suite 250

San Diego, California 92130

Attention: Mr. Brian Galligan

and

Allen Matkins Leek Gamble Mallory & Natsis LLP

1901 Avenue of the Stars, Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

Notwithstanding anything to the contrary contained in the Lease, as of the date of this Second Amendment, any notices to Tenant must be sent, transmitted, or delivered, as the case may be, to the following addresses:

Relational Investors LLC

12400 High Bluff Drive, Suite 600

 

   -8-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


San Diego, California 92130

Attention: Chief Financial Officer

with copies to:

Relational Investors LLC

12400 High Bluff Drive, Suite 600

San Diego, California 92130

Attention: Legal Department

11. Broker . Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Second Amendment other than Hughes Marino, Inc. (the “ Broker ”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Second Amendment other than the Broker. Each party agrees to indemnify and defend the other party against and hold the other party harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent other than the Broker occurring by, through, or under the indemnifying party. The terms of this Section  11 shall survive the expiration or earlier termination of the term of the Lease, as hereby amended.

12. Utility Billing Information . In the event that the Tenant is permitted to contract directly for the provision of electricity, gas and/or water services to the Remaining Premises with the third-party provider thereof (all in Landlord’s sole and absolute discretion), Tenant shall within ten (10) business days of Landlord’s written request therefore, provide Landlord with a copy of any such invoice(s) specified in the request. Tenant acknowledges that pursuant to California Public Resources Code Section 25402.10 and the regulations adopted pursuant thereto (collectively the “ Energy Disclosure Requirements ”), Landlord may be required to disclose information concerning Tenant’s energy usage at the Building to certain third parties, including, Without limitation, prospective purchasers, lenders and tenants of the Building (the “ Tenant Energy Use Disclosure ”). Tenant hereby (A) consents to all such Tenant Energy Use Disclosures, and (B) acknowledges that Landlord shall not be required to notify Tenant of any Tenant Energy Use Disclosure. Further, Tenant hereby releases Landlord from any and all losses, costs, damages, expenses and liabilities relating to, arising out of and/or resulting from any Tenant Energy Use Disclosure. The terms of this Section  12 shall survive the expiration or earlier termination of this Lease, as amended.

13. Certified Access Specialist . For purposes of Section 1938 of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Remaining Premises has not undergone inspection by a Certified Access Specialist (CASp).

14. Access to Electrical and Telecoms Rooms . In addition to the rights specified in Article 1.1.13 of the Office Lease, Tenant shall have the right to access, enter and conduct all necessary work within the Electrical and Telecoms Rooms identified in Exhibits A and B, twenty-four (24) hours per day, seven (7) days per week for the entire duration of the RP Extended Term and any extensions thereof pursuant to Section  4.2 above.

 

   -9-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


15.     No Further Modification . Except as specifically set forth in this Second Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

[ the remainder of this page intentionally left blank ]

 

   -10-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


IN WITNESS WHEREOF, this Second Amendment has been executed as of the day and year first above written.

 

“LANDLORD” :

KILROY REALTY, L.P.,

a Delaware limited partnership

By:  

Kilroy Realty Corporation,

a Maryland corporation,

General Partner

        By:  

/s/ Brain Galligan

  Its:   SVP
        By:   /s/ John T. Fucci
  Its:  

John T. Fucci

Sr. Vice President

Asset Management

“TENANT” :

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By:   /s/ David H. Batchelder
  Its:   Principal
By:   /s/ Jay N. Sitlani
  Its:   CFO

 

   -11-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHIBIT A

12400 HIGH BLUFF

OUTLINE OF REMAINING PREMISES AND EXPIRATION SPACE

 

LOGO

 

  

EXHIBIT A

-1-

  

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHIBIT B

12400 HIGH BLUFF

OUTLINE OF REMAINING PREMISES AND EXPIRATION SPACE

 

LOGO

 

  

EXHIBIT B

-1-

  

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHIBIT C

12400 HIGH BLUFF

WORK LETTER

Except as specifically provided in this Exhibit C below, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises prior to or during the Lease Term and Tenant shall accept the Premises in its currently existing “as-is” condition. Subject to the terms and conditions set forth in this Exhibit C , Landlord shall, on a one (l)-time basis at Landlord’s sole cost and expense, separately demise the Remaining Premises from the Expiration Space, utilizing Building standard methods, materials and finishes, in the location identified on Exhibit A or Exhibit B to the Second Amendment to which this Work Letter is an exhibit; (b) create a secure entrance for Tenant that is separate from the entrance to be used by Zogenix or any other tenant of the Expiration Space; (c) create all necessary entrances to provide access to the Service Elevator and the Electrical and Telecoms Rooms in the locations identified on Exhibit A or Exhibit B ; (d) if applicable, create a secure entrance to the Server Room forming part of the Remaining Premises, in the location identified on Exhibit A ; (e) create a new stand-alone electricity meter to be used solely by the Tenant in connection with the Remaining Premises; and (f) create separate zones for lighting and HVAC to be used solely by the Tenant in connection with the Remaining Premises (as applicable, the “ Demising Work ”). Tenant shall make no changes, additions or modifications to the Demising Work or require the installation of any items requiring other than Building standard materials, components or finishes (it being expressly acknowledged and agreed that Landlord’s obligations are limited to the performance of the Demising Work as identified above).

 

  

EXHIBIT C

-1-

  

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


THIRD AMENDMENT TO OFFICE LEASE

This THIRD AMENDMENT TO OFFICE LEASE ( the “Third Amendment”) is made and entered into as of the 31 day of December 2014, by and between KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (“ Tenant ”).

R   E   C   I   T   A   L   S  :

A. Landlord, Tenant and Relational Advisors LLC entered into that certain Office Lease dated June 1, 2004 (the “ Office Lease ”), as amended by that certain First Amendment to Office Lease dated as of July 13, 2004 (the “ First Amendment ”), that certain Release Agreement dated as of December 22, 2005 (the “Release” ), and that certain Second Amendment to Office Lease dated as of May 1, 2014 (the “ Second Amendment, ” collectively with the Office Lease, the First Amendment and the Release, the “Lease” ), whereby Landlord leases to Tenant and Tenant leases from Landlord approximately 15,784 rentable (14,414 usable) square feet of space located on the sixth (6 th ) floor of the building (the “Building” ) located at 12400 High Bluff Drive, San Diego, California 92130, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, commonly known, collectively, as Suite 600 (the “ Existing Premises ”).

B. Landlord and Tenant desire to amend the Lease on the terms and conditions set forth in this Third Amendment.

A   G   R   E   E   M   E   N   T  :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Capitalized Terms . All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this Third Amendment.

2. Refurbishment Allowance Extension Date . Landlord and Tenant hereby acknowledge and agree that the date “January 31, 2015” in the last sentence in Section 7.3 of the Second Amendment is hereby deleted and replaced with “December 31, 2015”.

3. No Broker . Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Third Amendment, and that they know of no real estate broker or agent who is entitled to a commission in connection with this Third Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent occurring by, through, or under the indemnifying party. The terms of this Section 3 shall survive the expiration or earlier termination of the term of the Lease, as hereby amended.

4. Certified Access Specialist . For purposes of Section 1938 of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Remaining Premises has not undergone inspection by a Certified Access Specialist (CASp).

5. No Further Modification . Except as specifically set forth in this Third Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

[signatures follow on next page]

 

     

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


IN WITNESS WHEREOF, this Third Amendment has been executed as of the day and year first above written.

 

“LANDLORD”:

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   Kilroy Realty Corporation.
  a Maryland corporation,
  General Partner
  By:  

/s/ Joseph E. Magri

    Name: Joseph E. Magri
   

its:       Senior Vice President

            and Corporate Counsel

  By:  

/s/ John T. Fucci

    Name: John T. Fucci
   

Its:       Sr. Vice President

 Asset Management

“TENANT ”:

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By:  

/s/ David H. Batchelder

  Name: David H. Batchelder
  Its: [ILLEGIBLE]
By:  

/s/ Jay N. Sitlani

  Name: Jay N. Sitlani
  Its: [ILLEGIBLE]

 

   2   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHIBIT S-B

DEPICTION OF SUBPREMISES,

SUBLANDLORD OFFICE AREA

and

COMPUTER ROOM

[ATTACHED]

 

Exhibit S-B


Exhibit S-B

 

LOGO


EXHIBIT S-C

BASE SUBRENT SCHEDULE

 

Period

  

Monthly Base Subrent

2/1/15 through 12/31/15    $43,750.00 ($2.77/sq. ft.)
1/1/16 through 12/31/16    $57,611.60 ($3.65/sq. ft.)
1/1/17 through 12/31/17    $59,979.20 ($3.80/sq. ft.)
1/1/18 through 12/31/18    $62,346.80 ($3.95/sq. ft.)
1/1/19 through 12/31/19    $64,714.40 ($4.10/sq. ft.)
1/1/20 through 3/31/20    $67,082.00 ($4.25/sq. ft.)

 

Exhibit S-C


EXHIBIT S-D

FORM OF LETTER OF CREDIT

[ATTACHED]

 

Exhibit S-D - 2


LOGO    Wells Fargo Bank, N.A.
   U.S. Trade Services
   Standby Letters of Credit
   794 Davis Street, 2nd Floor
   MAC A0283-0 23 ,
   San Leandro, CA 94577-6922
   Phone: 1 ( 800 ) 798-2815 Option 1
   E-Mail: sftrade@wellsfargo.com

 

Irrevocable Standby Letter Of Credit

Number : ISO267413U

Issue Date : January 30, 2015

 

BENEFICIARY

  

APPLICANT

RELATIONAL INVESTORS LLC    EVOFEM, INC.
ATTN; JAY SITLANI    8910 UNIVERSITY CENTER LANE
12400 HIGH BLUFF DRIVE, SUITE 600    SUITE 120
SAN DIEGO, CALIFORNIA 92130    SAN DIEGO, CALIFORNIA 92122

 

LETTER OF CREDIT ISSUE AMOUNT             USD 500,000.00             EXPIRY DATE         MARCH 31, 2020        

LADIES AND GENTLEMEN:

AT THE REQUEST AND FOR THE ACCOUNT OF THE ABOVE REFERENCED APPLICANT, WE HEREBY ISSUE OUR IRREVOCABLE STANDBY LETTER OF CREDIT (THE “LETTER OF CREDIT”) IN YOUR FAVOR IN THE AMOUNT OF USD 500,000.00 (FIVE HUNDRED THOUSAND UNITED STATES DOLLARS) AVAILABLE WITH US AT OUR ABOVE OFFICE BY PAYMENT AGAINST PRESENTATION OF THE FOLLOWING DOCUMENTS:

1. A DRAFT DRAWN ON US AT SIGHT MARKED “DRAWN UNDER WELLS FARGO BANK, N.A. STANDBY LETTER OF CREDIT NO. IS0267413U.”

2. THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT AND ANY AMENDMENTS THERETO.

3. BENEFICIARY’S SIGNED AND DATED STATEMENT WORDED AS FOLLOWS (WITH THE INSTRUCTIONS IN BRACKETS THEREIN COMPLIED WITH):

“THE UNDERSIGNED, AN AUTHORIZED REPRESENTATIVE OF THE BENEFICIARY (“BENEFICIARY”) OF WELLS FARGO BANK LETTER OF CREDIT NO. IS0267413U CERTIFIES THAT THE AMOUNT OF THE DRAFT ACCOMPANYING THIS STATEMENT REPRESENTS THE AMOUNT DUE TO BENEFICIARY PURSUANT TO AND IN CONNECTION WITH THAT CERTAIN SUBLEASE DATED [INSERT DATE] BETWEEN RELATIONAL INVESTORS LLC AND EVOFEM, INC., (AS SUCH LEASE MAY BE AMENDED, RESTATED OR REPLACED).”

MULTIPLE AND PARTIAL DRAWING(S) ARE PERMITTED UNDER THIS LETTER OF CREDIT; PROVIDED, HOWEVER, THAT THE TOTAL AMOUNT OF ANY PAYMENT(S) MADE UNDER THIS LETTER OF CREDIT WILL NOT EXCEED THE TOTAL AMOUNT AVAILABLE UNDER THIS LETTER OF CREDIT.

THE AMOUNT AVAILABLE UNDER THIS LETTER OF CREDIT WILL REDUCE AUTOMATICALLY, WITHOUT AMENDMENT NOR BENEFICIARY’S PRIOR CONSENT, IN ACCORDANCE WITH THE FOLLOWING SCHEDULE:

DATE OF REDUCTION AMOUNT OF REDUCTION

 

 

        Together we’ll go far

 

Each page of this document is an integral part

of this Irrevocable Standby Letter of Credit Number  ISO267413U

  Page 1 of 3   LOGO


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03/01/16   

USD 4,979.57

04/01/16   

USD 4,979.57

05/01/16   

USD 4,979.57

06/01/16   

USD 4,979.57

07/01/16   

USD 4,979.57

08/01/16   

USD 4,979.57

09/01/16   

USD 4,979.57

10/01/16   

USD 4,979.57

11/01/16   

USD 4,979.57

12/01/16   

USD 4,979.57

01/01/17   

USD 4,979.57

02/01/17   

USD 4,979.57

03/01/17   

USD 4,979.57

04/01/17   

USD 4,979.57

05/01/17   

USD 4,979.57

06/01/17   

USD 4,979.57

07/01/17   

USD 4,979.57

08/01/17   

USD 4,979.57

09/01/17   

USD 4,979.57

10/01/17   

USD 4,979.57

11/01/17   

USD 4,979.57

12/01/17   

USD 4,979.57

01/01/18   

USD 4,979.57

02/01/18   

USD 4,979.57

03/01/18   

USD 4,979.57

04/01/18   

USD 4,979.57

05/01/18   

USD 4,979.57

06/01/18   

USD 4,979.57

07/01/18   

USD 4,979.57

08/01/18   

USD 4,979.57

09/01/18   

USD 4,979.57

10/01/18   

USD 4,979.57

11/01/18   

USD 4,979.57

12/01/18   

USD 4,979.57

01/01/19   

USD 4,979.57

02/01/19   

USD 4,979.57

03/01/19   

USD 4,979.57

04/01/19   

USD 4,979.57

05/01/19   

USD 4,979.57

06/01/19   

USD 4,979.57

07/01/19   

USD 4,979.57

08/01/19   

USD 4,979.57

09/01/19   

USD 4,979.57

10/01/19   

USD 4,979.57

11/01/19   

USD 4,979.57

12/01/19   

USD 4,979.57

12/05/19   

USD 66,490.00

01/05/20   

USD 66,490.00

02/05/20   

USD 66,490.00

03/05/20   

USD 66,490,00

IN THE EVENT A COMPLIANT DRAWING IS RECEIVED PRIOR TO A SCHEDULED DECREASE, THE AMOUNTS OF THE SUCCEEDING SCHEDULED DECREASES SHALL BE REDUCED BY THE AMOUNT OF SUCH DRAWINGS IN

 

 

        Together we’ll go far

 

Each page of this multipage document is an integral part

of this Irrevocable Standby Letter of Credit Number ISO267413U

  Page 2 of 3   LOGO


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THE ORDER OF OCCURRENCE OF SUCH SCHEDULED DECREASES UNTIL THE AMOUNT OF SUCH DRAWING HAS BEEN FULLY APPLIED.

THIS LETTER OF CREDIT EXPIRES AT OUR ABOVE OFFICE ON MARCH 31, 2020.

WE HEREBY ENGAGE WITH YOU THAT EACH DEMAND PRESENTED UNDER AND IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT WILL BE DULY HONORED IF PRESENTED TOGETHER WITH THE DOCUMENTS SPECIFIED IN THIS LETTER OF CREDIT AT OUR OFFICE LOCATED AT 794 DAVIS STREET, 2ND FLOOR, SAN LEANDRO, CA 94577-6922, ATTENTION: US TRADE SERVICES—STANDBY LETTERS OF CREDIT ON OR BEFORE THE ABOVE STATED EXPIRY DATE, OR ANY EXTENDED EXPIRY DATE IF APPLICABLE.

THIS IRREVOCABLE STANDBY LETTER OF CREDIT SETS FORTH IN FULL THE TERMS OF OUR UNDERTAKING. THIS UNDERTAKING IS INDEPENDENT OF AND SHALL NOT IN ANY WAY BE MODIFIED, AMENDED, AMPLIFIED OR INCORPORATED BY REFERENCE TO ANY DOCUMENT, CONTRACT OR AGREEMENT REFERENCED HEREIN OTHER THAN THE STIPULATED ICC RULES AND GOVERNING LAWS.

CANCELLATION PRIOR TO EXPIRATION: YOU MAY RETURN THIS LETTER OF CREDIT TO US FOR CANCELLATION PRIOR TO ITS EXPIRATION PROVIDED THAT THIS LETTER OF CREDIT IS ACCOMPANIED BY YOUR WRITTEN AGREEMENT TO ITS CANCELLATION. SUCH WRITTEN AGREEMENT TO CANCELLATION SHOULD SPECIFICALLY REFERENCE THIS LETTER OF CREDIT BY NUMBER, CLEARLY INDICATE THAT IT IS BEING RETURNED FOR CANCELLATION AND BE SIGNED BY A PERSON IDENTIFYING THEMSELVES AS AUTHORIZED TO SIGN FOR YOU.

EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, THIS STANDBY LETTER OF CREDIT IS SUBJECT TO THE INTERNATIONAL STANDBY PRACTICES 1998, INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 590.

 

Very Truly Yours,
WELLS FARGO BANK, N.A.
By:  

/s/ Brian T. O’Connell

Vice President

  Authorized Signature

The original of the Letter of Credit contains an embossed seal over the Authorized Signature.

Please direct any written correspondence or inquiries regarding this Letter of Credit, always quoting our reference number, to Wells Fargo Bank, National Association, Attn: U.S. Standby Trade Services

 

at either    or

794 Davis Street, 2nd Floor

  

401 Linden Street, 1st Floor

MAC A0283-023,

  

MAC D4004-017,

San Leandro, CA 94577-6922

  

Winston-Salem, NC 27101

 

Phone inquiries regarding this credit should be directed to our Standby Customer Connection Professionals
   
1-800-798-2815 Option 1    1-800-776-3862 Option 2
(Hours of Operation: 8:00 a.m. PT to 5:00 p.m. PT)    (Hours of Operation: 8:00 a.m. EST to 5:30 p.m. EST)

 

   Together we’ll go far

 

 

Each page of this multipage document is an integral part

of this Irrevocable Standby Letter of Credit Number ISO267413U

  Page 3 of 3   LOGO


Exhibit S-E

Furniture, Fixtures and Equipment List

All built-in tenant improvements are included with this Sublease but not separately listed below.

Lobby

 

3 Picture frames
3 Picture frames (mail room)
1 Desk chairs
1 Credenza – wood and metal
4 Wood and green cloth chairs
1 Lobby table
1 Rug
2 Monitors and arms
2 Security cameras

Patio

 

3 Teak planter boxes
3 Teak tables – square
12 Teak chairs

Conference Room Hallway

 

3 Green benches

Conference Room 1

 

9 Green desk chairs
1 Conference table – large
1 Samsung 65” TV
2 Picture frames

Conference Room 2

 

6 Green desk chairs
1 Conference table – round
1 Sharp 70” TV
1 Picture frame
1 Credenza – wood and white glass
1 Glass whiteboard

 

Page 1


Exhibit S-E

Furniture, Fixtures and Equipment List

Conference Room 3 (Board Room)

 

17 Green desk chairs
1 Large conference room table
4 Picture frames
6 Drink tables
1 Mitsubishi projector and 96” screen
1 AV conference room equipment and tower

Conference Room Kitchen

 

1 Subzero Refrigerator
1 U-Line icemaker
1 Dacor 2-drawer food warmer

Hallways to Conference Rooms and Restrooms

 

6 Picture frames

Restrooms

 

2 Chest of drawers

Kitchen #1

 

1 GE Monogram refrigerator
1 U-Line ice maker
1 ASKO dish washer
1 Panasonic microwave

Huddle Room #1

 

3 Green desk chairs
1 Round Table – small
1 Picture frame
1 End table

Huddle Room #2

 

3 Green desk chairs
1 Round Table – medium
1 End table
1 Sharp 70” TV
1 Whiteboard

 

Page 2


Exhibit S-E

Furniture, Fixtures and Equipment List

Huddle Room #3

 

4 Green desk chairs
1 Round Table – medium
1 Picture frame
1 Sharp 70” TV

Huddle Room #4

 

8 Green desk chairs
1 Rectangle Table – large
1 Sharp 65” TV
1 Whiteboard
1 4-drawer wood and metal file cabinet – low

Open Cube Area

 

2 Armchairs – wood and grey fabric
1 Picture frame
24 Cubes – low
24 Desk chairs
15 Round tables
14 Chairs – red cloth and armless
48 Monitors and arms
1 File cabinet/printer stand
4 4-drawer wood and metal file cabinet – low

Back wall

 

4 Cubes – large
4 Desk chairs
8 Monitors and arms
2 Projectors and screens

Outside Corner office

 

4 4-drawer wood and metal file cabinet – high
2 Picture frames
2 Cubes – large
4 Monitors and arms
1 Printer stand
2 Desk chairs
1 End table
2 Chair – wood and red cloth

 

Page 3


Exhibit S-E

Furniture, Fixtures and Equipment List

Outside Office #2 - 4

 

4 Cubes – low
4 Cubes – tall
8 Desk chairs
3 Round tables
4 Chairs – red cloth and armless
16 Monitors and arms
2 Picture frames

Office #1 (Corner Office)

 

1 Round conference table
4 Chairs – wood and green cloth
2 Chairs – cream suede
1 Large square table
1 Oval table
1 End table
1 Sofa – tan
1 Lamp
1 Desk
2 Credenza

Office #2

 

1 Office desk and cabinets
1 Credenza – wood and metal
1 Desk chair
1 Chair – wood and white cloth
2 Monitors and arms
2 Picture frames

Office #3

 

1 Office desk and cabinets
1 Credenza – wood and metal
1 Armchairs – wood and white fabric
2 Monitors and arms
2 Picture frames
1 Desk chair

Office #4

 

1 Office desk and cabinets
1 Credenza – wood and metal
1 Desk chair
1 Armchairs – wood and white fabric
2 Monitors and arms
2 Picture frames

 

Page 4


Exhibit S-E

Furniture, Fixtures and Equipment List

Storage Room

 

1 GE Monogram Refrigerator
6 5-drawer metal file cabinets
1 4-drawer fire proof cabinet
2 Tall Storage shelving units

Shared Occupancy Space

Kitchen #2

 

1 GE Monogram refrigerator
1 Panasonic Microwave
2 Picture frames

Open Cube Area

 

16 Cubes
8 Desk Chairs
10 Monitors and arms
5 Picture frames
7 4-drawer wood and metal file cabinet – low
1 Work table – circle

Office #5

 

1 Office desk and cabinets
2 Picture frames
2 Desk chair

Server Room

 

1 Fire suppression system
1 Server rack

 

Page 5


EXHIBIT S-F

SUBTENANT’S INITIAL CERTIFICATE OF INSURANCE

[ATTACHED]

Exhibit S-F


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CERTIFICATE OF LIABILITY INSURANCE “To/mT”’ THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(les) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). producer “ name*CT Lu Padua Commercial Lines - (650) 413-4200 phone A-\r, aoo-j fax IA/C. No. Extl: (650)413-4ZUf (AfC, No): Wells Fargo Insurance Services USA, Inc. - CA Lie#. 0D08408 address’ techcertrequests@wellsfargo.com 959 Skyway Road insureris) affording coverage naic# San Carlos, CA 94070 insurer A: Continental Casualty Company 20443 insured insurer b : Medmarc Casualty Insurance Company 22241 Evofem’ lnc- INSURER c, 8910 University Center Lane, S insurer d INSURER £ : San Diego CA 92122 insurer f: COVERAGES CERTIFICATE NUMBER: 8642666 REVISION NUMBER: See below THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. iNSRl IADDLISUBRI POLICY EFF POLICY EXP LTR TYPE OF INSURANCE 1NSD WVD POLICY NUMBER (MM/DD/YYYYt (MM/DD/YYYY) LIMITS A X | COMMERCIAL GENERAL LIABILITY ~ x x R509?189401 1f)/?5/?f)14 10/25/2015 EACH OCCURRENCE $ 2,000,000 1 HD DAMAGE TO RENTED e 1 nnn nnn CLAIMS-MADE x [ OCCUR PREMISES (Ea occurrence) $ 1,000,000 MED EXP (Any one person) $ 10,000 PERSONAL & ADV INJURY $ 2,000,000 GEN’L AGGREGATE LIMIT APPLIES PER: GENERAL AGGREGATE $ 4,000,000 X POLICY JECT LOC I PRODUCTS-COMP/OP AGG Excluded OTHER: I A AUTOMOBILE LIABILITY X X B5092189401 10/25/2014 10/25/2015 feaSentfINGLE UM’T $ 1.000.000 ANY AUTO BODILY INJURY (Per person) $ ALL OWNED I SCHEDULED BODILY INJURY (Per accident) $ NON-OWNED PROPERTY DAMAGE I x HIRED AUTOS AUTOS (Per accident) ! $ A J<_ UMBRELLA liab x 0CCUR B5095047402 10/25/2014 10/25/2015 EACH OCCURRENCE $ 5,000,000 EXCESS LIAB CLAIMS-MADE AGGREGATE $ 5,000,000 PEP RETENTION $ ^ S WORKERS COMPENSATION PER OTH- AND EMPLOYERS’ LIABILITY Y/N a ANY PROPRIETOR/PARTNER/EXECUTIVE | 1 , E.L. EACH ACCIDENT $ OFFICER/MEMBER EXCLUDED? N/A (Mandatory in NH) 1 1 E.L. DISEASE - EA EMPLOYEE $ If yes, describe under DESCRIPTION OF OPERATIONS below E.L. DISEASE - POLICY LIMIT $ B Products Liability N14CA380080 10/25/2014 10/25/2015 $5,000,000 Limit per Agg/occ Retention: $10,000 Occurrence $50,000 Aggregate DESCRIPTION OF OPERATIONS / LOCATIONS I VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached if more space Is required) Certificate holder is included as additional insured pursuant to written agreement with the insured. Referenced policies are primary and non-contributory with respect to other applicable insurance. Blanket waiver of subrogation applies. The isnured will provide 30 days advance notice to certificate holder of any relevant changes or cancellations to the referenced policies. CERTIFICATE HOLDER CANCELLATION Kilrov Realty Corporation SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN 3611 Valley Centre Drive, Suite 250 ACCORDANCE WITH THE POLICY PROVISIONS. San Diego, California 92130 Attention: Mr. Brian Galligan authorized representative OfWV/L The ACORD name and logo are registered marks of ACORD 1988-2014 ACORD CORPORATION. All rights reserved.


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ID:308346 SID:8642666 Certificate of Insurance (Con’t) OTHER Coverage INSR TYPE OF INSURANCE ADDL WVD POLICY NUMBER EFFECTIVE DATE EXPIRATION DATE LIMIT LTR INSR SUBR (MM/DD/YY) (MM/DD/YY) A Business Personal Property B5092189401 10/25/2014 10/25/2015 $204,000 Limit $1,000 Ded Special Form, Replacement Cost A Employee Dishonesty B5092189401 10/25/2014 1 0/25/2015 525,000 Limit Ded A Business Income Extra B5092189401 10/25/2014 10/25/2015 12 months actual loss sustained Expense Certificate of Insurance-Con’t


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CERTIFICATE OF LIABILITY INSURANCE | 1/20/2015 I I THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). producer ; ‘ “ NAME?07 L-u Padua Commercial Lines - (650)413-4200 phone /ccm /in Anay P=ax IA/C. No. Ext): (b5°) 413-4287 I (A/C. No); Wells Fargo Insurance Services USA, Inc. - CA Lie#: 0D08408 address: techcertrequests@wellsfargo.com 959 Skyway Road insurer(S) affording coverage naic« San Carlos, CA 94070 insurer A: Continental Casualty Company 20443 INSURED insurer B: Medmarc Casualty Insurance Company 22241 Evofem, Inc. INSURER C : 8910 University Center Lane, S _ INSURER D i INSURER E : San Diego CA 92122 insurer f : COVERAGES CERTIFICATE NUMBER: 8642660 REVISION NUMBER: See below THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSRl r- IADDLISUBRI POLICY EFF POLICY EXP LTR TYPE OF INSURANCE INSD WVD POLICY NUMBER (MM/DD/YYYY) (MM/DD/YYYY) LIMITS A X COMMERCIAL GENERAL LIABILITY y x R5D92189401 10/95/9014 10/95/9015 EACH OCCURRENCE $ 2,000,000 I [VI DAMAGE TO RENTED . ... ... | CLAIMS-MADE OCCUR PREMISES (Ea occurrence) $ 1.°°°’°°° ___ MED EXP (Any one person) $ 10,000 I PERSONAL &ADV INJURY $ 2,000,000 GEN’L AGGREGATE LIMIT APPLIES PER: GENERAL AGGREGATE _$ 4,000,000 X POLICY JECT LOC PRODUCTS COMP/OP AGG $ Excluded OTHER: * A AUTOMOBILE LIABILITY X X B5092189401 10/25/2014 10/25/2015 PEa^cddent)SINGLE UM’T $ 1,000,000 ANY AUTO BODILY INJURY (Per person) $ AUTOS^ED AUTORULED BODILY INJURY (Per accident) S NON-OWNED PROPERTY DAMAGE I HIRED AUTOS AUTOS (Per accident) ; $ A X UMBRELLA LIAB OCCUR B5095047402 10/25/2014 10/25/2015 EACH OCCURRENCE $ 5,000,000 EXCESS LIAB CLAIMS-MADE AGGREGATE $ 5,000,000 PEP RETENTION S ^ $ WORKERS COMPENSATION PER OTH- AND EMPLOYERS’ LIABILITY y / N STATUTE |_ER ANY PROPRIETOR/PARTNER/EXECUTIVE I 1 E.L. EACH ACCIPENT $ OFFICER/MEMBER EXCLUDED? N / A (Mandatory In NH) E.L. PISEASE - EA EMPLOYEE $ If yes, describe under DESCRIPTION OF OPERATIONS below E.L. DISEASE - POLICY LIMIT | $ B Products Liability N14CA380080 10/25/2014 10/25/2015 $5,000,000 Limit per Agg/Occ Retention: $10,000 Occurrence $50,000 Aggregate DESCRIPTION OF OPERATIONS I LOCATIONS I VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached If more space is required) Certificate holder is included as additional insured pursuant to written agreement with the insured. Referenced policies are primary and non-contributory with respect to other applicable insurance. Blanket waiver of subrogation applies. The isnured will provide 30 days advance notice to certificate holder of any relevant changes or cancellations to the referenced policies. CERTIFICATE HOLDER CANCELLATION RELATIONAL INVESTORS LLC SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE i ‘ THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN 12400 High Bluff, Suite 600 ACCORDANCE WITH THE POLICY PROVISIONS. San Diego, California 92130 Attention: Jay Sitlani authorized representative I The ACORD name and logo are registered marks of ACORD © 1988-2014 ACORD CORPORATION. All rights reserved. ACORD 25 (2014/01) (This certificate replaces certificate# 8636293 Issued on 1/15/2015)


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CID: 308346 SID:8642660 Certificate of Insurance (Con’t) OTHER Coverage INSR TYPE OF INSURANCE ADDL WVD POLICY NUMBER EFFECTIVE DATE EXPIRATION DATE LIMIT LTR INSR SUBR (MM/DD/YY) (MM/DD/YY) A Business Personal Property B5092189401 10/25/2014 10/25/2015 $204,000 Limit Ded Special Form, Replacement Cost A Employee Dishonesty B5092189401 10/25/2014 10/25/2015 $25,000 Limit $1,000 Ded A Business Income Extra B5092189401 10/25/2014 10/25/2015 12 months actual loss sustained Expense Certificate of Insurance-Con’t ~ “ ~ ~ —— — _
Certificate of Insurance (Con’t)


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DATE (MM/DD/YYYY)- acW CERTIFICATE OF LIABILITY INSURANCE THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder Is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER CONTACT NAME: Risk Management Department Aon Risk Services Northeast, Inc. PH0NE Tf^ , , New York NY Office (ajc. No, Ext): (/vc, No): (boo) 889-0021 199 Water Street address: work.comp@tfinet.com New York, NY 10038-3551 ‘ ~ INSURER(S) AFFORDING COVERAGE NAIC # INSURED INSURER A: Commerce & Industry Ins Co 19410 TriNet HR Corporation and all its affiliates and subsidiaries* Labor Contractor for Evofem, Inc. INSURER B: Illinois National Ins Co 23817 9000 Town Center Parkway INSURER C: ins Co State of Penn 19429 Bradenton, FL 34202 INSURER D: Nat’l Union Fire Ins Co of Pittsburgh, PA 19445 INSURER E: New Hampshire Ins Co 23841 INSURER F: COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. Limits shown are as requested LTRR TYPE OF INSURANCE POLICY NUMBER (MM/DD/YYYY) (MM/DD/YYYY) LIMITS GENERAL LIABILITY EACH OCCURRENCE S DAMAGE TO RENTED COMMERCIAL GENERAL LIABILITY PREMISES (Ea occurrence) $ CLAIMS-MADE | | OCCUR MED EXP (Any one person) S PERSONAL & ADV INJURY $ GENERAL AGGREGATE $ GEN’L AGGREGATE LIMIT APPLIES PER: PRODUCTS-COMP/OP AGG $ I POLICY I | PROJECT | | LOC a,,-™..™,, ci COMBINED SINGLE LIMIT AUTOMOBILE LIABILITY (Each accident) $ 1 ANY AUTO BODILY INJURY (Per person) $ ALL OWNED SCHEDULED BODILY INJURY (Per AUTOS AUTOS accident) | $ NON-OWNED PROPERTY DAMAGE HIRED AUTOS AUTOS (Per accident) $ UMBRELLA LIAB OCCUR EACH OCCURRENCE $ EXCESS LIAB CLAIMS-MADE AGGREGATE $ DED | | RETENTIONS B workers COMPENSATION 060334675 (NJ) 11/03/2014 07/01/2015 X oth’ R AND EMPLOYERS’LIABILITY Y/N nfiD334?Rfi (Wh 10/01/2014 07/01/2015 TORY LIMITS ER U ANY PROPRIETOR/PARTNER/EXECUTIVE I , UDUCS (VVIJ IU/UIWUI4 U//U IO $2,000,000 D OFFICER/MEMBER EXCLUDED? I N/A 060334145 (CA) 10/01/2014 07/01/2015 EACH ACCIDi’N.1. - (Mandatory In NH) E.L.DISEASE-EA EMPLOYEE $2,000,000 If yes, describe under S2 000 000 DESCRIPTION OF OPERATIONS below E.L. PISEASE-POL1CY LIMIT I 9 ‘ ‘ DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space Is required): 9C7B / IOO * TriNet HR II, Inc. and TriNet HR V, Inc. CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED Relational InuPQtnrQ I I C BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE V\, . L,... DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. Attn: Jay Sitlam 12400 High Bluff authorized representative ®te Aon Risk Services Northeast, Inc. San Diego, CA 92130 ACORD 25 (2010/05) The ACORD name and logo are registered marks of ACORD © 1988-2010 ACORD CORPORATION. All rights reserved. CERTIFICATE OF LIABILITY INSURANCE


LOGO

DATE (MM/DD/YYYY) *£3*^ CERTIFICATE OF LIABILITY INSURANCE 01/16/2015 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder Is an ADDITIONAL INSURED, the pollcy(les) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER CONTACT name: Risk Management Department Aon Risk Services Northeast, Inc. phone Tfax New York NY Office (A/C, No. Ext): (866)443-8489 (A/C, No): (800)889-0021 199 Water Street ADDRESS: worl(.comp@tfinet.cQin New York, NY 10038-3551 INSURER(S) AFFORDING COVERAGE NAIC # INSURED INSURER A: Commerce & Industry Ins Co 19410 TriNet HR Corporation and all its affiliates and subsidiaries* Labor Contractor for Evofem, Inc. INSURER B: Illinois National Ins Co 23817 9000 Town Center Parkway INSURER C: Ins Co state of Penn 19429 Bradenton, FL 34202 INSURER D: Nat’l Union Fire Ins Co of Pittsburgh, PA 19445 INSURER E: New Hampshire Ins Co 23841 INSURER F: ‘ COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. Limits shown are as requested INSR tvpp np iki<51 irakipp ADDL SUBR poi ipy KJIIMRFR POLICY EFF POLICY EXP LIMITS LTR TYPE OF INSURANCE INSR WVD POLICY NUMBER (MM/DDA’YYY) (MM/DD/YYYY) GENERAL LIABILITY EACH OCCURRENCE S DAMAGE TO RENTED COMMERCIAL GENERAL LIABILITY PREMISES (Ea occurrence) $ CLAIMS-MADE | | OCCUR MED EXP (Any one person) $ PERSONAL &ADV INJURY $ ^ZZZZZZZZZHZZII GENERAL AGGREGATE $ GEN’L AGGREGATE LIMIT APPLIES PER: PRODUCTS-COMP/OP AGG $ | POLICY | ) PROJECT | |LOC AUTOMOBILE LIABILITY COMBINED SINGLE LIMIT (Each accident) 3> ANY AUTO BODILY INJURY (Per person) $ ALL OWNED SCHEDULED BODILY INJURY (Per AUTOS AUTOS accident) $ HIRED AUTOS NON-OWNED PROPERTY DAMAGE AUTOS (Per accident) $ UMBRELLA LIAB OCCUR EACH OCCURRENCE $ EXCESS LIAB CLAIMS-MADE AGGREGATE $ pep i [ retention $ ZZZZZZZZZZZZZZIIZZ_ZZZZ B workers compensation 060334675 (NJ) 11/03/2014 07/01/2015 y Iwcstatu- I oth- B ^“p^S’R^ISuTtvE 060334286 (Wl) 10/01/2014 07/01/2015 lT0RYLIMIIg D OFFICER/MEMBER excluded? | n/a 060334145 (CA) 10/01/2014 07/01/2015 E.L. EACH accident (Mandatory in NH) E L.DISEASE-EA EMPLOYEE $2,000,000 If yes, describe under non 000 DESCRIPTION OF OPERATIONS below E.L. DISEASE-PQLICY LIMIT »*.uuu,uuu DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space Is required)! 9C7B / IOO * TriNet HR II, Inc. and TriNet HR V, Inc. CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED Kilrov Realtv Corporation before the expiration date thereof, notice will be all r~t ‘ L DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. Attn: Brian Galltgan 3611 Valley Centre Dr authorized representative Ste 250 ^on Services Northeast, Inc. San Diego, CA 92130 ACORD 25 (2010/05) The ACORD name and logo are registered marks of ACORD © 1988-2010 ACORD CORPORATION. All rights reserved CERTIFICATE OF LIABILITY INSURANCE


EXHIBIT S-G

SUBLEASE DEFINED TERMS

The following terms are defined in the Sublease at the pages indicated below (all other capitalized terms used but not defined in the Sublease shall have the meanings given to those terms in the Overlease)

 

Term

   Page No  

Additional Services

     17  

Additional Subrent

     4  

Adjustment Date

     5  

Base Subrent

     4  

Broker

     15  

Computer Room

     3  

Early Access Date

     2  

Event of Default

     21  

Execution Date

     1  

FF&E

     20  

Fixturizing

     2  

Guarantor

     24  

Guaranty

     24  

include

     23  

Lease Month

     4  

Letter of Credit

     4  

Overlandlord

     1  

Overlease

     1  

Overtenant

     1  

Second Amendment

     1  

Security Deposit Laws

     6  

Shared Occupancy Period

     3  

Standard Overlandlord Consent

     24  

Stated Amount

     4  

Sublandlord

     1  

Sublandlord Office Area

     3  

Sublandlord’s Rent

     17  

Sublease

     1  

Sublease Commencement Date

     2  

Sublease Expiration Date

     2  

Sublease Term

     2  

Subpremises

     1  

Subrent

     4  

Subtenant

     1  

Third Amendment

     1  

Underlying Mortgage

     19  

 

176

Exhibit S-G


Woman Care Global

     14  

Woman Care Global Sublease

     14  

 

2

Exhibit S-G


EXHIBIT S-H

SUBLEASE GUARANTY

THIS SUBLEASE GUARANTY (“ Guaranty ”) is made by EvoMed LLC, a Delaware limited liability company (“ Guarantor ”) in favor of RELATIONAL INVESTORS LLC, a Delaware limited liability company (“ Sublandlord ”) in connection with that certain Office Sublease dated January 30, 2015_the “Sublease”) pursuant to which Sublandlord is to sublease to EVOFEM INC., a Delaware corporation (“ Subtenant ”) certain premises located at 12400 High Bluff Drive, Suite 600, San Diego, California (the “ Subpremises ”).

A. Sublandlord requires this Guaranty as a condition to its execution of the Sublease and the performance of the obligations to be performed under the Sublease by Sublandlord.

B. Guarantor has agreed to provide this Guaranty to induce Sublandlord to enter into the Sublease with Subtenant and perform its obligations under the Sublease.

In consideration of Sublandlord’s agreement to execute the Sublease and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor does hereby agree with Sublandlord as follows:

1. The Sublease is hereby incorporated into and made a part of this Guaranty by this reference.

2. Guarantor hereby unconditionally guarantees, as a primary obligor and not as a surety, without deduction by reason of setoff, defense or counterclaim, the full and punctual payment of all sums of rent and other amounts payable under the Sublease and the full and punctual performance of all terms, covenants and conditions in the Sublease to be kept, performed and/or observed by Subtenant. Guarantor’s obligations under this Guaranty are continuing and unconditional.

3. Guarantor hereby agrees that, without the consent of or notice to Guarantor and without affecting any of the obligations of Guarantor hereunder: (a) the Sublease may be extended and any other term, covenant or condition of the Sublease may be amended, compromised, released or otherwise altered by Sublandlord and Subtenant, and Guarantor does guarantee and promise to perform all the obligations of Subtenant under the Sublease as so extended, amended, compromised, released or altered; (b) any guarantor of or party to the Sublease may be released, substituted or added; (c) any right or remedy under the Sublease may be exercised, not exercised, impaired, modified, limited, destroyed, or suspended; (d) Sublandlord or any other person may deal in any manner with Subtenant, any guarantor, any party to the Sublease or any other person; (e) Sublandlord may permit Subtenant to holdover the Subpremises beyond the Sublease Term; and (f) all or any part of the Subpremises or of Subtenant’s rights or liabilities under the Sublease may be sublet, assigned or assumed. Without in any way limiting the foregoing, Guarantor agrees not to unreasonably withhold its consent to any sub-sublease, assignment of the Sublease or other modification of the Sublease which is agreed to by Sublandlord and Subtenant.

 

1

Exhibit S-H


4. Guarantor hereby waives and agrees not to assert or take advantage of: (a) any right to require Sublandlord to proceed against Subtenant, or any other guarantor or person or to pursue any other security or remedy before proceeding against Guarantor; (b) any defense based on the genuineness, validity, regularity or enforceability of the Sublease; (c) any right or defense that may arise by reason of the incapacity, lack of authority, death or disability of Subtenant or any other person; and (d) any right or defense arising by reason of the absence, impairment, modification, limitation, destruction or cessation (in bankruptcy, by an election of remedies, or otherwise) of the liability of Subtenant, of the subrogation rights of Guarantor or of the right of Guarantor to proceed against Subtenant for reimbursement. Without limiting the generality of the foregoing, Guarantor hereby waives any and all benefits of the provisions of Sections 2809, 2810 and 2845 of the California Civil Code and any similar or analogous statutes of California or any other jurisdiction.

5. Guarantor hereby waives and agrees not to assert or take advantage of (a) any right or defense based on the absence of any or all presentments, demands (including demands for performance), notices (including notices of any adverse change in the financial status of Subtenant, notices of any other facts which increase the risk to Guarantor, notices of non-performance and notices of acceptance of this Guaranty) and protests of each and every kind; (b) the defense of any statute of limitations in any action under or related to this Guaranty or the Sublease; (c) any right or defense based on a lack of diligence or failure or delay by Sublandlord in enforcing its rights under this Guaranty or the Sublease.

6. Guarantor hereby waives and agrees not to assert or take advantage of any right to (a) exoneration if Sublandlord’s actions shall impair any security or collateral of Guarantor; (b) any security or collateral held by Sublandlord; (c) require Sublandlord to proceed against or exhaust any security or collateral before proceeding against Guarantor; (d) require Sublandlord to pursue any right or remedy for the benefit of Guarantor. Without limiting the generality of the foregoing, Guarantor hereby waives any and all benefits of the provisions of Sections 2819, 2849 and 2850 of the California Civil Code and any similar or analogous statutes of California or any other jurisdiction.

7. Guarantor shall not, without the prior written consent of Sublandlord, commence, or join with any other person in commencing, any bankruptcy, reorganization or insolvency proceeding against Subtenant. Guarantor’s obligations under this Guaranty shall in no way be affected by any bankruptcy, reorganization or insolvency of Subtenant or any successor or assignee of Subtenant or by any disaffirmance or abandonment of the Sublease or any payment under this Guaranty by a trustee of Subtenant in any bankruptcy proceeding including, without limitation, any impairment, limitation, or modification of the liability of Subtenant or the estate of Subtenant in bankruptcy, or of any remedy for the enforcement of Subtenant’s liability under the Sublease resulting from the operation of any present or future provision of any federal or state bankruptcy or insolvency law or other statute or from the decision of any court. Guarantor shall file in any bankruptcy or other proceeding in which the filing of claims is required or permitted by law all claims which Guarantor may have against Subtenant relating to any indebtedness of Subtenant to Guarantor and will assign to Sublandlord all rights of Guarantor thereunder. Sublandlord shall have the sole right to accept or reject any plan proposed in such proceeding and to take any other action which a party filing a claim is entitled to do. In all such cases,

 

2

Exhibit S-H


whether in administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to Sublandlord the amount payable on such claim and, to the full extent necessary for that purpose, Guarantor hereby assigns to Sublandlord all of Guarantor’s rights to any such payments or distributions to which Guarantor would otherwise be entitled; provided, however, that Guarantor’s obligations hereunder shall not be satisfied except to the extent that Sublandlord receives cash by reason of any such payment or distribution. If Sublandlord receives anything hereunder other than cash, the same shall be held as collateral for amounts due under this Guaranty.

8. Until all the Subtenant’s obligations under the Sublease are fully performed, Guarantor: (a) shall have no right of subrogation or reimbursement against the Subtenant by reason of any payments or acts of performance by Guarantor under this Guaranty; (b) subordinates any liability or indebtedness of the Subtenant now or hereafter held by Guarantor to the obligations of the Subtenant under, arising out of or related to the Sublease or Subtenant’s use of the Subpremises; and (c) acknowledges that the actions of Sublandlord may affect or eliminate any rights of subrogation or reimbursement of Guarantor as against Subtenant without any liability or recourse against Sublandlord. Without limiting the generality of the foregoing, Guarantor hereby waives any and all benefits of the provisions of Section 2848 of the California Civil Code and any similar or analogous statutes of California or any other jurisdiction.

9. Prior to the execution of this Guaranty and at any time during the Term of the Sublease upon ten (10) days prior written notice from Sublandlord, Guarantor agrees to provide Sublandlord with Guarantor’s most recent financial statement and financial statements for Guarantor for the two (2) years prior to the most recent financial statement year to the extent not previously delivered to Sublandlord. Guarantor’s financial statements are to be prepared in accordance with the normal practice of Guarantor, including if such practice is to have the financial statements audited by an independent certified public accountant. Guarantor represents and warrants that all such financial statements shall be true and correct statements of Guarantor’s financial condition.

10. The liability of Guarantor and all rights, powers and remedies of Sublandlord hereunder and under any other agreement now or at any time hereafter in force between Sublandlord and Guarantor relating to the Sublease shall be cumulative and not alternative and such rights, powers and remedies shall be in addition to all rights, powers and remedies given to Sublandlord by law.

11. This Guaranty applies to, inures to the benefit of and binds all parties hereto, their heirs, devisees, legatees, executors, administrators, representatives, successors and assigns. This Guaranty may be assigned by Sublandlord voluntarily or by operation of law.

12. This Guaranty shall constitute the entire agreement between Guarantor and the Sublandlord with respect to the subject matter hereof. No provision of this Guaranty or right of Sublandlord hereunder may be waived nor may any guarantor be released from any obligation hereunder except by a writing duly executed by an authorized officer, director or trustee of Sublandlord. The waiver or failure to enforce any provision of this Guaranty shall not operate as a waiver of any other breach of such provision or any other provisions hereof. No course of

 

3

Exhibit S-H


dealing between Sublandlord and Subtenant shall alter or affect the enforceability of this Guaranty or Guarantor’s obligations hereunder.

13. Guarantor hereby agrees to indemnify, protect, defend and hold Sublandlord harmless from and against, all losses, costs and expenses including, without limitation, all interest, default interest, post-petition bankruptcy interest and other post-petition obligations, late charges, court costs and attorneys’ fees, which may be suffered or incurred by Sublandlord in enforcing or compromising any rights under this Guaranty or in enforcing or compromising the performance of Subtenant’s obligations under the Sublease.

14. The term “Sublandlord” whenever hereinabove used refers to and means the Sublandlord in the foregoing Sublease specifically named and also any assignee of said Sublandlord, whether by outright assignment or by assignment for security, and also any successor to the interest of said Sublandlord or of any assignee of such Sublease or any part thereof, whether by assignment or otherwise. The term “Subtenant” whenever hereinabove used refers to and means the Subtenant in the foregoing Sublease specifically named and also any assignee or sub-subtenant of said Sublease and also any successor to the interests of said Subtenant, assignee or sub-subtenant of such Sublease or any part thereof, whether by assignment, sublease or otherwise including, without limitation, any trustee in bankruptcy and any bankruptcy estate of Subtenant, Subtenant’s assignee or sub-subtenant.

15. If Guarantor shall become bankrupt or insolvent, or any application shall be made to have Guarantor declared bankrupt or insolvent, or Guarantor shall make an assignment for the benefit of creditors, notice of such occurrence or event shall be promptly furnished to Sublandlord by Guarantor or Guarantor’s fiduciary. This Guarantee shall extend to and be binding upon Guarantor’s successors and assigns, including, but not limited to, trustees in bankruptcy and Guarantor’s estate.

16. Any notice, request, demand, instruction or other communication to be given to any party hereunder shall be in writing and sent by registered or certified mail, return receipt requested in accordance with the notice provisions of the Sublease. The Subtenant shall be deemed Guarantor’s agent for service of process and notice to Guarantor delivered to the Subtenant at the address set forth in the Sublease shall constitute proper notice to Guarantor for all purposes. Notices to Sublandlord shall be delivered to Sublandlord’s address set forth in the Sublease. Sublandlord, at its election, may provide an additional notice to Guarantor at the address provided under Guarantor’s signature below.

17. If either party hereto participates in an action against the other party arising out of or in connection with this Guaranty, the prevailing party shall be entitled to have and recover from the other party reasonable attorneys’ fees, collection costs and other costs incurred in and in preparation for the action. Guarantor hereby waives any right to trial by jury and further waives and agrees not to assert or take advantage of any defense based on any claim that any arbitration decision binding upon Sublandlord and Subtenant is not binding upon Guarantor.

18. Guarantor agrees that all questions with respect to this Guaranty shall be governed by, and decided in accordance with, the laws of the State of California.

 

4

Exhibit S-H


19. Should any one or more provisions of this Guaranty be determined to be illegal or unenforceable, all other provisions shall nevertheless be effective.

20. Time is strictly of the essence under this Guaranty and any amendment, modification or revision hereof.

21. If more than one person signs this Guaranty, each such person shall be deemed a guarantor and the obligation of all such guarantors shall be joint and several. When the context and construction so requires, all words used in the singular herein shall be deemed to have been used in the plural. The word “person” as used herein shall include an individual, company, firm, association, partnership, corporation, trust or other legal entity of any kind whatsoever.

22. If Guarantor is a corporation, each individual executing this Guaranty on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Guaranty on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the by-laws of said corporation, and that this Guaranty is binding upon said corporation in accordance with its terms. If Guarantor is a corporation, Sublandlord, at its option, may require Guarantor to concurrently, with the execution of this Guaranty, deliver to Sublandlord a certified copy of a resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Guaranty.

23. Without limiting the generality of any of the covenants and agreements of the Guarantor set forth above in this Guaranty, Guarantor hereby waives any and all benefits of the provisions of Section 2822 of the California Civil Code and any similar or analogous statutes of California or any other jurisdiction.

 

5

Exhibit S-H


THE UNDERSIGNED HAS READ AND UNDERSTANDS THE TERMS AND CONDITIONS CONTAINED IN THIS GUARANTY INCLUDING, WITHOUT LIMITATION, ALL WAIVERS CONTAINED IN THIS GUARANTY.

Executed on this                      day of January, 2015.

 

EVOMED LLC ,

a Delaware limited liability company

By:  

 

      Print Name:                                                                          
      Print Title:                                                                             
 
By:  

 

      Print Name:                                                                          
      Print Title:                                                                             

 

6

Exhibit S-H


EXHIBIT S-I

WOMAN CARE GLOBAL SUBLEASE

[ATTACHED]

 

1

Exhibit S-I


SUBLEASE

by and between

EVOFEM, INC.,

a Delaware corporation

as Sublandlord

and

WomanCare Global Trading Inc.

a Delaware corporation

as Subtenant

Dated: January 30, 2015


TABLE OF CONTENTS

 

               Page  

1.

   Sublease of Subpremises; Sublease Term; Shared Occupancy      2  
   1.1    Sublease of Subpremises      2  
   1.2    Sublease Term      2  
   1.3    Delivery Date      2  
   1.4    Shared Occupancy      3  
   1.5    Shared Occupancy      3  

2.

   Subrent      3  
   2.1    Base Subrent      3  
   2.2    Additional Subrent      3  
   2.3    Additional Consideration      4  

3.

   Incorporation of Overlease      5  
   3.1    General      5  
      3.1.1    Defined Terms      5  
      3.1.2    Exclusions      7  
      3.1.3    Amendments for Purposes of Sublease Incorporation of Overlease :      7  
      3.1.4    Other      13  
      3.1.5    Dispute Resolution      13  
      3.1.6    Representations and Warranties      14  
      3.1.7    Interaction of Sublease and Overlease      14  
      3.1.8    Notices      14  
   3.2    Compliance with Overlease      14  
   3.3    Abatement Rights      14  
   3.4    Payment of Sublandlord’s Rent      15  
   3.5    Rights and Benefits Under Overlease      15  
   3.6    Additional Costs      15  
   3.7    Overlandlord’s Performance      15  
   3.8    Preservation of Overlease and Office Sublease      15  
   3.9    Consents      16  
   3.10    Representations and Warranties      16  

4.

   Interaction of Estates; Effect on Overlandlord and Overtenant      16  
   4.1    Priorities      16  
   4.2    Event of Default      16  
   4.3    Termination of Overlease, Reentry or Repossession      16  
   4.4    No Effect on Overlease, Overlandlord      17  
   4.5    Termination of Overlease      17  
   4.6    Termination of Office Sublease, Reentry or Repossession      18  
   4.7    No Effect on Office Sublease, Overtenant      18  
   4.8    Termination of Office Sublease      18  

Sublease - WomanCare Global Trading

12400 High Bluff Drive

 

i


5.    Leasing Covenants    19
   5.1       Delivery; FF&E; Surrender    19
   5.2       Insurance    19
   5.3       Default; Remedies    20
   5.4       Signage    20
   5.5       Parking    20
   5.6       Refurbishment Allowance    21
6.    Miscellaneous    21
   6.1       Defined Terms    21
   6.2       Attorneys’ Fees    21
   6.3       Further Assurances    21
   6.4       Interpretation    21
   6.5       Execution    21
   6.6       Assignment of Overlease    21
   6.7       Overlandlord’s and Overtenant’s Consent    21
   6.8       Financial Statements    22

Sublease - WomanCare Global Trading

12400 High Bluff Drive

 

ii


SUBLEASE

This SUBLEASE (the “ Sublease ”) is entered into as of January 30, 2015 (the “ Execution Date ”) by and between EVOFEM INC., a Delaware corporation (“ Sublandlord ”), and WOMANCARE GLOBAL TRADING INC. a Delaware corporation (“ Subtenant ”).

W I T N E S S E T H

WHEREAS, Relational Investors LLC is the tenant (“ Overtenant ”) under that certain lease dated as of June 1, 2004 between Kilroy Realty, L.P., a Delaware limited partnership (“ Overlandlord ”) and Relational Advisors LLC, and Relational Investors, LLC as amended by that certain (i) First Amendment to Office Lease dated as of July 23, 2004, (ii) Release Agreement dated December 22, 2005, (iii) Second Amendment to Office Lease (“ Second Amendment ”) dated May 1, 2014, and (iv) Third Amendment to Office Lease (“ Third Amendment ”) dated December 31, 2014 (collectively, the “ Overlease ”). A copy of the Overlease is attached hereto as Exhibit S-A;

WHEREAS, Relational Advisors LLC assigned its rights and interests under the Overlease to Overtenant pursuant to that certain Confidential Separation Agreement, effective as of November 10, 2005;

WHEREAS, pursuant to the Overlease, Overlandlord demised to Overtenant the “Premises” (as defined and described in the original Overlease) located in the “Building” (as defined and described in the Overlease);

WHEREAS, pursuant to the Second Amendment, the Overlease with respect to the portion of the original Premises consisting of the “Expiration Space” (as defined and described in the Second Amendment) expired as of November 30, 2014, and as of December 1, 2014, the “Premises” under the Overlease became solely the “Remaining Premises” (as defined and described in the Second Amendment, and more particularly in Section 2.1 thereof), consisting of approximately 15,784 rentable (14,414 usable) square feet of space located at 12400 High Bluff Drive, Suite 600, San Diego, California 92130;

WHEREAS, Sublandlord is the sub-tenant under that certain Office Sublease dated as of January 30, 2015 by and between Overtenant and Sublandlord (“Office Sublease”) whereby Sublandlord has subleased from Overtenant all of the Remaining Premises, and Overlandlord has consented to the Office Sublease. A copy of the Office Sublease is attached hereto as Exhibit S-B .

WHEREAS, Subject to the Overlease and the Office Sublease, Sublandlord desires to sublease to Subtenant, and Subtenant desires to sublease from Sublandlord, subject to the terms of this Sublease, a portion of the Remaining Premises (herein referred to as the “ Subpremises ”). The description of the Subpremises have been agreed upon by the parties and may be adjusted pursuant to Section 1.5.

 

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NOW, THEREFORE, in consideration of the mutual covenants contained in this Sublease, and for valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the parties agree as follows.

1. Sublease of Subpremises; Sublease Term; Shared Occupancy.

1.1 Sublease of Subpremises. Subject to the terms and conditions of this Sublease, Sublandlord subleases the Subpremises to Subtenant, and Subtenant subleases the Subpremises from Sublandlord, for the Sublease Term.

Pursuant to the Second Amendment, Overlandlord has the obligation to demise the Subpremises from the Expiration Space (as defined in the Second Amendment). Subtenant acknowledges that, pursuant to Section 2.3 of the Second Amendment, Overlandlord’s space planner/architect is to measure the rentable square feet of the Subpremises following such demising, and that the determination of Overlandlord’s space planner/architect will be conclusive and binding. Except as expressly set forth otherwise herein, Base Subrent and all other obligations hereunder that are based on the rentable square footage of the Subpremises shall be retroactively adjusted to reflect the results of such measurement. Without limiting any other provisions of this Sublease, the Office Sublease or the Overlease, Subtenant also acknowledges that the construction work to be performed by Overlandlord pursuant to the Second Amendment may involve noise, dust and other disturbances to Subtenant, and that Subtenant will have no rent abatement or other claims against Sublandlord relating to same.

1.2 Sublease Term. Subject to the terms hereof (including, but not limited to, Section 1.3 below), the “ Sublease Term ” shall (a) commence on the date (the “ Sublease Commencement Date ”) that is the later of: (i) February 1, 2015, or (ii) one (1) business day after the date when Overlandlord delivers to Overtenant and Sublandlord a consent to this Sublease executed by Overlandlord and Overtenant in accordance with Section  6.7 hereof and (b) expire upon the expiration date of the Overlease (i.e., March 31, 2020) (the “ Sublease Expiration Date ”). Subtenant acknowledges and agrees that Overtenant has no obligation to, and does not intend to, exercise the options to extend the current term of the Overlease set forth in Section 4.2 of the Second Amendment.

1.3 Delivery Date. The Subpremises shall be delivered to the Subtenant on the Sublease Commencement Date; provided, however, that prior to the Sublease Commencement Date and so long as (i) Overlandlord and Overtenant have executed a consent to this Sublease in accordance with Section  6.7 hereof, and (ii) Subtenant has delivered the insurance certificate in accordance with Section  5.2 hereof, Subtenant and its contractors and consultants shall be permitted to enter the Subpremises with no obligation to pay Subrent until the Sublease Commencement Date except as set forth below, to install cabling, equipment, telecommunications, computers and furniture (collectively, “ Fixturizing ”) and to use the Subpremises for conduct of Subtenant’s business in accordance with this Sublease. The first date on which the Subpremises is first accessed under this Section  1.3 shall be the “ Early Access Date ”. Subtenant shall hold Overtenant and Sublandlord harmless from and indemnify, protect and defend Overtenant and Sublandlord from and against any Claim relating to or arising out of any loss or damage to the Building, or Subpremises, or any injury to any persons, that results from Subtenant’s access to the Premises pursuant to this Section  1.3 . Additionally, if Subtenant uses the Subpremises for

 

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conducting Subtenant’s business prior to the Sublease Commencement Date, then Subtenant hereby agrees that it shall abide by the terms and conditions set forth in this Sublease during that time as if the Sublease Term had commenced; provided, however, that during the period prior to the Sublease Commencement Date, in lieu of the Base Subrent set forth in Section 2.1 below, Subtenant shall pay to Sublandlord an amount equal to One Thousand Dollars ($1,000.00) per month, divided by the number of days of such person’s occupancy, for each person who occupies the Subpremises during such period.

1.4 Shared Occupancy. Notwithstanding anything in this Sublease to the contrary, Sublandlord shall have the right to occupy the Remaining Premises not included in the Sublease Premises and to share portions of the Sublease Premises with Subtenant. Sublandlord and Subtenant shall share use the conference rooms, kitchens, patios and similar areas within the Remaining Premises, subject to availability and Sublandlord’s reasonable requirements relating to same. Sublandlord and Subtenant and their employees and invitees shall have a right to walk through the Subpremises and the rest of the Remaining Premises to the extent reasonably necessary to get to and from the Subpremises to the remainder of the Building and (z) Subtenant shall have the right to use portions of the Computer Room and the conduits serving same to the extent reasonably necessary in connection with Subtenant’s information systems provided that such use doesn’t interfere with or otherwise adversely affect Overtenant’s and Sublandlord’s use of the Computer Room and doesn’t result in any additional costs or expenses to Sublandlord.

While acknowledging that the Subpremises and the remainder of the Remaining Premises will not be separated by a demising wall or other such physical barrier, Sublandlord and Subtenant each agrees to respect and maintain the privacy and confidentiality of the other party’s business and to reasonably cooperate with the other party in implementing any reasonable security measures, procedures or protocols intended to ensure such privacy and confidentiality.

1.5 Shared Occupancy. On or around the anniversary of the Sublease Commencement Date Sublandlord and Subtenant shall meet and confer and negotiate in good faith whether based upon their individual needs for the following year there will be a change in the description of the Subpremises and a corresponding change in Base Subrent and Additional Consideration set forth in Sections 2.1 and 2.2 below. In the event the parties cannot come to agreement regarding any proposed change in the Subpremises either party may terminate this Sublease with 90 days advance written notice.

2. Subrent. Subtenant agrees to pay Sublandlord rent under this Sublease (the “ Subrent ”) in

the following amounts at the following times, prorated daily for partial periods:

2.1 Base Subrent. Subject to the last sentence of Section 1.3 above, Subtenant shall pay “ Base Subrent ” to Sublandlord for the Subpremises in monthly installments from and after the Sublease Commencement Date through the Expiration Date, in the corresponding amount for each such month (each a “ Lease Month” ) set forth on Exhibit S-C attached hereto.

2.2 Additional Subrent. From and after the Sublease Commencement Date through the Expiration Date, Subtenant shall pay to Sublandlord, as “ Additional Subrent ,” one half of all amounts (other than the Base Rent) payable to Overlandlord under the Overlease, including but not limited to Tenant’s Share of Direct Expenses thereunder. Notwithstanding anything in the

 

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foregoing to the contrary, Additional Subrent shall exclude any charges to the extent such charges arise from (i) goods or services provided to or work performed for the benefit of Sublandlord, or (ii) the willful misconduct of Sublandlord. Subtenant shall pay each such item of Additional Subrent at least three (3) business days before the Overlease and the Office Sublease requires Sublandlord to make such payment to Overlandlord.

2.3 Additional Consideration. Concurrently with Subtenant’s execution of this Sublease, Subtenant shall pay to Sublandlord as additional consideration for the Sublease the amount of Two Hundred Fifty Thousand Dollars ($250,000) (“ Additional Consideration ”). In the event Subtenant commits a default with respect to any provision of this Sublease, including the filing of a voluntary petition under Title 11 of the United States Code ( i.e., the Bankruptcy Code), or otherwise becomes a debtor in any case or proceeding under the Bankruptcy Code, as now existing or hereinafter amended, or any similar law or statute, Sublandlord may (but shall not be required to) apply all or any portion of the Additional Consideration and such proceeds shall constitute Sublandlord’s property (and not Subtenant’s property or the property of the bankruptcy estate of Subtenant) and Sublandlord may then use, apply or retain all or any part of the Additional Consideration (1) for the payment of any sum which is in default, (2) to reimburse Sublandlord for costs incurred by Sublandlord in connection with this Sublease (including, without limitation, any brokerage commissions and attorneys’ fees), (3) for the payment of any other amount which Sublandlord may spend or become obligated to spend by reason of Subtenant’s default, (4) to compensate Sublandlord for any loss or damage which Sublandlord may suffer by reason of Subtenant’s default or (5) as prepaid rent to be applied against Subtenant’s Base Subrent obligations for the last month of the Sublease Term and the immediately preceding
month(s) of the Sublease Term until the Additional Consideration is exhausted. If any portion of the Additional Consideration is so used or applied, Subtenant shall, within ten (10) days after demand therefor, pay Sublandlord as increased Additional Consideration an amount to cause the aggregate amount of the unused portion of the Additional Consideration and the increase thereof to equal Two Hundred Fifty Thousand Dollars ($250,000), and such additional amounts shall become part of the Additional Consideration. Sublandlord shall not be required to keep the Additional Consideration separate from its general funds. The Additional Consideration or any remaining amount thereof held by Sublandlord, after any use, application or retention of same by Sublandlord permitted by this Section 2.3, shall be returned to Subtenant or, at Sublandlord’s option, to the last assignee of Subtenant’s interest hereunder, within sixty (60) days following (a) the expiration of the Sublease Term or (b) any earlier termination of this Sublease, provided that the Office Sublease and the Overlease have also been terminated, Overlandlord and Overtenant have fully released Sublandlord and all guarantors of the Office Sublease and the Overlease from liability under the Office Sublease and the Overlease and such guarantees and Overtenant and Overlandlord have returned to Sublandlord all deposits and other amounts due Sublandlord under the terms of the Office Sublease and the Overlease.

Pursuant to the Office Sublease the Stated Amount (as defined therein) of the Sublandlord’s Letter of Credit provided by the Sublandlord to the Overtenant can be reduced on the Adjustment Dates (as defined therein). Promptly following each Adjustment Date under the Office Sublease, Sublandlord shall return to Subtenant a portion of the Additional Consideration

 

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equal to one-half of the amount of the reduction in the Stated Amount of the Sublandlord’s Letter of Credit under the Office Sublease on each Adjustment Date.

The use, application or retention of the Additional Consideration and/or the proceeds or any portion thereof, shall not prevent Sublandlord from exercising any other rights or remedies provided under this Sublease, it being intended that Sublandlord shall not be required to apply any amount of the Additional Consideration, and such use, application or retention of any portion of the Additional Consideration shall not operate as a limitation on any recovery to which Sublandlord may otherwise be entitled. No trust relationship is created herein between Sublandlord and Subtenant with respect to the Additional Consideration.

Sublandlord and Subtenant acknowledge and agree that in no event or circumstance shall the Additional Consideration, and any increase thereof be (i) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a “security deposit” within the meaning of such Section 1950.7. The parties hereto (A) recite that the Additional Consideration is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (“ Security Deposit Laws ”) shall have no applicability or relevancy thereto and (B) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws. Notwithstanding the foregoing, to the extent California Civil Code Section 1950.7 in any way: (a) is applicable to this Sublease or the Additional Consideration; or (b) controls Sublandlord’s rights to apply the Additional Consideration to any amounts due under the Sublease or any damages Sublandlord may suffer following termination of this Sublease, then Subtenant fully and irrevocably waives the benefits and protections of Section 1950.7 of the California Civil Code, it being agreed that Sublandlord may recover from the Additional Consideration all of Sublandlord’s damages under this Sublease and California law including, but not limited to, any damages accruing upon the termination of this Sublease in accordance with this Sublease and Section 1951.2 of the California Civil Code.

3. Incorporation of Overlease.

3.1 General. The Overlease, as it relates to the Subpremises, is incorporated by reference in this Sublease, except as follows.

3.1.1 Defined Terms. Wherever the Overlease refers to a term in the left-hand column of the following table, this Sublease shall be deemed to refer to the adjacent term in the right-hand column of the table. All other defined terms in the Overlease shall be deemed appropriately modified, as necessary to reflect the circumstances of this Sublease.

 

Each Reference to:    Shall be Deemed Replaced by a Reference to:
Additional Rent    Additional Subrent
Base Rent    Base Subrent
Landlord    Sublandlord; except:

 

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Each Reference to:    Shall be Deemed Replaced by a Reference to:
  

“Landlord” shall be deemed replaced by a reference to “Sublandlord, Overtenant and Overlandlord” for purposes of the following provisions: (1) Section 6.6, (2) the fourth sentence of Section 7.1, (3) Section 10.5, (4) the first sentence of Section 11.1, (5) Article 28 and (6) Section 29.32.

 

“Landlord” shall be replaced with “Sublandlord or Overtenant or Overlandlord” for purposes of the following provisions: (1) Section 5.3, and (2) Section 10.1.

 

“Landlord” shall be deemed replaced by “Overlandlord” for purposes of the following provisions: (1) Section 4.2.4, (2) Section 4.2.5.1, (3) Section 4.2.5.2, (4) Section 4.2.5.4, (5) the last sentence of Section 4.4.2, (6) Section 4.5.1, (7) Section 4.5.2, (8) Article 6, (9) the first sentence of Section 7.1, (10) Section 10.2, (11) Section 11.1 except for the reference in the first sentence thereof, (12) Section 11.2, (13) Article 23, (14) Section 29.15, (15) 29.26, (16) Section 29.30 except for the reference in the first sentence thereof, and (17) Section 29.34.

Landlord Parties    Sublandlord, Overtenant and Overlandlord Parties
Lease   

Sublease; except:

 

“Lease” shall be replaced by “Sublease, Office Sublease and Overlease” for purposes of Section 29.28.

Lease Expiration Date    Sublease Expiration Date
Lease Term    Sublease Term
Lease Commencement Date    Sublease Commencement Date (except for purposes of Sections 4.2.4 and 4.2.5)
Premises    Subpremises

 

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Each Reference to:    Shall be Deemed Replaced by a Reference to:
Sublease    Sub-Sublease
Tenant    Subtenant
Tenant Parties    Subtenant Parties

In addition to the foregoing replacements, to the extent any capitalized terms used in the Overlease are defined herein, such terms shall be given the meanings ascribed to them in this Sublease.

3.1.2 Exclusions. The following Sections, Articles, Exhibits and Amendments of the Overlease shall not be incorporated herein by reference or otherwise apply to this Sublease: the preamble of the Overlease, Sections 1.2, 2.2, 4.2.5.5, 4.2.7, 4.6, 6.7 and 7.2 and Articles 18, 21, 22 and 23, Exhibits B, G and H, the First Amendment to Office Lease and Sections 2.2, 3.1(a), 3.1(c), 3.2, 4.2, 5.2, 9, 11 and Exhibit B to the Second Amendment.

3.1.3 Amendments for Purposes of Sublease Incorporation of Overlease. For purposes of incorporation herein, only, the following amendments are made to the Overlease.

A. The following sections of the “Summary of Basic Lease Information” in Section 1 of the Overlease are hereby amended and restated in their entirety as follows:

 

   

TERMS OF SUBLEASE

  

DESCRIPTION

1.       Date:    January 30, 2015
2.       Subpremises:   
      2.2    Subpremises:    As determined by parties and subject to adjustment pursuant to Section 1.5.
3.       Sublease Term ( Article 2 ):   
      3.1     Length of Time:    Approximately five (5) years and two (2) months.
      3.2     Sublease Commencement Date:    The date that is the later of: (i) February 1, 2015, or (ii) one (1) business day after the date when Overtenant delivers to Sublandlord a consent to this Sublease executed by Overlandlord and Overtenant in accordance with Section 6.7 of the Office Sublease and Section 6.7 of this Sublease.

 

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   3.3     Sublease Expiration Date:    March 31, 2020.
4.    Base Subrent ( Article 3 ):    As set forth on Exhibit S-C to the Sublease.
5.    Base Year:    2015.
6.    Tenant’s Share:    Approximately 7.5536%.
8.    [Intentionally Omitted]   
9.    Parking Pass Ratio ( Article 28 , as amended by Paragraph 8 of the Second Amendment):    Four and one-half (4  1 2 ) parking passes for every 1,000 rentable square feet of the Subpremises, fourteen (14) of which may be for use on reserved covered parking spaces individually designated for particular employees of Subtenant and the balance of which may be for use on non-reserved parking spaces, all as more particularly set forth in Article 28 and the Second Amendment. Notwithstanding anything to the contrary contained herein, Overtenant shall, retain the exclusive rights granted to it pursuant to the Office Sublease, and Subtenant shall have the right to use approximately one half of the remaining available parking passes and reserved spaces as may be allocated by Sublandlord in its reasonable discretion, or as otherwise agreed to between Sublandlord and Subtenant
10.    Address of Subtenant (Section 29.18):   

Prior to Sublease Commencement Date:

 

WomanCare Global Trading Inc.

8910 University Center Lane,

Suite 120

San Diego, CA 92122

Attention: Karen Jordan

 

After Sublease Commencement Date:

 

WomanCare Global Trading Inc.

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Karen Jordan

 

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11.       Addresses of Sublandlord, Overtenant and Overlandlord:   
 

    11.1    Address of Sublandlord:

  

Prior to Sublease Commencement Date:

 

EvoFem Inc.

8910 University Center Lane,

Suite 120

San Diego, CA 92122

Attention: Chief Financial Officer

 

After Sublease Commencement Date:

 

EvoFem Inc.

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Chief Financial Officer

 

with copy to:

 

K&L Gates LLP

1 Park Plaza, Twelfth Floor

Irvine, CA 92614

Attn: Adam C. Lenain

      11.2    Address of Overtenant   

Prior to Sublease Commencement Date:

 

Relational Investors LLC

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Jay Sitlani

 

After Sublease Commencement Date:

 

Relational Investors LLC

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Jay Sitlani

      11.3    Address of Overlandlord:   

Kilroy Realty Corporation

12200 West Olympic Boulevard,

Suite 200

Los Angeles, California 90064

Attention: Legal Department

 

with copies to:

 

Kilroy Realty Corporation

 

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12200 West Olympic Boulevard,

Suite 200

Los Angeles, California 90064

Attention: Mr. John Fucci

 

And

 

Kilroy Realty Corporation

3611 Valley Centre Drive, Suite 250

San Diego, California 92130

Attention: Mr. Brian Galligan

 

And

 

Allen Matkins Leck Gamble & Mallory LLP

1901 Avenue of the Stars, Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

B. Section 1.1.1 is hereby amended by deleting the following phrase: “and in the Tenant Work Letter attached hereto as Exhibit B (the “ Tenant Work Letter ”)” in its entirety.

C. Section 2.1 is hereby amended by deleting the following parentheticals: (i) “(i.e., December 15, 2004)”, (ii) “(i.e., November 30, 2005)”, and (iii) “(i.e., December 1st)”, in their entirety.

D. Article 3 is hereby amended by (i) deleting the phrase “in advance on or before the first day of each and every calendar month during the Lease Term” and replacing it with “in advance on or before the third to last day of the preceding calendar month for each and every Sublease Month during the Sublease Term”; and (ii) deleting the last two sentences in the article.

E. Section 4.2.4 is hereby amended by deleting the second proviso in clause (iii).

F. The first sentence of Section 4.4.1 is hereby amended and restated in its entirety as follows: “Sublandlord shall give to Subtenant following the end of each Expense Year, but in no event later than thirty (30) days after Sublandlord receives the corresponding statement from Overtenant under the Office Sublease or Overlandlord under the Overlease, a statement (the “ Statement ”) which shall state in general major categories the Building Direct Expenses incurred or accrued for the Base Year or such preceding Expense Year, as applicable, and which shall indicate the amount of Excess.”

G. The first sentence of Section 4.4.2 is hereby amended and restated in its entirety as follows: “In addition, Sublandlord shall give Subtenant a yearly expense estimate statement (the “ Estimate Statement ”), but in no event later than thirty (30) days after Sublandlord

 

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receives the corresponding statement from Overtenant under the Office Sublease or Overlandlord under the Overlease, which shall set forth in general major categories, Overlandlord’s commercially reasonable estimate (the “ Estimate ”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “ Estimated Excess ”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year.”

H. Section 6.3 is hereby amended by deleting, in its entirety, the final sentence in the Section.”

I. Section 8.1 is hereby amended by’ deleting the last sentence in the Section in its entirety.

J. Section 8.5 is hereby amended by deleting the following phrase in its entirety “, and/or (ii) remove any “Above Building Standard Tenant Improvements,” as that term is defined in Section  2.4 of the Tenant Work Letter, located within the Premises and replace the same with then existing “Building Standard Tenant Improvements,” as that term is defined in Section  23 of the Tenant Work Letter”.

K. The first sentence of Section 10.1 is hereby amended and restated in its entirety as follows: “To the extent not prohibited by law and except as otherwise expressly provided herein to the contrary, Subtenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Subpremises from any cause whatsoever and agrees that the Overtenant and Overlandlord, their partners, subpartners and their respective officers, agents, servants employees, and independent contractors (collectively, “ Overtenant Parties and Overlandlord Parties ”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Subtenant or other persons claiming through Subtenant.”

L. Section 10.3.2(ii) is hereby amended by deleting the following phrase: “the “Tenant Improvements,” as that term is defined in Section  2.1 of the Tenant Work Letter” in its entirety.

M. Section 10.4 is hereby amended and restated in its entirety as follows:

10.4 Form of Policies . The minimum limits of policies of insurance required of Subtenant under this Sublease shall in no event limit the liability of Subtenant under this Sublease. Such insurance shall (i) name the Sublandlord, the Overtenant, the Overlandlord, and any other party the Sublandlord, Overtenant, or Overlandlord so specify that has a material financial interest in the Project, as an additional insured, including Overlandlord’s managing agent, if any; (ii) specifically cover the liability assumed by Subtenant under this Sublease, including, but not limited to, Subtenant’s obligations under 10.1 of the Overlease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Sublandlord, Overtenant and Overlandlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Sublandlord, Overtenant and Overlandlord is excess and is non-contributing with any insurance requirement of Subtenant; (v) be in form and content

 

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reasonably acceptable to Sublandlord, Overtenant and Overlandlord; and (vi) provide that said insurance shall not be cancelled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Sublandlord, Overtenant and Overlandlord and any mortgagee of Overlandlord, the identity of whom has been provided to the Subtenant in writing. Subtenant shall deliver certificates of said policy or policies to the Sublandlord, Overtenant and the Overlandlord prior to the Execution Date and at least thirty (30) days before the expiration dates thereof. In the event Subtenant shall fail to procure such insurance, or to deliver such policies or certificates, Sublandlord, or Overtenant, or Overlandlord may, at their option, after written notice to the Subtenant and Subtenant’s failure to obtain such insurance within five (5) days thereafter, procure such policies for the account of the Subtenant, and the cost thereof shall be paid to Sublandlord, Overtenant or Overlandlord, as the case may be, within thirty (30) days after delivery to Subtenant of bills therefor.

N. Section 14.2 is hereby amended by replacing each reference to Landlord with Overtenant and Landlord, and adding the following to the last paragraph in the Section:

“Sublandlord and Subtenant hereby acknowledge Woman Care Global’s right to occupy portions of the Subpremises shall be subject and subordinate to the provisions of the Office Sublease and the Overlease, and if the Office Sublease shall be terminated or if Subtenant is in default hereinafter (after expiration of any applicable notice and cure period), Woman Care Global’s right to occupy a portion of the Subpremises shall be immediately cancelled at the sole option of Overtenant.”

O. Article 16 is hereby amended by deleting the first sentence of the Section in its entirety and replacing it with the following:

“If Tenant holds over after the expiration of the Sublease Term or an earlier termination thereof, with or without the express or implied consent of the Sublandlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term. If Sublandlord or Subtenant holds over after the expiration of the Sublease Term or due to an earlier termination of the Office Sublease, Subrent shall be payable at a monthly rate equal to 150% of the Subrent applicable under the last rental period of the Sublease Term under the Office Sublease; provided, however, if Subtenant holds over after the Sublease Expiration Date of the Office Sublease such that Overtenant or Sublandlord will be deemed to be holding over under the Office Sublease or the Overlease, Subtenant will be responsible as Subrent due pursuant to this Sublease for any rent due under the Office Sublease and the Overlease for the Subpremises as a result of such holdover, such rent to include any applicable increases in rent pursuant to Article 16 of the Overlease.”

P. The first sentence of Article 27 is hereby amended and restated in its entirety as follows:

“Sublandlord, Overtenant and Overlandlord reserve the right at all reasonable times (during Building Hours with respect to items (i) and (ii) below) and upon at least twenty four (24) hours prior written notice to Subtenant (except in the case of an emergency) to enter the Subpremises to (i) inspect them; (ii) show the Subpremises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or during the last

 

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twelve (12) months of the Sublease Term, to prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Subpremises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment.”

Q. Section 29.18 is hereby amended by (1) deleting the second sentence in the Section in its entirety and replacing it with the following: “Any Notice shall be sent, transmitted, or delivered, as the case may be, to Subtenant at the appropriate address set forth in Section  10 of the Summary, or to such other place as Subtenant may from time to time designate in a Notice to Sublandlord, or to Sublandlord at the address set forth in Section  11.1 of the Summary, or to such other places as the Sublandlord may from time to time designate in a Notice to Subtenant.” and (2) deleting the final sentence of the Section and replacing it with the following: “Any notices to the Overtenant or the Overlandlord shall be sent, transmitted or delivered, as the case may be, to the address listed in Section  11.2 or 11.3 as applicable of the Summary or to such other places as the Sublandlord, Overtenant, or Overlandlord may from time to time designate in a Notice to Subtenant.”

R. Section 29.24 is hereby amended and restated in its entirety as follows:

“Sublandlord and Subtenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Sublease, and that they know of no real estate broker or agent who is entitled to a commission in connection with this Sublease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent occurring by, through, or under the indemnifying party.

3.1.4 Other. In addition, this Sublease does not incorporate by reference any other terms of the Overlease that, by their nature or purpose, are inapplicable or inappropriate to the subleasing of the Subpremises.

3.1.5 Dispute Resolution. Wherever the Overlease provides a dispute resolution procedure or a procedure to determine any matter relevant to this Sublease, and provided Subtenant is not in default of any provision of this Sublease, Overtenant, Sublandlord and Subtenant shall reasonably cooperate in exercising Sublandlord’s rights under or otherwise complying with such procedure pursuant to the Office Sublease and the Overlease, and Overtenant’s rights shall be Overtenant, Sublandlord and Subtenant’s joint rights unless Overtenant assigns all of its rights to Sublandlord. All out of pocket costs (including, but not limited to, attorneys’ fees and costs) reasonably incurred by Overtenant, Sublandlord and Subtenant in complying with such procedure shall be shared equally between Overtenant, Sublandlord and Subtenant unless Overtenant assigns all of its rights to Sublandlord in which case they shall be paid or reimbursed by Sublandlord and Subtenant. Subtenant shall have no separate right to invoke such procedure as between Sublandlord and Overtenant.

 

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3.1.6 Representations and Warranties. To the extent Overlandlord makes any representations and warranties in the Overlease: (a) Sublandlord represents and warrants to Subtenant that Sublandlord is not actually aware of any breach of such representations and warranties; and (b) if any such representations and warranties are breached, then Subtenant shall have no claim against Sublandlord except to the extent of an equitable allocation of any payment, settlement, or rent offset that Sublandlord and Subtenant may obtain from Overlandlord because of such breach. References herein to Sublandlord’s “knowledge” shall refer only to the current actual knowledge of Sublandlord, without duty of investigation or further inquiry.

Further, Sublandlord represents and warrants the Subpremises, including the improvements, fixtures, and furnishings therein, shall be broom clean on the earlier of the Early Access Date and the Sublease Commencement Date.

3.1.7 Interaction of Sublease and Overlease. Wherever this Sublease conflicts with an incorporated term of the Office Sublease or the Overlease, as incorporated in this Sublease, this Sublease shall govern, but wherever reasonably possible such a conflict shall be resolved by treating Subtenant’s and Sublandlord’s obligations under all three documents as cumulative.

3.1.8 Notices. Except as otherwise provided herein, the time limits contained in the Overlease for the giving of notices, curing defaults, making payments, or demands or performing any act, condition or covenant (i) on Overtenant’s part, are changed for the purpose of incorporation herein by reference by shortening the same in each instance by five (5) business days, so that Subtenant shall have less time to observe or perform under this Sublease than Sublandlord under the Office Sublease and Overtenant under the Overlease; provided, however, in no event shall Subtenant have less than two (2) business days to so observe or perform any such act, condition or covenant, and (ii) on Overlandlord’s and Overtenant’s part, are changed for the purpose of incorporation herein by reference by lengthening the same in each instance by three (3) business days, so that Overtenant and Sublandlord shall have more time to observe or perform under this Sublease than Overlandlord under the Overlease. If Sublandlord or Subtenant receives any notice or demand from Overtenant or Overlandlord relating to this Sublease or the Subpremises, said party shall promptly give a copy thereof to the other.

3.2 Compliance with Overlease. Subtenant agrees, solely for the benefit of Sublandlord, to be bound by, and to fully comply with all obligations of Sublandlord arising under, the Office Sublease, and all obligations of the Overtenant under the Overlease, including, but not limited to, all obligations relating to the surrender of the Subpremises to Overlandlord upon the expiration or earlier termination of the Office Sublease or the Overlease, except to the extent that this Sublease requires Sublandlord to perform any obligation under the Overlease (including Sublandlord’s payment of Sublandlord’s Rent under the Office Sublease and Overtenant’s payment of Rent under the Overlease, except as provided otherwise herein). Subtenant shall do nothing that violates the Office Sublease or the Overlease.

3.3 Abatement Rights. Subtenant may not assert against Overtenant or Sublandlord any right to abate rent that may exist under the Overlease, but if any such right becomes relevant for the Subpremises, then Sublandlord, at Subtenant’s request, shall use reasonable efforts to pursue such abatement. Subtenant shall be entitled to an abatement against Subrent only equal to the lesser of (a) the dollar amount of the abatement that Sublandlord actually recovers on behalf of

 

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Subtenant to the extent such abatement arises from Overlandlord’s acts and omissions and is allocated to the Sublease Term or (b) the amount of Subtenant’s Subrent for the portion of the Sublease Term that such abatement affects.

3.4 Payment of Sublandlord’s Rent. Except to the extent this Sublease requires Subtenant to pay portions of same directly to Overlandlord, and provided that Subtenant complies with its payment obligations and material nonmonetary obligations under this Sublease (including payment of all Subrent and Additional Consideration when and as due), Sublandlord shall pay Overtenant all rent required by the Office Sublease (“ Sublandlord’s Rent ”) within the applicable cure periods under the Office Sublease. This does not limit any express obligation of Subtenant in this Sublease to reimburse Sublandlord for any such rent or pay any other sum.

3.5 Rights and Benefits Under Overlease. To the extent not covered specifically in this Sublease and to the extent that they apply to the Subpremises, Subtenant shall have all the rights, privileges, and benefits granted to or conferred upon Overtenant as Tenant under the Overlease, and Sublandlord as Subtenant under the Office Sublease, provided Subtenant’s exercise of such rights, privileges, and benefits shall not cause Overtenant to be in default under the Overlease, or Sublandlord to be in default under the Office Sublease.

3.6 Additional Costs. To the extent Subtenant requires services beyond those provided for in this Sublease, Subtenant shall contract directly with and pay Overlandlord for such services. Such services may include additional cleaning; freight car service; and loading dock security services (the “ Additional Services ”). Subtenant shall indemnify Sublandlord and Overtenant for any costs associated with the Additional Services. If Overlandlord refuses to deal directly with Subtenant about Additional Services, then Sublandlord and Overtenant shall have no liability to Subtenant. Overtenant and Sublandlord shall have no responsibility for Overlandlord’s failure to provide Additional Services except as this Sublease expressly provides.

3.7 Overlandlord’s Performance. Wherever the Overlease (as incorporated by reference in this Sublease) or the Office Sublease would require Overtenant or Sublandlord to provide any benefit or service, Subtenant shall be entitled to receive such benefit or service directly from Overlandlord under the Overlease, and Overtenant and Sublandlord shall have no obligation to provide such benefit or service. Overtenant and Sublandlord shall have no liability to Subtenant, and Subtenant’s obligations under this Sublease shall not be reduced, restricted, diminished, or deferred, if Overlandlord fails to provide any service or benefit required under the Overlease, or to perform any obligation under the Overlease, unless both: (a) Subtenant is not in default under this Sublease; and (b) Overlandlord’s failure results from Overtenant’s default under the Overlease or Sublandlord’s default under the Office Sublease. Overtenant shall have no liability to Subtenant for Sublandlord’s default under the Office Sublease.

3.8 Preservation of Overlease and Office Sublease. Subject to any provision of this Sublease to the contrary, so long as Subtenant is not in default under this Sublease, Sublandlord shall, with respect to all periods within the Sublease Term: (a) preserve the Office Sublease and the Overlease and keep the Office Sublease and the Overlease in full force and effect; (b) not, without Subtenant’s written consent, agree to any amendment to the Office Sublease or the Overlease that would materially adversely affect Subtenant; (c) perform all its obligations under the Office Sublease and the Overlease, except any obligations Sublandlord contests in good faith

 

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in accordance with Sublandlord’s rights under the Office Sublease or the Overlease; and (d) pay Overtenant or Overlandlord any sums payable to Overtenant or Overlandlord on account of Sublandlord entering into the Office Sublease or this Sublease. Following any amendment of the Office Sublease or the Overlease the definition of “Office Sublease” or “ Overlease ” as applicable shall be deemed modified to reflect such amendment. Sublandlord shall continue to have the sole right to exercise any and all rights, privileges, and remedies under the Office Sublease and the Overlease provided such exercise does not materially and adversely affect the rights of Subtenant pursuant to this Sublease.

3.9 Consents. Wherever the Office Sublease requires Overtenant’s, or the Overlease requires Overlandlord’s, consent to any action or matter (including any such consent that would be required to be obtained from Overtenant or Overlandlord if such action or matter arose under the Office Sublease or the Overlease respectively), Subtenant must obtain Sublandlord’s Overtenant’s and Overlandlord’s consent to such action or matter. If Overtenant, Sublandlord or Overlandlord, consents to any action or matter requiring their consent but not otherwise expressly referred to in this Sublease, then neither Overtenant nor Sublandlord shall unreasonably withhold, condition or delay its consent to such action or matter.

3.10 Representations and Warranties. Sublandlord represents and warrants the Office Sublease is the entire agreement between Sublandlord and Overtenant relating to the Remaining Premises and is in full force and effect, and neither Sublandlord nor Overtenant is in default under the Office Sublease. Subtenant represents and warrants to Sublandlord that Subtenant has reviewed and is fully familiar with the Overlease, Office Sublease and the Subpremises. Except as this Sublease provides, neither party makes any representation or warranty about the Overlease, the Office Sublease, the Subpremises or any other matter.

4. Interaction of Estates; Effect on Overlandlord and Overtenant.

4.1 Priorities. This Sublease is unconditionally subject and subordinate to: (i) the Office Sublease as amended from time to time in compliance with this Sublease; (ii) the Overlease, as amended from time to time in compliance with the Office Sublease and this Sublease; (iii) all estates and interests to which the Office Sublease or the Overlease is subject and subordinate, including any and all underlying ground leases and mortgages affecting Overtenant’s and Overlandlord’s estate, all as amended or entered into from time to time; and (iv) all the terms, conditions and covenants of items “i” “ii” and “iii.” If, pursuant to the Overlease, Overlandlord or Overlandlord’s ground lessor(s) or mortgagee(s) request(s) additional documentation (consistent with such limitations and requirements, if any, as the Office Sublease or the Overlease provides) to confirm the foregoing subordination, then Subtenant shall promptly execute it.

4.2 Event of Default. Upon an Event of Default, as such term is defined in the Office Sublease or the Overlease, Overtenant and Overlandlord respectively may enforce the provisions of this Sublease, including collection of rent.

4.3 Termination of Overlease, Reentry or Repossession . In the event of termination of the Overlease for any reason, or in the event of any reentry or repossession of the Subpremises by Overlandlord, Overlandlord may, at its option, either (i) terminate this Sublease or (ii) take over

 

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all of the right, title and interest of Sublandlord, as sublessor, under such Sublease, in which case Subtenant shall attorn to Overlandlord, but nevertheless Overlandlord shall not (1) be liable for any previous act or omission of Overtenant or Sublandlord under the Office Sublease (without limiting Overlandlord’s obligation to cure a default under the Office Sublease or this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overlandlord once Subtenant has attorned to Overlandlord, and provided that in no event shall Overlandlord be liable to Subtenant for any damages that the Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), (2) be subject to any defense or offset previously accrued in favor of the Subtenant against Sublandlord (without limiting Overlandlord’s obligation to cure a default under this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overlandlord once Subtenant has attorned to Overlandlord, and provided that in no event shall Overlandlord be liable to Subtenant for any damages that Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), or (3) be bound by any previous modification of this Sublease made without Overlandlord’s written consent, or by any previous prepayment by Subtenant of more than one month’s rent. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee, ground lessor or beneficiary, affecting any mortgage now or hereafter in force against the Building or Project (an “ Underlying Mortgage ”) in order to make such subordination effective. Subtenant, however, shall within ten (10) days of written notice from Overlandlord, execute a commercially reasonable certificate or document that Overlandlord may reasonably request to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease. Notwithstanding the forgoing, the mortgagee, ground lessor or beneficiary of an Underlying Mortgage may elect, at any time by notice given to Subtenant, to subordinate such Underlying Mortgage to this Lease, and no further instrument of subordination shall be required to make such subordination of the Underlying Mortgage effective. Subtenant, however, shall execute promptly any certificate or document requested to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease.

4.4 No Effect on Overlease, Overlandlord. Notwithstanding anything to the contrary in this Sublease, including Overlandlord’s consent to this Sublease: (a) Overlandlord shall have no obligations of any kind to Subtenant; and (b) the Overlease remains in full force and effect between Overlandlord and Overtenant. Nothing in this Sublease (except upon termination of the Overlease if Overlandlord exercises its right to require Subtenant to recognize and attorn to Overlandlord) shall create any privity or contractual or landlord-tenant relationship of any kind between Overlandlord and Subtenant but Overlandlord shall be a third party beneficiary of Subtenant’s obligations under this Sublease that correspond to obligations of Sublandlord under the Overlease, and shall be entitled to enforce this Sublease.

4.5 Termination of Overlease. If the Overlease terminates for any reason, then, as between Sublandlord and Subtenant, the Sublease Term shall automatically terminate two minutes before such termination unless Overlandlord elects or agrees otherwise in writing. Sublandlord’s and Subtenant’s obligations, as between Sublandlord and Subtenant, under this Sublease shall automatically and immediately cease and terminate upon any such expiration of the Sublease Term, but this shall not limit (1) either party’s obligations and liability that accrued before the

 

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date of, or as a result of, such termination or (2) Sublandlord’s and Subtenant’s obligations to vacate the Remaining Premises and Subpremises respectively and return the Remaining Premises and Subpremises to Overlandlord in the condition required by the Overlease.

4.6 Termination of Office Sublease, Reentry or Repossession. In the event of termination of the Office Sublease for any reason, or in the event of any reentry or repossession of the Subpremises by Overtenant wherein Overlandlord has elected not to act, Overtenant may, at its option, either (i) terminate this Sublease or (ii) take over all of the right, title and interest of Sublandlord, as sublessor, under such Sublease, in which case Subtenant shall attorn to Overtenant, but nevertheless Overtenant shall not (1) be liable for any previous act or omission of Overtenant or Sublandlord under the Office Sublease (without limiting Overtenant’s obligation to cure a default under the Office Sublease or this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overtenant once Subtenant has attorned to Overtenant, and provided that in no event shall Overtenant be liable to Subtenant for any damages that the Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), (2) be subject to any defense or offset previously accrued in favor of the Subtenant against Sublandlord (without limiting Overtenant’s obligation to cure a default under this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overtenant once Subtenant has attorned to Overtenant, and provided that in no event shall Overtenant be liable to Subtenant for any damages that Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), or (3) be bound by any previous modification of this Sublease made without Overtenant’s written consent, or by any previous prepayment by Subtenant of more than one month’s rent. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee, ground lessor or beneficiary, affecting any Underlying Mortgage in order to make such subordination effective. Subtenant, however, shall within ten (10) days of written notice from Overtenant, execute a commercially reasonable certificate or document that Overtenant may reasonably request to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease.

4.7 No Effect on Office Sublease, Overtenant. Notwithstanding anything to the contrary in this Sublease, including Overtenant’s consent to this Sublease: (a) Overtenant shall have no obligations of any kind to Subtenant; and (b) the Overlease remains in full force and effect between Overlandlord and Overtenant. Nothing in this Sublease (except upon termination of the Office Sublease if Overtenant exercises its right to require Subtenant to recognize and attorn to Overtenant) shall create any privity or contractual or landlord-tenant relationship of any kind between Overtenant and Subtenant but Overtenant shall be a third party beneficiary of Subtenant’s obligations under this Sublease that correspond to obligations of Sublandlord under the Office Sublease or the Overlease, and Overtenant shall be entitled to enforce this Sublease.

4.8 Termination of Office Sublease. If the Office Sublease terminates for any reason, then, as between Sublandlord and Subtenant, the Sublease Term shall automatically terminate two minutes before such termination unless Overtenant elects or agrees otherwise in writing. Sublandlord’s and Subtenant’s obligations, as between Sublandlord and Subtenant, under this Sublease shall automatically and immediately cease and terminate upon any such expiration of the Sublease Term, but this shall not limit (1) either party’s obligations and liability that accrued

 

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before the date of, or as a result of, such termination or (2) Sublandlord’s and Subtenant’s obligations to vacate the Remaining Premises and Subpremises respectively and return the Remaining Premises and Subpremises to Overtenant in the condition required by the Office Sublease.

5. Leasing Covenants.

5.1 Delivery; FF&E; Surrender. Sublandlord shall deliver to Subtenant, and Subtenant shall accept, the Subpremises in its current “AS IS” condition and Sublandlord shall have no obligation, either as to payment or performance, to remodel or renovate the Subpremises or any portion thereof for Subtenant’s use. Sublandlord makes no representation or warranty as to the number of rentable square feet that constitute the Subpremises. Sublandlord shall deliver the Subpremises to the Subtenant vacant other than the furniture, fixtures and equipment Sublandlord may include at Sublandlord’s discretion or by separate agreement with Subtenant, (the “ FF&E ”). Any remodeling or renovation of the Subpremises required for Subtenant’s use thereof shall be the sole responsibility of Subtenant. Subtenant shall not perform any work or alterations in preparing the Subpremises for occupancy, or otherwise during the Sublease Term of this Sublease, without the prior written consent of Sublandlord, Overtenant and Overlandlord.

If the Subpremises are not tendered to Subtenant in the condition required hereby on or before the Sublease Commencement Date, for any reason whatsoever (other than Sublandlord’s willful, intentional and wrongful refusal to deliver such space and subject to the provisions of this Sublease), Sublandlord shall not be liable for any damage thereby, this Sublease shall not be void or voidable thereby, and the Sublease Term shall not commence until Sublandlord tenders possession thereof to Subtenant in the condition required hereby.

During the Sublease Term and subject to the rights of the Overtenant pursuant to the Office Sublease, Subtenant shall be entitled to use the FF&E allowed by the Sublandlord in its discretion or otherwise agreed upon by Sublandlord and Subtenant for no consideration other than the payment of the Sublease Rent. Subtenant acknowledges that no representations with respect to the condition of any of the FF&E have been made or will be made to Subtenant.

At the end of the Sublease Term Subtenant shall remove from the Subpremises all of Subtenant’s furniture, belongings, personal property, trash, debris, and all other movable items of any kind in accordance with the Overlease and shall perform, at its sole cost and expense, all other obligations under the Overlease relating to the surrender of the Subpremises. Without in any way limiting Subtenant’s obligations under Section 3.2 above or the other provisions of this Sublease, Subtenant acknowledges that it will be solely responsible for any holdover rent, indemnification obligations or other penalties or obligations under the Overlease arising from Subtenant’s failure to timely surrender the Subpremises and/or perform any other obligations under the Overlease relating to the surrender of the Subpremises.

5.2 Insurance. Subtenant shall provide all insurance required by Article 10 of the Overlease, as incorporated in this Sublease, for the Subpremises during the Sublease Term and shall deliver to Sublandlord upon execution of this Sublease and at least thirty (30) days before expiration of each insurance policy, certificates of such insurance. Such certificates shall: (a) designate Sublandlord, Overtenant and Overlandlord as additional insureds; and (b) provide that the

 

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insurance they evidence shall not be cancelled or terminated without thirty (30) days prior written notice to Sublandlord, Overtenant and Overlandlord. A copy of Subtenant’s initial certificate of insurance is attached hereto as Exhibit S-D.

5.3 Default; Remedies. Notwithstanding anything to the contrary in this Sublease, if Subtenant defaults in performing any obligation under this Sublease or commits a default under this Sublease, or the Office Sublease, including the terms of the Overlease as incorporated in this Sublease, then Subtenant shall remedy such default within the applicable cure period (if any as amended by the Sublease), which period shall automatically commence to run against Subtenant at the same time it commences to run against Sublandlord provided that (in the case of a default by Subtenant under the Overlease) Sublandlord gives Subtenant, with reasonable promptness after receipt by Sublandlord, a copy of Overlandlord’s notice of default. An “ Event of Default ” shall exist if (a) Subtenant fails to so remedy any such default, (b) an Event of Default occurs under the Overlease as a result of any breach, default or act by Subtenant, or (c) an Event of Default occurs under the Overlease as incorporated into this Sublease. If Subtenant fails to perform its obligations under this Sublease (including the Overlease as incorporated by reference), then Sublandlord shall be entitled to exercise against Subtenant all remedies provided for in the Overlease (as incorporated by reference) in the case of Sublandlord’s default under the Overlease, and any other remedies available at law or in equity. If an Event of Default occurs, then Sublandlord shall be entitled to exercise against Subtenant all remedies provided for in the Overlease (as incorporated by reference) in the case of Sublandlord’s Event of Default under the Overlease, and any other remedies available at law or in equity. To the extent that Subtenant’s default under this Sublease causes Sublandlord to incur liability to Overtenant or Overlandlord, or Overtenant to incur liability to Overlandlord or any loss, cost, damage or expense to Overlandlord, including payment of any holdover rent or other damages to Overlandlord, Subtenant shall indemnify, defend, and hold harmless Overtenant and Sublandlord against all such liability, loss, cost, damage, and expense, including the payment of reasonable attorneys’ fees.

5.4 Signage. Subtenant’s sublease of the Sublease Premises includes only some of Sublandlord’s rights under the Office Sublease and the Overlease to signage, subject to the terms and conditions of the Office Sublease and the Overlease and provided that Overtenant shall have the right to continue to be listed on one name strip in the Building’s directory during the period set forth in the Office Sublease. Sublandlord agrees to reasonably cooperate with Subtenant in connection with providing Subtenant with one name strip in the Building’s directory; provided, however, any costs associated with modifications to such signage or costs or fees payable to Sublandlord, Overtenant or Overlandlord in connection therewith shall be Subtenant’s sole cost and expense.

5.5 Parking. Except as set forth in the following sentence, Subtenant’s sublease of the Subpremises includes only a portion of Sublandlord’s parking rights under the Office Sublease, subject to the terms and conditions of the Office Sublease and the Overlease. Notwithstanding the foregoing, Overtenant shall, during the period set forth in the Office Sublease, retain the exclusive right to the use of the three (3) parking spaces numbered 1 through 3 as of the date of this Sublease.

 

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5.6 Refurbishment Allowance. Subtenant’s sublease of the Subpremises includes none of Sublandlord’s remaining rights under the Office Sublease and the Overlease to the “Refurbishment Allowance” referred to in Section 7 of the Second Amendment.

6. Miscellaneous.

6.1 Defined Terms. Capitalized terms used herein but not defined herein shall have the meanings given to them in the Overlease (as such terms may be modified by this Sublease). Exhibit S-E attached hereto provides a list of the terms defined in this Sublease.

6.2 Attorneys’ Fees. If this Sublease is the subject of any litigation (including litigation to enforce an indemnity), then the prevailing party shall be entitled to recover all costs incurred, including reasonable attorneys’ fees.

6.3 Further Assurances. Each party shall execute and deliver such further documents, and perform such further acts, as may be reasonably necessary to achieve the intent of the parties as expressed in this Sublease. In the case of the Overlandlord and Sublandlord, they agree to execute such documents as Subtenant’s lenders may reasonably require to preserve the lenders’ rights to access Subtenant’s personal property under certain circumstances (i.e., Landlord’s Consent to Removal of Personal Property.) Each party shall deliver reasonable estoppel certificates within ten days after request by the other party.

6.4 Interpretation. Although the first draft of this Sublease was prepared by Sublandlord, this Sublease shall not be construed against whichever party was the “drafter” of this Sublease. Wherever either party agrees not to unreasonably withhold consent to any matter, such consent shall not be unreasonably conditioned or delayed. The word “include” and its variants shall in each case be interpreted as if followed by the words: “without limitation.”

6.5 Execution. This Sublease shall not be effective in any way (or create any obligations of any kind) unless and until it has been executed and delivered by both parties and approved by Overtenant and Overlandlord. This Sublease or any amendment hereto may be executed by facsimile transmission or by email. Any party executing this Sublease or any amendment hereto by facsimile transmission or by email covenants to promptly deliver original executed counterparts of this Sublease (or amendment hereto) to the other party. This Sublease may be executed in counterparts.

6.6 Assignment of Overlease. If Overtenant assigns the Overlease, then Sublandlord shall simultaneously assign this Sublease to the same assignee and require such assignee to assume Overtenant’s obligations under this Sublease, and Overtenant shall be released from all of its obligations hereunder.

6.7 Overlandlord’s and Overtenant’s Consent. This Sublease shall be of no force or effect unless and until consented to by Overtenant and Overlandlord (which consent shall be deemed to include any consent to the sublease of parking spaces required under Article 28 of the Overlease, consent to the use of the Subpremises by employees of Subtenant’s affiliates as set forth in Section  3.10 hereof, and by Overtenant’s or Overlandlord’s executing either: (a) the Overtenant’s or Overlandlord’s respective Consent, provided that such standard form of sublease consent is

 

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unconditional (other than a condition requiring execution by Overtenant, Sublandlord or Subtenant) and irrevocable and does not require Subtenant or Sublandlord to make any payment or assume any material obligation not expressly required by this Sublease or by the express terms of the Office Sublease or the Overlease. Sublandlord shall promptly submit this fully executed Sublease to Overtenant and Overlandlord for their individual consent. Sublandlord shall promptly notify Subtenant if and when Overtenant or Overlandlord’s consent has been obtained. Sublandlord and Subtenant each agrees to execute the Overtenant’s and the Overlandlord’s consent if required by its terms. Notwithstanding anything to the contrary in this Sublease, Subtenant shall not enter into possession of the Subpremises unless and until Overtenant and Overlandlord shall have consented to this Sublease. Nothing in this paragraph shall expand Overlandlord’s or Overtenant’s right to withhold consent to this Sublease beyond any such rights as Overlandlord may have under the Overlease, or Overtenant under the Office Sublease.

6.8 Financial Statements. Prior to the Sublease Commencement Date Subtenant shall furnish to Sublandlord, Overtenant and Overlandlord its most current and most recent complete fiscal year financial statements for their review. Such financial statements shall be the financial statements Subtenant prepares for its own purposes.

No Further Text on This Page.

 

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IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the Execution Date.

SUBLANDLORD

EVOFEM, INC.,

a Delaware corporation

/s/ Saundra Pelletier                        

By: Saundra Pelletier, CEO

Date Executed: January 30, 2015

/s/ Chad Putnam                            

By: Chad Putnam, CFO

Date Executed: January 30, 2015

SUBTENANT

WOMANCARE GLOBAL TRADING INC.,

a Delaware corporation

/s/ Saundra Pelletier                        

By: Saundra Pelletier, CEO

Date Executed: January 30, 2015

/s/ Karen Jordan                            

By: Karen Jordan, VP Finance

Date Executed: January 30, 2015

 

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Attachments:

 

Exhibit S-A

       –       Overlease

Exhibit S-B

       –       Office Sublease

Exhibit S-C

       –       Subrent Schedule

Exhibit S-D

       –       Subtenant’s Initial Certificate of Insurance

Exhibit S-E

       –       Sublease Defined Terms

 

Sublease - WomanCare Global Trading

12400 High Bluff Drive

 

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EXHIBIT S-A

OVERLEASE

[Attached]

 

Sublease - WomanCare Global Trading

12400 High Bluff Drive

 

Exhibit S-A


EXHIBIT S-B

OFFICE SUBLEASE

[Attached]

 

Sublease - WomanCare Global Trading

12400 High Bluff Drive

 

Exhibit S-B


EXHIBIT S-C

BASE SUBRENT SCHEDULE

 

Period

  

Monthly Base Subrent

2/1/15 through 12/31/15

   $21,875.00 ($2.77/sq. ft.)

1/1/16 through 12/31/16

   $28,805.80 ($3.65/sq. ft.)

1/1/17 through 12/31/17

   $29,989.60 ($3.80/sq. ft.)

1/1/18 through 12/31/18

   $31,173.40 ($3.95/sq. ft.)

1/1/19 through 12/31/19

   $32,357.20 ($4.10/sq. ft.)

1/1/20 through 3/31/20

   $33,541.00 ($4.25/sq. ft.)

 

Sublease - WomanCare Global Trading

12400 High Bluff Drive

 

Exhibit S-C


EXHIBIT S-D

SUBTENANT’S INITIAL CERTIFICATE OF INSURANCE

[Attached]

 

Sublease - WomanCare Global Trading

12400 High Bluff Drive

 

Exhibit S-D


EXHIBIT S-E

SUBLEASE DEFINED TERMS

The following terms are defined in the Sublease at the pages indicated below (all other capitalized terms used but not defined in the Sublease shall have the meanings given to those terms in the Overlease)

 

Term

   Page No  

Additional Consideration

     4  

Additional Services

     15  

Additional Subrent

     3  

Base Subrent

     3  

Early Access Date

     2  

Estimated Excess

     10  

Event of Default

     20  

Execution Date

     1  

FF&E

     19  

Fixturizing

     2  

Lease Month

     3  

Overlandlord

     1  

Overlease

     1, 15  

Overtenant

     1  

Overtenant Parties and Overlandlord Parties

     11  

Second Amendment

     1  

Security Deposit Laws

     5  

Sublandlord

     1  

Sublandlord’s Rent

     14  

Sublease

     1  

Sublease Commencement Date

     2  

Sublease Expiration Date

     2  

Sublease Term

     2  

Subpremises

     1  

Subrent

     3  

Subtenant

     1  

Tenant Work Letter

     10  

Third Amendment

     1  

Underlying Mortgage

     17  

 

Sublease - WomanCare Global Trading

12400 High Bluff Drive

 

Exhibit S-E

Exhibit 10.55

FIRST AMENDMENT TO

SUBLEASE

This FIRST AMENDMENT TO SUBLEASE (this “ Amendment ”) is made and entered into as of February 22, 2017, by and between EVOFEM, INC., a Delaware corporation (“ Sublandlord ”), and WOMANCARE GLOBAL TRADING INC., a Delaware corporation (“ Subtenant ”), and amends that certain Sublease (as amended, the “ Sublease ”), dated as of January 30, 2015, by and between Sublandlord and Subtenant.

RECITALS

A.    Sublandlord and Subtenant entered into that certain Sublease, dated as of January 30, 2015, whereby Sublandlord subleases to Subtenant, and Subtenant subleases from Sublandlord, the Subpremises, located at 12400 High Bluff Drive, San Diego, California 92130.

B.    Pursuant to Section 1.5 of the Sublease, Sublandlord and Subtenant met and conferred regarding their individual needs subsequent to the anniversary of the Sublease Commencement Date and, after negotiation in good faith, Sublandlord and Subtenant desire to (i) reduce the size of the Subpremises and (ii) correspondingly amend and restate relevant sections of the Sublease to adjust the Base Subrent and Additional Subrent payable by Subtenant to Sublandlord for the Subpremises from and after February 1,2017 through the Expiration Date.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged and agreed, the parties hereby agree as follows:

1.     Capitalized Terms . All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Sublease unless expressly provided otherwise in this Amendment.

2.     Adjustment of Base Subrent and Additional Subrent . Pursuant to Section 1.5 of the Sublease, the parties have agreed to a reduction in the square footage of the Subpremises and, as such, the parties hereby agree to amend and restate the Sublease as follows:

a.     Base Subrent Schedule . Exhibit S-C of the Sublease is hereby amended and restated as follows:

BASE SUBRENT SCHEDULE

 

Period

 

Monthly Base Subrent

2/1/15 through 12/31/15

  $21,875.00 ($2.77/sq. ft.)

1/1/16 through 12/31/16

  $28,805.80 ($3.65/sq. ft.)

1/1/17 through 1/31/17

  $29,989.60 ($3.80/sq. ft.)

2/1/17 through 12/31/17

  $14,994.80 ($3.80/sq. ft.)

1/1/18 through 12/31/18

  $15,586.70 ($3.95/sq. ft.)

1/1/19 through 12/31/19

  $16,178.60 ($4.10/sq. ft.)

1/1/20 through 3/31/20

  $16,770.50 ($4.25/sq. ft.)


b.     Additional Subrent . Section 2.2 of the Sublease is hereby amended and restated as follows:

“2.2     Additional Subrent . From and after the Sublease Commencement Date through January 31, 2017, Subtenant shall pay to Sublandlord, as “ Additional Subrent ,” one half of all amounts (other than the Base Rent) payable to Overlandlord under the Overlease, including but not limited to Tenant’s Share of Direct Expenses thereunder. From and after February 1, 2017 through the Expiration Date, the Additional Subrent payable to Sublandlord pursuant to this Section 2.2 shall be one quarter of all amounts (other than the Base Rent) payable to Overlandlord under the Overlease, including but not limited to Tenant’s Share of Direct Expenses thereunder. Notwithstanding anything in the foregoing to the contrary, Additional Subrent shall exclude any charges to the extent such charges arise from (i) goods or services to or work performed for the benefit of Sublandlord, or (ii) the willful misconduct of Sublandlord. Subtenant shall pay each such item of Additional Subrent at least three (3) business days before the Overlease and the Office Sublease requires Sublandlord to make such payment to Overlandlord.

3.     Amendment and Ratification . The parties agree that the Sublease is hereby amended in accordance with the foregoing provisions of this Amendment. Except as specifically amended hereby, all terms, conditions, covenants, representations and warranties contained in the Agreement shall remain in full force and effect, and shall be binding upon each party to the Agreement.

4.     Counterparts . This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. This Amendment may be executed on signature pages exchanged by facsimile or electronic mail, which copies shall be equally as effective as delivery of an original executed counterpart of this Amendment.

[ Remainder of page intentionally left blank ]


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

SUBLANDLORD

EVOFEM, INC.,

a Delaware corporation

By:  

/s/ Jay File

Name:   Jay File
Title:   Chief Financial Officer
SUBTENANT

WOMENCARE GLOBAL TRADING INC.,

a Delaware corporation

By:  

/s/ Saundra Pelletier

Name:   Sandra Pelletier
Title:   Chief Executive Officer

Exhibit 10.56

SUBLEASE

by and between

EVOFEM, INC.,

a Delaware corporation

as Sublandlord

and

WomanCare Global Trading Inc.

a Delaware corporation

as Subtenant

Dated: January 30, 2015


TABLE OF CONTENTS

 

               Page  

1.

   Sublease of Subpremises; Sublease Term; Shared Occupancy      2  
   1.1    Sublease of Subpremises      2  
   1.2    Sublease Term      2  
   1.3    Delivery Date      2  
   1.4    Shared Occupancy      3  
   1.5    Shared Occupancy      3  

2.

   Subrent      3  
   2.1    Base Subrent      3  
   2.2    Additional Subrent      3  
   2.3    Additional Consideration      4  

3.

   Incorporation of Overlease      5  
   3.1    General      5  
      3.1.1 Defined Terms      5  
      3.1.2 Exclusions      7  
      3.1.3 Amendments for Purposes of Sublease Incorporation of Overlease      7  
      3.1.4 Other      13  
      3.1.5 Dispute Resolution      13  
      3.1.6 Representations and Warranties      14  
      3.1.7 Interaction of Sublease and Overlease      14  
      3.1.8 Notices      14  
   3.2    Compliance with Overlease      14  
   3.3    Abatement Rights      14  
   3.4    Payment of Sublandlord’s Rent      15  
   3.5    Rights and Benefits Under Overlease      15  
   3.6    Additional Costs      15  
   3.7    Overlandlord’s Performance      15  
   3.8    Preservation of Overlease and Office Sublease      15  
   3.9    Consents      16  
   3.10    Representations and Warranties      16  

4.

   Interaction of Estates; Effect on Overlandlord and Overtenant      16  
   4.1    Priorities      16  
   4.2    Event of Default      16  
   4.3    Termination of Overlease, Reentry or Repossession      16  
   4.4    No Effect on Overlease, Overlandlord      17  
   4.5    Termination of Overlease      17  
   4.6    Termination of Office Sublease, Reentry or Repossession      18  
   4.7    No Effect on Office Sublease, Overtenant      18  
   4.8    Termination of Office Sublease      18  

 

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5.    Leasing Covenants      19  
   5.1    Delivery; FF&E; Surrender      19  
   5.2    Insurance      19  
   5.3    Default; Remedies      20  
   5.4    Signage      20  
   5.5    Parking      20  
   5.6    Refurbishment Allowance      21  

6.

   Miscellaneous      21  
   6.1    Defined Terms      21  
   6.2    Attorneys’ Fees      21  
   6.3    Further Assurances      21  
   6.4    Interpretation      21  
   6.5    Execution      21  
   6.6    Assignment of Overlease      21  
   6.7    Overlandlord’s and Overtenant’s Consent      21  
   6.8    Financial Statements      22  

 

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SUBLEASE

This SUBLEASE (the “ Sublease ”) is entered into as of January 30, 2015 (the “ Execution Date ”) by and between EVOFEM INC., a Delaware corporation (“ Sublandlord ”), and WOMANCARE GLOBAL TRADING INC. a Delaware corporation (“ Subtenant ”).

W I T N E S S E T H

WHEREAS , Relational Investors LLC is the tenant (“ Overtenant ”) under that certain lease dated as of June 1, 2004 between Kilroy Realty, L.P., a Delaware limited partnership (“ Overlandlord ”) and Relational Advisors LLC, and Relational Investors, LLC as amended by that certain (i) First Amendment to Office Lease dated as of July 23, 2004, (ii) Release Agreement dated December 22, 2005, (iii) Second Amendment to Office Lease (“ Second Amendment ”) dated May 1, 2014, and (iv) Third Amendment to Office Lease (“ Third Amendment ”) dated December 31, 2014 (collectively, the “ Overlease ”). A copy of the Overlease is attached hereto as Exhibit S-A;

WHEREAS , Relational Advisors LLC assigned its rights and interests under the Overlease to Overtenant pursuant to that certain Confidential Separation Agreement, effective as of November 10, 2005;

WHEREAS , pursuant to the Overlease, Overlandlord demised to Overtenant the “Premises” (as defined and described in the original Overlease) located in the “Building” (as defined and described in the Overlease);

WHEREAS , pursuant to the Second Amendment, the Overlease with respect to the portion of the original Premises consisting of the “Expiration Space” (as defined and described in the Second Amendment) expired as of November 30, 2014, and as of December 1, 2014, the “Premises” under the Overlease became solely the “Remaining Premises” (as defined and described in the Second Amendment, and more particularly in Section 2.1 thereof), consisting of approximately 15,784 rentable (14,414 usable) square feet of space located at 12400 High Bluff Drive, Suite 600, San Diego, California 92130;

WHEREAS , Sublandlord is the sub-tenant under that certain Office Sublease dated as of January 30, 2015 by and between Overtenant and Sublandlord (“Office Sublease”) whereby Sublandlord has subleased from Overtenant all of the Remaining Premises, and Overlandlord has consented to the Office Sublease. A copy of the Office Sublease is attached hereto as Exhibit S-B .

WHEREAS , Subject to the Overlease and the Office Sublease, Sublandlord desires to sublease to Subtenant, and Subtenant desires to sublease from Sublandlord, subject to the terms of this Sublease, a portion of the Remaining Premises (herein referred to as the “ Subpremises ”). The description of the Subpremises have been agreed upon by the parties and may be adjusted pursuant to Section 1.5.

 

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NOW, THEREFORE , in consideration of the mutual covenants contained in this Sublease, and for valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the parties agree as follows.

1. Sublease of Subpremises; Sublease Term; Shared Occupancy.

1.1 Sublease of Subpremises. Subject to the terms and conditions of this Sublease, Sublandlord subleases the Subpremises to Subtenant, and Subtenant subleases the Subpremises from Sublandlord, for the Sublease Term.

Pursuant to the Second Amendment, Overlandlord has the obligation to demise the Subpremises from the Expiration Space (as defined in the Second Amendment). Subtenant acknowledges that, pursuant to Section 2.3 of the Second Amendment, Overlandlord’s space planner/architect is to measure the rentable square feet of the Subpremises following such demising, and that the determination of Overlandlord’s space planner/architect will be conclusive and binding. Except as expressly set forth otherwise herein, Base Subrent and all other obligations hereunder that are based on the rentable square footage of the Subpremises shall be retroactively adjusted to reflect the results of such measurement. Without limiting any other provisions of this Sublease, the Office Sublease or the Overlease, Subtenant also acknowledges that the construction work to be performed by Overlandlord pursuant to the Second Amendment may involve noise, dust and other disturbances to Subtenant, and that Subtenant will have no rent abatement or other claims against Sublandlord relating to same.

1.2 Sublease Term . Subject to the terms hereof (including, but not limited to, Section 1.3 below), the “ Sublease Term ” shall (a) commence on the date (the “ Sublease Commencement Date ”) that is the later of: (i) February 1, 2015, or (ii) one (1) business day after the date when Overlandlord delivers to Overtenant and Sublandlord a consent to this Sublease executed by Overlandlord and Overtenant in accordance with Section  6.7 hereof and (b) expire upon the expiration date of the Overlease (i.e., March 31, 2020) (the “ Sublease Expiration Date ”). Subtenant acknowledges and agrees that Overtenant has no obligation to, and does not intend to, exercise the options to extend the current term of the Overlease set forth in Section 4.2 of the Second Amendment.

1.3 Delivery Date . The Subpremises shall be delivered to the Subtenant on the Sublease Commencement Date; provided, however, that prior to the Sublease Commencement Date and so long as (i) Overlandlord and Overtenant have executed a consent to this Sublease in accordance with Section  6.7 hereof, and (ii) Subtenant has delivered the insurance certificate in accordance with Section  5.2 hereof, Subtenant and its contractors and consultants shall be permitted to enter the Subpremises with no obligation to pay Subrent until the Sublease Commencement Date except as set forth below, to install cabling, equipment, telecommunications, computers and furniture (collectively, “ Fixturizing ”) and to use the Subpremises for conduct of Subtenant’s business in accordance with this Sublease. The first date on which the Subpremises is first accessed under this Section  1.3 shall be the “ Early Access Date ”. Subtenant shall hold Overtenant and Sublandlord harmless from and indemnify, protect and defend Overtenant and Sublandlord from and against any Claim relating to or arising out of any loss or damage to the Building, or Subpremises, or any injury to any persons, that results from Subtenant’s access to the Premises pursuant to this Section  1.3 . Additionally, if Subtenant uses the Subpremises for

 

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conducting Subtenant’s business prior to the Sublease Commencement Date, then Subtenant hereby agrees that it shall abide by the terms and conditions set forth in this Sublease during that time as if the Sublease Term had commenced; provided, however, that during the period prior to the Sublease Commencement Date, in lieu of the Base Subrent set forth in Section 2.1 below, Subtenant shall pay to Sublandlord an amount equal to One Thousand Dollars ($1,000.00) per month, divided by the number of days of such person’s occupancy, for each person who occupies the Subpremises during such period.

1.4 Shared Occupancy. Notwithstanding anything in this Sublease to the contrary, Sublandlord shall have the right to occupy the Remaining Premises not included in the Sublease Premises and to share portions of the Sublease Premises with Subtenant. Sublandlord and Subtenant shall share use the conference rooms, kitchens, patios and similar areas within the Remaining Premises, subject to availability and Sublandlord’s reasonable requirements relating to same. Sublandlord and Subtenant and their employees and invitees shall have a right to walk through the Subpremises and the rest of the Remaining Premises to the extent reasonably necessary to get to and from the Subpremises to the remainder of the Building and (z) Subtenant shall have the right to use portions of the Computer Room and the conduits serving same to the extent reasonably necessary in connection with Subtenant’s information systems provided that such use doesn’t interfere with or otherwise adversely affect Overtenant’s and Sublandlord’s use of the Computer Room and doesn’t result in any additional costs or expenses to Sublandlord.

While acknowledging that the Subpremises and the remainder of the Remaining Premises will not be separated by a demising wall or other such physical barrier, Sublandlord and Subtenant each agrees to respect and maintain the privacy and confidentiality of the other party’s business and to reasonably cooperate with the other party in implementing any reasonable security measures, procedures or protocols intended to ensure such privacy and confidentiality.

1.5 Shared Occupancy. On or around the anniversary of the Sublease Commencement Date Sublandlord and Subtenant shall meet and confer and negotiate in good faith whether based upon their individeual needs for the following year there will be a change in the description of the Subpremises and a corresponding change in Base Subrent and Additional Consideration set forth in Sections 2.1 and 2.2 below. In the event the parties cannot come to agreement regarding any proposed change in the Subpremises either party may terminate this Sublease with 90 days advance written notice.

2. Subrent. Subtenant agrees to pay Sublandlord rent under this Sublease (the “ Subrent ”) in the following amounts at the following times, prorated daily for partial periods:

2.1 Base Subrent . Subject to the last sentence of Section 1.3 above, Subtenant shall pay “ Base Subrent ” to Sublandlord for the Subpremises in monthly installments from and after the Sublease Commencement Date through the Expiration Date, in the corresponding amount for each such month (each a “ Lease Month ”) set forth on Exhibit S-C attached hereto.

2.2 Additional Subrent . From and after the Sublease Commencement Date through the Expiration Date, Subtenant shall pay to Sublandlord, as “ Additional Subrent ,” one half of all amounts (other than the Base Rent) payable to Overlandlord under the Overlease, including but not limited to Tenant’s Share of Direct Expenses thereunder. Notwithstanding anything in the

 

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foregoing to the contrary, Additional Subrent shall exclude any charges to the extent such charges arise from (i) goods or services provided to or work performed for the benefit of Sublandlord, or (ii) the willful misconduct of Sublandlord. Subtenant shall pay each such item of Additional Subrent at least three (3) business days before the Overlease and the Office Sublease requires Sublandlord to make such payment to Overlandlord.

2.3 Additional Consideration. Concurrently with Subtenant’s execution of this Sublease, Subtenant shall pay to Sublandlord as additional consideration for the Sublease the amount of Two Hundred Fifty Thousand Dollars ($250,000) (“ Additional Consideration ”). In the event Subtenant commits a default with respect to any provision of this Sublease, including the filing of a voluntary petition under Title 11 of the United States Code (i.e., the Bankruptcy Code), or otherwise becomes a debtor in any case or proceeding under the Bankruptcy Code, as now existing or hereinafter amended, or any similar law or statute, Sublandlord may (but shall not be required to) apply all or any portion of the Additional Consideration and such proceeds shall constitute Sublandlord’s property (and not Subtenant’s property or the property of the bankruptcy estate of Subtenant) and Sublandlord may then use, apply or retain all or any part of the Additional Consideration (1) for the payment of any sum which is in default, (2) to reimburse Sublandlord for costs incurred by Sublandlord in connection with this Sublease (including, without limitation, any brokerage commissions and attorneys’ fees), (3) for the payment of any other amount which Sublandlord may spend or become obligated to spend by reason of Subtenant’s default, (4) to compensate Sublandlord for any loss or damage which Sublandlord may suffer by reason of Subtenant’s default or (5) as prepaid rent to be applied against Subtenant’s Base Subrent obligations for the last month of the Sublease Term and the immediately preceding month(s) of the Sublease Term until the Additional Consideration is exhausted. If any portion of the Additional Consideration is so used or applied, Subtenant shall, within ten (10) days after demand therefor, pay Sublandlord as increased Additional Consideration an amount to cause the aggregate amount of the unused portion of the Additional Consideration and the increase thereof to equal Two Hundred Fifty Thousand Dollars ($250,000), and such additional amounts shall become part of the Additional Consideration. Sublandlord shall not be required to keep the Additional Consideration separate from its general funds. The Additional Consideration or any remaining amount thereof held by Sublandlord, after any use, application or retention of same by Sublandlord permitted by this Section 2.3, shall be returned to Subtenant or, at Sublandlord’s option, to the last assignee of Subtenant’s interest hereunder, within sixty (60) days following (a) the expiration of the Sublease Term or (b) any earlier termination of this Sublease, provided that the Office Sublease and the Overlease have also been terminated, Overlandlord and Overtenant have fully released Sublandlord and all guarantors of the Office Sublease and the Overlease from liability under the Office Sublease and the Overlease and such guarantees and Overtenant and Overlandlord have returned to Sublandlord all deposits and other amounts due Sublandlord under the terms of the Office Sublease and the Overlease.

Pursuant to the Office Sublease the Stated Amount (as defined therein) of the Sublandlord’s Letter of Credit provided by the Sublandlord to the Overtenant can be reduced on the Adjustment Dates (as defined therein). Promptly following each Adjustment Date under the Office Sublease, Sublandlord shall return to Subtenant a portion of the Additional Consideration

 

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equal to one-half of the amount of the reduction in the Stated Amount of the Sublandlord’s Letter of Credit under the Office Sublease on each Adjustment Date.

The use, application or retention of the Additional Consideration and/or the proceeds or any portion thereof, shall not prevent Sublandlord from exercising any other rights or remedies provided under this Sublease, it being intended that Sublandlord shall not be required to apply any amount of the Additional Consideration, and such use, application or retention of any portion of the Additional Consideration shall not operate as a limitation on any recovery to which Sublandlord may otherwise be entitled. No trust relationship is created herein between Sublandlord and Subtenant with respect to the Additional Consideration.

Sublandlord and Subtenant acknowledge and agree that in no event or circumstance shall the Additional Consideration, and any increase thereof be (i) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a “security deposit” within the meaning of such Section 1950.7. The parties hereto (A) recite that the Additional Consideration is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (“ Security Deposit Laws ”) shall have no applicability or relevancy thereto and (B) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws. Notwithstanding the foregoing, to the extent California Civil Code Section 1950.7 in any way: (a) is applicable to this Sublease or the Additional Consideration; or (b) controls Sublandlord’s rights to apply the Additional Consideration to any amounts due under the Sublease or any damages Sublandlord may suffer following termination of this Sublease, then Subtenant fully and irrevocably waives the benefits and protections of Section 1950.7 of the California Civil Code, it being agreed that Sublandlord may recover from the Additional Consideration all of Sublandlord’s damages under this Sublease and California law including, but not limited to, any damages accruing upon the termination of this Sublease in accordance with this Sublease and Section 1951.2 of the California Civil Code.

3. Incorporation of Overlease.

3.1 General. The Overlease, as it relates to the Subpremises, is incorporated by reference in this Sublease, except as follows.

3.1.1 Defined Terms. Wherever the Overlease refers to a term in the left-hand column of the following table, this Sublease shall be deemed to refer to the adjacent term in the right-hand column of the table. All other defined terms in the Overlease shall be deemed appropriately modified, as necessary to reflect the circumstances of this Sublease.

 

Each Reference to:

  

Shall be Deemed Replaced by a Reference to:

Additional Rent    Additional Subrent
Base Rent    Base Subrent
Landlord    Sublandlord; except:

 

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Each Reference to:

  

Shall be Deemed Replaced by a Reference to:

   “Landlord” shall be deemed replaced by a reference to “Sublandlord, Overtenant and Overlandlord” for purposes of the following provisions: (1) Section 6.6, (2) the fourth sentence of Section 7.1, (3) Section 10.5, (4) the first sentence of Section 11.1, (5) Article 28 and (6) Section 29.32.
   “Landlord” shall be replaced with “Sublandlord or Overtenant or Overlandlord” for purposes of the following provisions: (1) Section 5.3, and (2) Section 10.1.
   “Landlord” shall be deemed replaced by “Overlandlord” for purposes of the following provisions: (1) Section 4.2.4, (2) Section 4.2.5.1, (3) Section 4.2.5.2, (4) Section 4.2.5.4, (5) the last sentence of Section 4.4.2, (6) Section 4.5.1, (7) Section 4.5.2, (8) Article 6, (9) the first sentence of Section 7.1, (10) Section 10.2, (11) Section 11.1 except for the reference in the first sentence thereof, (12) Section 11.2, (13) Article 23, (14) Section 29.15, (15) 29.26, (16) Section 29.30 except for the reference in the first sentence thereof, and (17) Section 29.34.
Landlord Parties    Sublandlord, Overtenant and Overlandlord Parties
Lease   

Sublease; except:

 

“Lease” shall be replaced by “Sublease, Office Sublease and Overlease” for purposes of Section 29.28.

Lease Expiration Date    Sublease Expiration Date
Lease Term    Sublease Term
Lease Commencement Date    Sublease Commencement Date (except for purposes of Sections 4.2.4 and 4.2.5)
Premises    Subpremises

 

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Each Reference to:

  

Shall be Deemed Replaced by a Reference to:

Sublease    Sub-Sublease
Tenant    Subtenant
Tenant Parties    Subtenant Parties

In addition to the foregoing replacements, to the extent any capitalized terms used in the Overlease are defined herein, such terms shall be given the meanings ascribed to them in this Sublease.

3.1.2 Exclusions. The following Sections, Articles, Exhibits and Amendments of the Overlease shall not be incorporated herein by reference or otherwise apply to this Sublease: the preamble of the Overlease, Sections 1.2, 2.2, 4.2.5.5, 4.2.7, 4.6, 6.7 and 7.2 and Articles 18, 21, 22 and 23, Exhibits B, G and H, the First Amendment to Office Lease and Sections 2.2, 3.1(a), 3.1(c), 3.2, 4.2, 5.2, 9, 11 and Exhibit B to the Second Amendment.

3.1.3 Amendments for Purposes of Sublease Incorporation of Overlease. For purposes of incorporation herein, only, the following amendments are made to the Overlease.

A. The following sections of the “Summary of Basic Lease Information” in Section 1 of the Overlease are hereby amended and restated in their entirety as follows:

 

TERMS OF SUBLEASE

  

DESCRIPTION

1.      Date:

   January 30, 2015

2.      Subpremises:

  

2.2    Subpremises:

   As determined by parties and subject to adjustment pursuant to Section 1.5.

3.      Sublease Term ( Article 2 ):

  

3.1    Length of Time:

   Approximately five (5) years and two (2) months.

3.2    Sublease Commencement Date:

   The date that is the later of: (i) February 1, 2015, or (ii) one (1) business day after the date when Overtenant delivers to Sublandlord a consent to this Sublease executed by Overlandlord and Overtenant in accordance with Section 6.7 of the Office Sublease and Section 6.7 of this Sublease.

 

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3.3    Sublease Expiration Date:

   March 31, 2020.

4.      Base Subrent ( Article 3 ):

   As set forth on Exhibit S-C to the Sublease.

5.      Base Year:

   2015.

6.      Tenant’s Share:

   Approximately 7.5536%.

8.      [Intentionally Omitted]

  

9.      Parking Pass Ratio ( Article 28 , as amended by Paragraph 8 of the Second Amendment):

   Four and one-half (4  1 2 ) parking passes for every 1,000 rentable square feet of the Subpremises, fourteen (14) of which may be for use on reserved covered parking spaces individually designated for particular employees of Subtenant and the balance of which may be for use on non-reserved parking spaces, all as more particularly set forth in Article 28 and the Second Amendment. Notwithstanding anything to the contrary contained herein, Overtenant shall, retain the exclusive rights granted to it pursuant to the Office Sublease, and Subtenant shall have the right to use approximately one half of the remaining available parking passes and reserved spaces as may be allocated by Sublandlord in its reasonable discretion, or as otherwise agreed to between Sublandlord and Subtenant

10.    Address of Subtenant (Section 29.18):

  

Prior to Sublease Commencement Date:

 

WomanCare Global Trading Inc.

8910 University Center Lane,

Suite 120

San Diego, CA 92122

Attention: Karen Jordan

 

After Sublease Commencement Date:

 

WomanCare Global Trading Inc.

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Karen Jordan

 

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11.      Addresses of Sublandlord, Overtenant
and Overlandlord:

  

11.1    Address of Sublandlord:

   Prior to Sublease Commencement Date:
  

EvoFem Inc.

8910 University Center Lane,

Suite 120

San Diego, CA 92122

Attention: Chief Financial Officer

   After Sublease Commencement Date:
  

EvoFem Inc.

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Chief Financial Officer

   with copy to:
  

K&L Gates LLP

1 Park Plaza, Twelfth Floor

Irvine, CA 92614

Attn: Adam C. Lenain

11.2    Address of Overtenant

  

Prior to Sublease Commencement Date:

 

Relational Investors LLC

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Jay Sitlani

   After Sublease Commencement Date:
  

Relational Investors LLC

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: Jay Sitlani

11.3    Address of Overlandlord:

  

Kilroy Realty Corporation

12200 West Olympic Boulevard,

Suite 200

Los Angeles, California 90064

Attention: Legal Department

 

with copies to:

 

Kilroy Realty Corporation

 

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   12200 West Olympic Boulevard,
   Suite 200
   Los Angeles, California 90064
   Attention: Mr. John Fucci
   And
   Kilroy Realty Corporation
   3611 Valley Centre Drive, Suite 250
   San Diego, California 92130
   Attention: Mr. Brian Galligan
   And
   Allen Matkins Leck Gamble & Mallory
   LLP
   1901 Avenue of the Stars, Suite 1800
   Los Angeles, California 90067
   Attention: Anton N. Natsis, Esq.

B. Section 1.1.1 is hereby amended by deleting the following phrase: “and in the Tenant Work Letter attached hereto as Exhibit B (the “ Tenant Work Letter ”)” in its entirety.

C. Section 2.1 is hereby amended by deleting the following parentheticals: (i) “(i.e., December 15, 2004)”, (ii) “(i.e., November 30, 2005)”, and (iii) “(i.e., December 1st)”, in their entirety.

D. Article 3 is hereby amended by (i) deleting the phrase “in advance on or before the first day of each and every calendar month during the Lease Term” and replacing it with “in advance on or before the third to last day of the preceding calendar month for each and every Sublease Month during the Sublease Term”; and (ii) deleting the last two sentences in the article.

E. Section 4.2.4 is hereby amended by deleting the second proviso in clause (iii).

F. The first sentence of Section 4.4.1 is hereby amended and restated in its entirety as follows: “Sublandlord shall give to Subtenant following the end of each Expense Year, but in no event later than thirty (30) days after Sublandlord receives the corresponding statement from Overtenant under the Office Sublease or Overlandlord under the Overlease, a statement (the “ Statement ”) which shall state in general major categories the Building Direct Expenses incurred or accrued for the Base Year or such preceding Expense Year, as applicable, and which shall indicate the amount of Excess.”

G. The first sentence of Section 4.4.2 is hereby amended and restated in its entirety as follows: “In addition, Sublandlord shall give Subtenant a yearly expense estimate statement (the “ Estimate Statement ”), but in no event later than thirty (30) days after Sublandlord

 

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receives the corresponding statement from Overtenant under the Office Sublease or Overlandlord under the Overlease, which shall set forth in general major categories, Overlandlord’s commercially reasonable estimate (the “ Estimate ”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “ Estimated Excess ”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year.”

H. Section 6.3 is hereby amended by deleting, in its entirety, the final sentence in the Section.”

I. Section 8.1 is hereby amended by deleting the last sentence in the Section in its entirety.

J. Section 8.5 is hereby amended by deleting the following phrase in its entirety “, and/or (ii) remove any “Above Building Standard Tenant Improvements,” as that term is defined in Section  2.4 of the Tenant Work Letter, located within the Premises and replace the same with then existing “Building Standard Tenant Improvements,” as that term is defined in Section  23 of the Tenant Work Letter”.

K. The first sentence of Section 10.1 is hereby amended and restated in its entirety as follows: “To the extent not prohibited by law and except as otherwise expressly provided herein to the contrary, Subtenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Subpremises from any cause whatsoever and agrees that the Overtenant and Overlandlord, their partners, subpartners and their respective officers, agents, servants employees, and independent contractors (collectively, “ Overtenant Parties and Overlandlord Parties ”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Subtenant or other persons claiming through Subtenant.”

L. Section 10.3.2(ii) is hereby amended by deleting the following phrase: “the “Tenant Improvements,” as that term is defined in Section  2.1 of the Tenant Work Letter” in its entirety.

M. Section 10.4 is hereby amended and restated in its entirety as follows:

10.4 Form of Policies . The minimum limits of policies of insurance required of Subtenant under this Sublease shall in no event limit the liability of Subtenant under this Sublease. Such insurance shall (i) name the Sublandlord, the Overtenant, the Overlandlord, and any other party the Sublandlord, Overtenant, or Overlandlord so specify that has a material financial interest in the Project, as an additional insured, including Overlandlord’s managing agent, if any; (ii) specifically cover the liability assumed by Subtenant under this Sublease, including, but not limited to, Subtenant’s obligations under 10.1 of the Overlease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Sublandlord, Overtenant and Overlandlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Sublandlord, Overtenant and Overlandlord is excess and is non-contributing with any insurance requirement of Subtenant; (v) be in form and content

 

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reasonably acceptable to Sublandlord, Overtenant and Overlandlord; and (vi) provide that said insurance shall not be cancelled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Sublandlord, Overtenant and Overlandlord and any mortgagee of Overlandlord, the identity of whom has been provided to the Subtenant in writing. Subtenant shall deliver certificates of said policy or policies to the Sublandlord, Overtenant and the Overlandlord prior to the Execution Date and at least thirty (30) days before the expiration dates thereof. In the event Subtenant shall fail to procure such insurance, or to deliver such policies or certificates, Sublandlord, or Overtenant, or Overlandlord may, at their option, after written notice to the Subtenant and Subtenant’s failure to obtain such insurance within five (5) days thereafter, procure such policies for the account of the Subtenant, and the cost thereof shall be paid to Sublandlord, Overtenant or Overlandlord, as the case may be, within thirty (30) days after delivery to Subtenant of bills therefor.

N. Section 14.2 is hereby amended by replacing each reference to Landlord with Overtenant and Landlord, and adding the following to the last paragraph in the Section:

“Sublandlord and Subtenant hereby acknowledge Woman Care Global’s right to occupy portions of the Subpremises shall be subject and subordinate to the provisions of the Office Sublease and the Overlease, and if the Office Sublease shall be terminated or if Subtenant is in default hereinafter (after expiration of any applicable notice and cure period), Woman Care Global’s right to occupy a portion of the Subpremises shall be immediately cancelled at the sole option of Overtenant.”

O. Article 16 is hereby amended by deleting the first sentence of the Section in its entirety and replacing it with the following:

“If Tenant holds over after the expiration of the Sublease Term or an earlier termination thereof, with or without the express or implied consent of the Sublandlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term. If Sublandlord or Subtenant holds over after the expiration of the Sublease Term or due to an earlier termination of the Office Sublease, Subrent shall be payable at a monthly rate equal to 150% of the Subrent applicable under the last rental period of the Sublease Term under the Office Sublease; provided, however, if Subtenant holds over after the Sublease Expiration Date of the Office Sublease such that Overtenant or Sublandlord will be deemed to be holding over under the Office Sublease or the Overlease, Subtenant will be responsible as Subrent due pursuant to this Sublease for any rent due under the Office Sublease and the Overlease for the Subpremises as a result of such holdover, such rent to include any applicable increases in rent pursuant to Article 16 of the Overlease.”

P. The first sentence of Article 27 is hereby amended and restated in its entirety as follows:

“Sublandlord, Overtenant and Overlandlord reserve the right at all reasonable times (during Building Hours with respect to items (i) and (ii) below) and upon at least twenty four (24) hours prior written notice to Subtenant (except in the case of an emergency) to enter the Subpremises to (i) inspect them; (ii) show the Subpremises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or during the last

 

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twelve (12) months of the Sublease Term, to prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Subpremises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment.”

Q. Section 29.18 is hereby amended by (1) deleting the second sentence in the Section in its entirety and replacing it with the following: “Any Notice shall be sent, transmitted, or delivered, as the case may be, to Subtenant at the appropriate address set forth in Section  10 of the Summary, or to such other place as Subtenant may from time to time designate in a Notice to Sublandlord, or to Sublandlord at the address set forth in Section  11.1 of the Summary, or to such other places as the Sublandlord may from time to time designate in a Notice to Subtenant.” and (2) deleting the final sentence of the Section and replacing it with the following: “Any notices to the Overtenant or the Overlandlord shall be sent, transmitted or delivered, as the case may be, to the address listed in Section  11.2 or 11.3 as applicable of the Summary or to such other places as the Sublandlord, Overtenant, or Overlandlord may from time to time designate in a Notice to Subtenant.”

R. Section 29.24 is hereby amended and restated in its entirety as follows:

“Sublandlord and Subtenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Sublease, and that they know of no real estate broker or agent who is entitled to a commission in connection with this Sublease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent occurring by, through, or under the indemnifying party.

3.1.4 Other . In addition, this Sublease does not incorporate by reference any other terms of the Overlease that, by their nature or purpose, are inapplicable or inappropriate to the subleasing of the Subpremises.

3.1.5 Dispute Resolution . Wherever the Overlease provides a dispute resolution procedure or a procedure to determine any matter relevant to this Sublease, and provided Subtenant is not in default of any provision of this Sublease, Overtenant, Sublandlord and Subtenant shall reasonably cooperate in exercising Sublandlord’s rights under or otherwise complying with such procedure pursuant to the Office Sublease and the Overlease, and Overtenant’s rights shall be Overtenant, Sublandlord and Subtenant’s joint rights unless Overtenant assigns all of its rights to Sublandlord. All out of pocket costs (including, but not limited to, attorneys’ fees and costs) reasonably incurred by Overtenant, Sublandlord and Subtenant in complying with such procedure shall be shared equally between Overtenant, Sublandlord and Subtenant unless Overtenant assigns all of its rights to Sublandlord in which case they shall be paid or reimbursed by Sublandlord and Subtenant. Subtenant shall have no separate right to invoke such procedure as between Sublandlord and Overtenant.

 

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3.1.6 Representations and Warranties. To the extent Overlandlord makes any representations and warranties in the Overlease: (a) Sublandlord represents and warrants to Subtenant that Sublandlord is not actually aware of any breach of such representations and warranties; and (b) if any such representations and warranties are breached, then Subtenant shall have no claim against Sublandlord except to the extent of an equitable allocation of any payment, settlement, or rent offset that Sublandlord and Subtenant may obtain from Overlandlord because of such breach. References herein to Sublandlord’s “knowledge” shall refer only to the current actual knowledge of Sublandlord, without duty of investigation or further inquiry.

Further, Sublandlord represents and warrants the Subpremises, including the improvements, fixtures, and furnishings therein, shall be broom clean on the earlier of the Early Access Date and the Sublease Commencement Date.

3.1.7 Interaction of Sublease and Overlease. Wherever this Sublease conflicts with an incorporated term of the Office Sublease or the Overlease, as incorporated in this Sublease, this Sublease shall govern, but wherever reasonably possible such a conflict shall be resolved by treating Subtenant’s and Sublandlord’s obligations under all three documents as cumulative.

3.1.8 Notices . Except as otherwise provided herein, the time limits contained in the Overlease for the giving of notices, curing defaults, making payments, or demands or performing any act, condition or covenant (i) on Overtenant’s part, are changed for the purpose of incorporation herein by reference by shortening the same in each instance by five (5) business days, so that Subtenant shall have less time to observe or perform under this Sublease than Sublandlord under the Office Sublease and Overtenant under the Overlease; provided, however, in no event shall Subtenant have less than two (2) business days to so observe or perform any such act, condition or covenant, and (ii) on Overlandlord’s and Overtenant’s part, are changed for the purpose of incorporation herein by reference by lengthening the same in each instance by three (3) business days, so that Overtenant and Sublandlord shall have more time to observe or perform under this Sublease than Overlandlord under the Overlease. If Sublandlord or Subtenant receives any notice or demand from Overtenant or Overlandlord relating to this Sublease or the Subpremises, said party shall promptly give a copy thereof to the other.

3.2 Compliance with Overlease . Subtenant agrees, solely for the benefit of Sublandlord, to be bound by, and to fully comply with all obligations of Sublandlord arising under, the Office Sublease, and all obligations of the Overtenant under the Overlease, including, but not limited to, all obligations relating to the surrender of the Subpremises to Overlandlord upon the expiration or earlier termination of the Office Sublease or the Overlease, except to the extent that this Sublease requires Sublandlord to perform any obligation under the Overlease (including Sublandlord’s payment of Sublandlord’s Rent under the Office Sublease and Overtenant’s payment of Rent under the Overlease, except as provided otherwise herein). Subtenant shall do nothing that violates the Office Sublease or the Overlease.

3.3 Abatement Rights . Subtenant may not assert against Overtenant or Sublandlord any right to abate rent that may exist under the Overlease, but if any such right becomes relevant for the Subpremises, then Sublandlord, at Subtenant’s request, shall use reasonable efforts to pursue such abatement. Subtenant shall be entitled to an abatement against Subrent only equal to the lesser of (a) the dollar amount of the abatement that Sublandlord actually recovers on behalf of

 

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Subtenant to the extent such abatement arises from Overlandlord’s acts and omissions and is allocated to the Sublease Term or (b) the amount of Subtenant’s Subrent for the portion of the Sublease Term that such abatement affects.

3.4 Payment of Sublandlord’s Rent . Except to the extent this Sublease requires Subtenant to pay portions of same directly to Overlandlord, and provided that Subtenant complies with its payment obligations and material nonmonetary obligations under this Sublease (including payment of all Subrent and Additional Consideration when and as due), Sublandlord shall pay Overtenant all rent required by the Office Sublease (“ Sublandlord’s Rent ”) within the applicable cure periods under the Office Sublease. This does not limit any express obligation of Subtenant in this Sublease to reimburse Sublandlord for any such rent or pay any other sum.

3.5 Rights and Benefits Under Overlease. To the extent not covered specifically in this Sublease and to the extent that they apply to the Subpremises, Subtenant shall have all the rights, privileges, and benefits granted to or conferred upon Overtenant as Tenant under the Overlease, and Sublandlord as Subtenant under the Office Sublease, provided Subtenant’s exercise of such rights, privileges, and benefits shall not cause Overtenant to be in default under the Overlease, or Sublandlord to be in default under the Office Sublease.

3.6 Additional Costs. To the extent Subtenant requires services beyond those provided for in this Sublease, Subtenant shall contract directly with and pay Overlandlord for such services. Such services may include additional cleaning; freight car service; and loading dock security services (the “ Additional Services ”). Subtenant shall indemnify Sublandlord and Overtenant for any costs associated with the Additional Services. If Overlandlord refuses to deal directly with Subtenant about Additional Services, then Sublandlord and Overtenant shall have no liability to Subtenant. Overtenant and Sublandlord shall have no responsibility for Overlandlord’s failure to provide Additional Services except as this Sublease expressly provides.

3.7 Overlandlord’s Performance. Wherever the Overlease (as incorporated by reference in this Sublease) or the Office Sublease would require Overtenant or Sublandlord to provide any benefit or service, Subtenant shall be entitled to receive such benefit or service directly from Overlandlord under the Overlease, and Overtenant and Sublandlord shall have no obligation to provide such benefit or service. Overtenant and Sublandlord shall have no liability to Subtenant, and Subtenant’s obligations under this Sublease shall not be reduced, restricted, diminished, or deferred, if Overlandlord fails to provide any service or benefit required under the Overlease, or to perform any obligation under the Overlease, unless both: (a) Subtenant is not in default under this Sublease; and (b) Overlandlord’s failure results from Overtenant’s default under the Overlease or Sublandlord’s default under the Office Sublease. Overtenant shall have no liability to Subtenant for Sublandlord’s default under the Office Sublease.

3.8 Preservation of Overlease and Office Sublease. Subject to any provision of this Sublease to the contrary, so long as Subtenant is not in default under this Sublease, Sublandlord shall, with respect to all periods within the Sublease Term: (a) preserve the Office Sublease and the Overlease and keep the Office Sublease and the Overlease in full force and effect; (b) not, without Subtenant’s written consent, agree to any amendment to the Office Sublease or the Overlease that would materially adversely affect Subtenant; (c) perform all its obligations under the Office Sublease and the Overlease, except any obligations Sublandlord contests in good faith

 

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in accordance with Sublandlord’s rights under the Office Sublease or the Overlease; and (d) pay Overtenant or Overlandlord any sums payable to Overtenant or Overlandlord on account of Sublandlord entering into the Office Sublease or this Sublease. Following any amendment of the Office Sublease or the Overlease the definition of “Office Sublease” or “ Overlease ” as applicable shall be deemed modified to reflect such amendment. Sublandlord shall continue to have the sole right to exercise any and all rights, privileges, and remedies under the Office Sublease and the Overlease provided such exercise does not materially and adversely affect the rights of Subtenant pursuant to this Sublease.

3.9 Consents . Wherever the Office Sublease requires Overtenant’s, or the Overlease requires Overlandlord’s, consent to any action or matter (including any such consent that would be required to be obtained from Overtenant or Overlandlord if such action or matter arose under the Office Sublease or the Overlease respectively), Subtenant must obtain Sublandlord’s Overtenant’s and Overlandlord’s consent to such action or matter. If Overtenant, Sublandlord or Overlandlord, consents to any action or matter requiring their consent but not otherwise expressly referred to in this Sublease, then neither Overtenant nor Sublandlord shall unreasonably withhold, condition or delay its consent to such action or matter.

3.10 Representations and Warranties. Sublandlord represents and warrants the Office Sublease is the entire agreement between Sublandlord and Overtenant relating to the Remaining Premises and is in full force and effect, and neither Sublandlord nor Overtenant is in default under the Office Sublease. Subtenant represents and warrants to Sublandlord that Subtenant has reviewed and is fully familiar with the Overlease, Office Sublease and the Subpremises. Except as this Sublease provides, neither party makes any representation or warranty about the Overlease, the Office Sublease, the Subpremises or any other matter.

4. Interaction of Estates; Effect on Overlandlord and Overtenant.

4.1 Priorities. This Sublease is unconditionally subject and subordinate to: (i) the Office Sublease as amended from time to time in compliance with this Sublease; (ii) the Overlease, as amended from time to time in compliance with the Office Sublease and this Sublease; (iii) all estates and interests to which the Office Sublease or the Overlease is subject and subordinate, including any and all underlying ground leases and mortgages affecting Overtenant’s and Overlandlord’s estate, all as amended or entered into from time to time; and (iv) all the terms, conditions and covenants of items “i” “ii” and “iii.” If, pursuant to the Overlease, Overlandlord or Overlandlord’s ground lessor(s) or mortgagee(s) request(s) additional documentation (consistent with such limitations and requirements, if any, as the Office Sublease or the Overlease provides) to confirm the foregoing subordination, then Subtenant shall promptly execute it.

4.2 Event of Default. Upon an Event of Default, as such term is defined in the Office Sublease or the Overlease, Overtenant and Overlandlord respectively may enforce the provisions of this Sublease, including collection of rent.

4.3 Termination of Overlease, Reentry or Repossession. In the event of termination of the Overlease for any reason, or in the event of any reentry or repossession of the Subpremises by Overlandlord, Overlandlord may, at its option, either (i) terminate this Sublease or (ii) take over

 

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all of the right, title and interest of Sublandlord, as sublessor, under such Sublease, in which case Subtenant shall attorn to Overlandlord, but nevertheless Overlandlord shall not (1) be liable for any previous act or omission of Overtenant or Sublandlord under the Office Sublease (without limiting Overlandlord’s obligation to cure a default under the Office Sublease or this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overlandlord once Subtenant has attorned to Overlandlord, and provided that in no event shall Overlandlord be liable to Subtenant for any damages that the Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), (2) be subject to any defense or offset previously accrued in favor of the Subtenant against Sublandlord (without limiting Overlandlord’s obligation to cure a default under this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overlandlord once Subtenant has attorned to Overlandlord, and provided that in no event shall Overlandlord be liable to Subtenant for any damages that Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), or (3) be bound by any previous modification of this Sublease made without Overlandlord’s written consent, or by any previous prepayment by Subtenant of more than one month’s rent. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee, ground lessor or beneficiary, affecting any mortgage now or hereafter in force against the Building or Project (an “ Underlying Mortgage ”) in order to make such subordination effective. Subtenant, however, shall within ten (10) days of written notice from Overlandlord, execute a commercially reasonable certificate or document that Overlandlord may reasonably request to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease. Notwithstanding the forgoing, the mortgagee, ground lessor or beneficiary of an Underlying Mortgage may elect, at any time by notice given to Subtenant, to subordinate such Underlying Mortgage to this Lease, and no further instrument of subordination shall be required to make such subordination of the Underlying Mortgage effective. Subtenant, however, shall execute promptly any certificate or document requested to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease.

4.4 No Effect on Overlease, Overlandlord. Notwithstanding anything to the contrary in this Sublease, including Overlandlord’s consent to this Sublease: (a) Overlandlord shall have no obligations of any kind to Subtenant; and (b) the Overlease remains in full force and effect between Overlandlord and Overtenant. Nothing in this Sublease (except upon termination of the Overlease if Overlandlord exercises its right to require Subtenant to recognize and attorn to Overlandlord) shall create any privity or contractual or landlord-tenant relationship of any kind between Overlandlord and Subtenant but Overlandlord shall be a third party beneficiary of Subtenant’s obligations under this Sublease that correspond to obligations of Sublandlord under the Overlease, and shall be entitled to enforce this Sublease.

4.5 Termination of Overlease. If the Overlease terminates for any reason, then, as between Sublandlord and Subtenant, the Sublease Term shall automatically terminate two minutes before such termination unless Overlandlord elects or agrees otherwise in writing. Sublandlord’s and Subtenant’s obligations, as between Sublandlord and Subtenant, under this Sublease shall automatically and immediately cease and terminate upon any such expiration of the Sublease Term, but this shall not limit (1) either party’s obligations and liability that accrued before the

 

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date of, or as a result of, such termination or (2) Sublandlord’s and Subtenant’s obligations to vacate the Remaining Premises and Subpremises respectively and return the Remaining Premises and Subpremises to Overlandlord in the condition required by the Overlease.

4.6 Termination of Office Sublease, Reentry or Repossession . In the event of termination of the Office Sublease for any reason, or in the event of any reentry or repossession of the Subpremises by Overtenant wherein Overlandlord has elected not to act, Overtenant may, at its option, either (i) terminate this Sublease or (ii) take over all of the right, title and interest of Sublandlord, as sublessor, under such Sublease, in which case Subtenant shall attorn to Overtenant, but nevertheless Overtenant shall not (1) be liable for any previous act or omission of Overtenant or Sublandlord under the Office Sublease (without limiting Overtenant’s obligation to cure a default under the Office Sublease or this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overtenant once Subtenant has attorned to Overtenant, and provided that in no event shall Overtenant be liable to Subtenant for any damages that the Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), (2) be subject to any defense or offset previously accrued in favor of the Subtenant against Sublandlord (without limiting Overtenant’s obligation to cure a default under this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overtenant once Subtenant has attorned to Overtenant, and provided that in no event shall Overtenant be liable to Subtenant for any damages that Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), or (3) be bound by any previous modification of this Sublease made without Overtenant’s written consent, or by any previous prepayment by Subtenant of more than one month’s rent. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee, ground lessor or beneficiary, affecting any Underlying Mortgage in order to make such subordination effective. Subtenant, however, shall within ten (10) days of written notice from Overtenant, execute a commercially reasonable certificate or document that Overtenant may reasonably request to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease.

4.7 No Effect on Office Sublease, Overtenant. Notwithstanding anything to the contrary in this Sublease, including Overtenant’s consent to this Sublease: (a) Overtenant shall have no obligations of any kind to Subtenant; and (b) the Overlease remains in full force and effect between Overlandlord and Overtenant. Nothing in this Sublease (except upon termination of the Office Sublease if Overtenant exercises its right to require Subtenant to recognize and attorn to Overtenant) shall create any privity or contractual or landlord-tenant relationship of any kind between Overtenant and Subtenant but Overtenant shall be a third party beneficiary of Subtenant’s obligations under this Sublease that correspond to obligations of Sublandlord under the Office Sublease or the Overlease, and Overtenant shall be entitled to enforce this Sublease.

4.8 Termination of Office Sublease. If the Office Sublease terminates for any reason, then, as between Sublandlord and Subtenant, the Sublease Term shall automatically terminate two minutes before such termination unless Overtenant elects or agrees otherwise in writing. Sublandlord’s and Subtenant’s obligations, as between Sublandlord and Subtenant, under this Sublease shall automatically and immediately cease and terminate upon any such expiration of the Sublease Term, but this shall not limit (1) either party’s obligations and liability that accrued

 

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12400 High Bluff Drive

   18   


before the date of, or as a result of, such termination or (2) Sublandlord’s and Subtenant’s obligations to vacate the Remaining Premises and Subpremises respectively and return the Remaining Premises and Subpremises to Overtenant in the condition required by the Office Sublease.

5. Leasing Covenants.

5.1 Delivery; FF&E; Surrender. Sublandlord shall deliver to Subtenant, and Subtenant shall accept, the Subpremises in its current “AS IS” condition and Sublandlord shall have no obligation, either as to payment or performance, to remodel or renovate the Subpremises or any portion thereof for Subtenant’s use. Sublandlord makes no representation or warranty as to the number of rentable square feet that constitute the Subpremises. Sublandlord shall deliver the Subpremises to the Subtenant vacant other than the furniture, fixtures and equipment Sublandlord may include at Sublandlord’s discretion or by separate agreement with Subtenant, (the “ FF&E ”). Any remodeling or renovation of the Subpremises required for Subtenant’s use thereof shall be the sole responsibility of Subtenant. Subtenant shall not perform any work or alterations in preparing the Subpremises for occupancy, or otherwise during the Sublease Term of this Sublease, without the prior written consent of Sublandlord, Overtenant and Overlandlord.

If the Subpremises are not tendered to Subtenant in the condition required hereby on or before the Sublease Commencement Date, for any reason whatsoever (other than Sublandlord’s willful, intentional and wrongful refusal to deliver such space and subject to the provisions of this Sublease), Sublandlord shall not be liable for any damage thereby, this Sublease shall not be void or voidable thereby, and the Sublease Term shall not commence until Sublandlord tenders possession thereof to Subtenant in the condition required hereby.

During the Sublease Term and subject to the rights of the Overtenant pursuant to the Office Sublease, Subtenant shall be entitled to use the FF&E allowed by the Sublandlord in its discretion or otherwise agreed upon by Sublandlord and Subtenant for no consideration other than the payment of the Sublease Rent. Subtenant acknowledges that no representations with respect to the condition of any of the FF&E have been made or will be made to Subtenant.

At the end of the Sublease Term Subtenant shall remove from the Subpremises all of Subtenant’s furniture, belongings, personal property, trash, debris, and all other movable items of any kind in accordance with the Overlease and shall perform, at its sole cost and expense, all other obligations under the Overlease relating to the surrender of the Subpremises. Without in any way limiting Subtenant’s obligations under Section 3.2 above or the other provisions of this Sublease, Subtenant acknowledges that it will be solely responsible for any holdover rent, indemnification obligations or other penalties or obligations under the Overlease arising from Subtenant’s failure to timely surrender the Subpremises and/or perform any other obligations under the Overlease relating to the surrender of the Subpremises.

5.2 Insurance. Subtenant shall provide all insurance required by Article 10 of the Overlease, as incorporated in this Sublease, for the Subpremises during the Sublease Term and shall deliver to Sublandlord upon execution of this Sublease and at least thirty (30) days before expiration of each insurance policy, certificates of such insurance. Such certificates shall: (a) designate Sublandlord, Overtenant and Overlandlord as additional insureds; and (b) provide that the

 

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   19   


insurance they evidence shall not be cancelled or terminated without thirty (30) days prior written notice to Sublandlord, Overtenant and Overlandlord. A copy of Subtenant’s initial certificate of insurance is attached hereto as Exhibit S-D .

5.3 Default; Remedies . Notwithstanding anything to the contrary in this Sublease, if Subtenant defaults in performing any obligation under this Sublease or commits a default under this Sublease, or the Office Sublease, including the terms of the Overlease as incorporated in this Sublease, then Subtenant shall remedy such default within the applicable cure period (if any as amended by the Sublease), which period shall automatically commence to run against Subtenant at the same time it commences to run against Sublandlord provided that (in the case of a default by Subtenant under the Overlease) Sublandlord gives Subtenant, with reasonable promptness after receipt by Sublandlord, a copy of Overlandlord’s notice of default. An “ Event of Default ” shall exist if (a) Subtenant fails to so remedy any such default, (b) an Event of Default occurs under the Overlease as a result of any breach, default or act by Subtenant, or (c) an Event of Default occurs under the Overlease as incorporated into this Sublease. If Subtenant fails to perform its obligations under this Sublease (including the Overlease as incorporated by reference), then Sublandlord shall be entitled to exercise against Subtenant all remedies provided for in the Overlease (as incorporated by reference) in the case of Sublandlord’s default under the Overlease, and any other remedies available at law or in equity. If an Event of Default occurs, then Sublandlord shall be entitled to exercise against Subtenant all remedies provided for in the Overlease (as incorporated by reference) in the case of Sublandlord’s Event of Default under the Overlease, and any other remedies available at law or in equity. To the extent that Subtenant’s default under this Sublease causes Sublandlord to incur liability to Overtenant or Overlandlord, or Overtenant to incur liability to Overlandlord or any loss, cost, damage or expense to Overlandlord, including payment of any holdover rent or other damages to Overlandlord, Subtenant shall indemnify, defend, and hold harmless Overtenant and Sublandlord against all such liability, loss, cost, damage, and expense, including the payment of reasonable attorneys’ fees.

5.4 Signage . Subtenant’s sublease of the Sublease Premises includes only some of Sublandlord’s rights under the Office Sublease and the Overlease to signage, subject to the terms and conditions of the Office Sublease and the Overlease and provided that Overtenant shall have the right to continue to be listed on one name strip in the Building’s directory during the period set forth in the Office Sublease. Sublandlord agrees to reasonably cooperate with Subtenant in connection with providing Subtenant with one name strip in the Building’s directory; provided, however, any costs associated with modifications to such signage or costs or fees payable to Sublandlord, Overtenant or Overlandlord in connection therewith shall be Subtenant’s sole cost and expense.

5.5 Parking . Except as set forth in the following sentence, Subtenant’s sublease of the Subpremises includes only a portion of Sublandlord’s parking rights under the Office Sublease, subject to the terms and conditions of the Office Sublease and the Overlease. Notwithstanding the foregoing, Overtenant shall, during the period set forth in the Office Sublease, retain the exclusive right to the use of the three (3) parking spaces numbered 1 through 3 as of the date of this Sublease.

 

Sublease -WomanCare Global Trading

12400 High Bluff Drive

   20   


5.6 Refurbishment Allowance. Subtenant’s sublease of the Subpremises includes none of Sublandlord’s remaining rights under the Office Sublease and the Overlease to the “Refurbishment Allowance” referred to in Section 7 of the Second Amendment.

6. Miscellaneous.

6.1 Defined Terms . Capitalized terms used herein but not defined herein shall have the meanings given to them in the Overlease (as such terms may be modified by this Sublease). Exhibit S-E attached hereto provides a list of the terms defined in this Sublease.

6.2 Attorneys’ Fees . If this Sublease is the subject of any litigation (including litigation to enforce an indemnity), then the prevailing party shall be entitled to recover all costs incurred, including reasonable attorneys’ fees.

6.3 Further Assurances . Each party shall execute and deliver such further documents, and perform such further acts, as may be reasonably necessary to achieve the intent of the parties as expressed in this Sublease. In the case of the Overlandlord and Sublandlord, they agree to execute such documents as Subtenant’s lenders may reasonably require to preserve the lenders’ rights to access Subtenant’s personal property under certain circumstances (i.e., Landlord’s Consent to Removal of Personal Property.) Each party shall deliver reasonable estoppel certificates within ten days after request by the other party.

6.4 Interpretation . Although the first draft of this Sublease was prepared by Sublandlord, this Sublease shall not be construed against whichever party was the “drafter” of this Sublease. Wherever either party agrees not to unreasonably withhold consent to any matter, such consent shall not be unreasonably conditioned or delayed. The word “include” and its variants shall in each case be interpreted as if followed by the words: “without limitation.”

6.5 Execution . This Sublease shall not be effective in any way (or create any obligations of any kind) unless and until it has been executed and delivered by both parties and approved by Overtenant and Overlandlord. This Sublease or any amendment hereto may be executed by facsimile transmission or by email. Any party executing this Sublease or any amendment hereto by facsimile transmission or by email covenants to promptly deliver original executed counterparts of this Sublease (or amendment hereto) to the other party. This Sublease may be executed in counterparts.

6.6 Assignment of Overlease . If Overtenant assigns the Overlease, then Sublandlord shall simultaneously assign this Sublease to the same assignee and require such assignee to assume Overtenant’s obligations under this Sublease, and Overtenant shall be released from all of its obligations hereunder.

6.7 Overlandlord’s and Overtenant’s Consent . This Sublease shall be of no force or effect unless and until consented to by Overtenant and Overlandlord (which consent shall be deemed to include any consent to the sublease of parking spaces required under Article 28 of the Overlease, consent to the use of the Subpremises by employees of Subtenant’s affiliates as set forth in Section  3.10 hereof, and by Overtenant’s or Overlandlord’s executing either: (a) the Overtenant’s or Overlandlord’s respective Consent, provided that such standard form of sublease consent is

 

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12400 High Bluff Drive

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unconditional (other than a condition requiring execution by Overtenant, Sublandlord or Subtenant) and irrevocable and does not require Subtenant or Sublandlord to make any payment or assume any material obligation not expressly required by this Sublease or by the express terms of the Office Sublease or the Overlease. Sublandlord shall promptly submit this fully executed Sublease to Overtenant and Overlandlord for their individual consent. Sublandlord shall promptly notify Subtenant if and when Overtenant or Overlandlord’s consent has been obtained. Sublandlord and Subtenant each agrees to execute the Overtenant’s and the Overlandlord’s consent if required by its terms. Notwithstanding anything to the contrary in this Sublease, Subtenant shall not enter into possession of the Subpremises unless and until Overtenant and Overlandlord shall have consented to this Sublease. Nothing in this paragraph shall expand Overlandlord’s or Overtenant’s right to withhold consent to this Sublease beyond any such rights as Overlandlord may have under the Overlease, or Overtenant under the Office Sublease.

6.8 Financial Statements. Prior to the Sublease Commencement Date Subtenant shall furnish to Sublandlord, Overtenant and Overlandlord its most current and most recent complete fiscal year financial statements for their review. Such financial statements shall be the financial statements Subtenant prepares for its own purposes.

No Further Text on This Page.

 

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12400 High Bluff Drive

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IN WITNESS WHEREOF , Sublandlord and Subtenant have executed this Sublease as of the Execution Date.

 

SUBLANDLORD

EVOFEM, INC.,

a Delaware corporation

/s/ Saundra Pelletier
By: Saundra Pelletier, CEO

Date Executed: January 30, 2015

/s/ Chad Putnam

By: Chad Putnam, CFO

Date Executed: January 30, 2015

SUBTENANT

WOMANCARE GLOBAL TRADING INC.,

a Delaware corporation

/s/ Saundra Pelletier

By: Saundra Pelletier, CEO

Date Executed: January 30, 2015

/s/ Karen Jordan

By: Karen Jordan, VP Finance

Date Executed: January 30, 2015

 

Sublease -WomanCare Global Trading

12400 High Bluff Drive

   23   


Attachments:

 

Exhibit S-A   -    Overlease
Exhibit S-B   -    Office Sublease
Exhibit S-C   -    Subrent Schedule
Exhibit S-D   -    Subtenant’s Initial Certificate of Insurance
Exhibit S-E   -    Sublease Defined Terms

 

Sublease -WomanCare Global Trading

12400 High Bluff Drive

   24   


EXHIBIT S-A

OVERLEASE

[Attached]

 

Sublease -WomanCare Global Trading

12400 High Bluff Drive

   Exhibit S-A   


OFFICE LEASE

KILROY REALTY

DEL MAR CORPORATE CENTRE

K ILROY R EALTY , L.P.,

a Delaware limited partnership,

as Landlord,

and

R ELATIONAL A DVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof,

and

R ELATIONAL I NVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof,

collectively, as Tenant.

 

     

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


TABLE OF CONTENTS

 

          Page  

ARTICLE 1

   PREMISES, BUILDING, PROJECT, AND COMMON AREAS      5  

ARTICLE 2

   LEASE TERM; OPTION TERM(S)      6  

ARTICLE 3

   BASE RENT      10  

ARTICLE 4

   ADDITIONAL RENT      11  

ARTICLE 5

   USE OF PREMISES      21  

ARTICLE 6

   SERVICES AND UTILITIES      22  

ARTICLE 7

   REPAIRS      26  

ARTICLE 8

   ADDITIONS AND ALTERATIONS      27  

ARTICLE 9

   COVENANT AGAINST LIENS      30  

ARTICLE 10

   INSURANCE      30  

ARTICLE 11

   DAMAGE AND DESTRUCTION      34  

ARTICLE 12

   NONWAIVER      36  

ARTICLE 13

   CONDEMNATION      37  

ARTICLE 14

   ASSIGNMENT AND SUBLETTING      37  

ARTICLE 15

   SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES      43  

ARTICLE 16

   HOLDING OVER      43  

ARTICLE 17

   ESTOPPEL CERTIFICATES      44  

ARTICLE 18

   SUBORDINATION      44  

ARTICLE 19

   DEFAULTS; REMEDIES      45  

ARTICLE 20

   COVENANT OF QUIET ENJOYMENT      48  

ARTICLE 21

   SECURITY DEPOSIT      48  

ARTICLE 22

   TELECOMMUNICATIONS EQUIPMENT      50  

ARTICLE 23

   SIGNS      51  

 

   (i)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


ARTICLE 24

   COMPLIANCE WITH LAW      53  

ARTICLE 25

   LATE CHARGES      54  

ARTICLE 26

   LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT      54  

ARTICLE 27

   ENTRY BY LANDLORD      55  

ARTICLE 28

   TENANT PARKING      56  

ARTICLE 29

   MISCELLANEOUS PROVISIONS      57  

 

   (ii)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


INDEX

 

     Page(s)  

Accountant

     21  

Additional Notice

     25  

Additional Rent

     11  

Advocate Arbitrators

     9  

Affiliate

     42  

Alterations

     27  

Applicable Laws

     54  

Award

     10  

Bank Prime Loan

     54  

Base Building

     28  

Base Rent

     10  

Base Year

     11  

BOMA

     6  

Brokers

     61  

BS/BS Exception

     26  

Building Common Areas,

     5  

Building Common Areas

     5  

Building Hours

     22  

Building Structure

     26  

Building Systems

     26  

Building-Top Sign

     52  

CC&Rs

     22  

CD

     49  

Comparable Area

     8  

Comparable Buildings

     8  

Comparable Deals

     7  

Comparable Term

     8  

Control,

     42  

Cosmetic Alterations

     27  

Direct Expenses

     11  

Early Term Sublease

     40  

Eligibility Period

     25  

Environmental Laws

     64  

Estimate

     19  

Estimate Statement

     19  

Estimated Excess

     19  

Excess

     18  

Exercise Notice

     8  

Expense Year

     11  

Force Majeure

     59  

Hazardous Material(s)

     64  

Holidays

     22  

HVAC

     22  

Initial Notice

     25  

 

   (iii)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


     Page(s)  

Interest Rate

     54  

Landlord

     1  

Landlord Default

     25  

Landlord Parties

     30  

Landlord Repair Notice

     34  

Landlord Response Date

     9  

Landlord Response Notice

     9  

Landlord’s Option Rent Calculation

     9  

Lease

     1  

Lease Commencement Date

     6  

Lease Expiration Date

     6  

Lease Term

     6  

Lease Year

     6  

Lines

     63  

Mail

     60  

Market Rent

     7  

Neutral Arbitrator

     10  

Nondisturbance Agreement

     45  

Notices

     60  

Objectionable Name

     52  

Operating Expense Budget

     18  

Operating Expenses

     12  

Option Rent

     7  

Option Term

     7  

Option Term TI Allowance

     8  

Original Improvements

     33  

Other Improvements

     65  

Outside Agreement Date

     9  

Premises

     5  

Project Common Areas

     5  

Project Common Areas,

     5  

Project Monument Sign

     52  

Proposition 13

     17  

Provider

     66  

Renovations

     62  

Rent Concessions

     8  

Rent

     11  

Repair Period Notice

     35  

Rescission

     9  

Review Period

     20  

Security Deposit

     48  

Sign Specifications

     52  

Statement

     18  

Subject Space

     38  

Summary

     1  

 

   (iv)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


     Page(s)  

Tax Expenses

     16  

Telecornmunications Equipment

     50  

Tenant

     1  

Tenant Work Letter

     5  

Tenant’s Option Rent Calculation

     9  

Tenant’s Share

     18  

Tenant’s Signage

     51  

Transfer

     41  

Transfer Notice

     38  

Transfer Premium

     40  

Transferee

     38  

Transfers

     38  

 

   (v)   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


DEL MAR CORPORATE CENTRE

OFFICE LEASE

This Office Lease (the “ Lease ”), dated as of the date set forth in Section  1 of the Summary of Basic Lease Information (the “ Summary ”), below, is made by and between KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), and RELATIONAL ADVISORS LLC, a Delaware limited liability company, acting on behalf of Series B thereof, and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (collectively, as “ Tenant ”).

SUMMARY OF BASIC LEASE INFORMATION

 

    

TERMS OF LEASE

  

DESCRIPTION

1.    Date:    June 1, 2004.
2.    Premises:   
   2.1 Building:    That certain six (6)-story, “Class-A” office building (the “Building”), located at 12400 High Bluff Drive, San Diego, California 92130, which Building contains 208,961 rentable (193,766 usable) square feet of space.
   2.2 Premises:    32,792 rentable (30,675 usable) square feet of space, consisting of the entire sixth (6 th ) floor of the Building, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, which Premises is commonly known, collectively, as Suite 600, as further set forth in Exhibit A to the Office Lease.
   2.3 Project:    The Building is the primary component of that certain single building office project known as “ Del Mar Corporate Centre ,” as further set forth in Section 1.1.2 of this Lease.
3.    Lease Term ( Article 2 ):   
   3.1 Length of Term:    Approximately nine (9) years and eleven (11) months.
   3.2 Lease Commencement Date:    December 15, 2004.

 

     

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


   3.3 Lease Expiration Date:    November 30, 2014.
   3.4 Option Term(s):    Two (2) five (5)-year option(s) to renew, as more particularly set forth in Section 2.2 of this Lease.
4.    Base Rent (Article 3):   

 

Lease Year

   Annualized
Base Rent*
     Monthly
Installment
of Base Rent*
     Monthly
Rental Rate
per Rentable
Square Foot*
 

1

   $ 1,357,590.00      $ 113,132.50      $ 3.450  

2

   $ 1,398,318.00      $ 116,526.50      $ 3.554  

3

   $ 1,440,267.00      $ 120,022.25      $ 3.660  

4

   $ 1,483,476.00      $ 123,623.00      $ 3.770  

5

   $ 1,527,981.00      $ 127,331.75      $ 3.883  

6

   $ 1,573,821.00      $ 131,151.75      $ 3.999  

7

   $ 1,621,035.00      $ 135,086.25      $ 4.119  

8

   $ 1,669,665.00      $ 139,138.75      $ 4.243  

9

   $ 1,719,756.00      $ 143,313.00      $ 4.370  

10

   $ 1,771,350.00      $ 147,612.50      $ 4.501  

 

* The initial Annual Base Rent (and Monthly Installment of Base Rent) was calculated by multiplying the initial Monthly Rental Rate per Rentable Square Foot by the number of rentable square feet of space in the Premises. In all subsequent Lease Years, the calculation of Annual Base Rent (and Monthly Installment of Base Rent) reflects an annual increase of three percent (3.0%). Notwithstanding the calculations identified above, (i) in each instance the resulting Monthly Installment of Base Rent was rounded up or down, as applicable, to the nearest twenty-five cents ($0.25), (ii) the Annual Base Rent is, therefore, an amount equal to exactly twelve (12) times such rounded Monthly Installment of Base Rent amount, and (iii) the Monthly Rental Rate per Rentable Square Foot is, for all years following the first (1 st ) Lease Year, only an approximation for reference purposes only.

 

5.    Base Year
( Article 4 ):
   Calendar year 2005.
6.    Tenant’s Share
( Article 4 ):
   15.6929%.
7.    Permitted Use
( Article 5 ):
   Tenant shall use the Premises solely for general office use and uses incidental thereto to the extent the same comply with applicable laws and zoning and are consistent with the character of the Project as a first-class office building Project.

 

   -2-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


8.    Security Deposit
(Article 21) :
   $113,132,50.
9.    Parking Pass Ratio
( Article 28 ):
  

Four and one-half (4  1 2 ) parking passes for every 1,000 rentable square feet of the Premises, of which (i) twenty-five (25) passes

shall be for the use of individually designated reserved covered parking spaces, and (ii) the remaining passes shall be for the use of non-reserved parking spaces, all as more particularly set forth in Article 28 .

10.    Address of Tenant
( Section 29.18 ):
  

Prior to Lease Commencement Date:

 

Relational Advisors, LLC

11975 El Camino Real, Suite 300

San Diego, California 92130

Attention: James J. Zehentbauer

                 Managing Member

 

and

 

Relational Advisors, LLC

11975 El Camino Real, Suite 300

San Diego, California 92130

Attention: Lisa Marsh

                 Administrative Manager

 

with a copy to:

 

Charles Marvin III, Esq.

120 Birmingham Drive, Suite 200

Cardiff, California 92207

 

After Lease Commencement Date:

 

Relational Advisors, LLC

12400 High Bluff, Suite 600

San Diego, California 92130

Attention: James J. Zehenbaurer

                 Managing Member

 

and

 

Relational Advisors, LLC

12400 High Bluff, Suite 600

 

   -3-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


     

San Diego, California 92130

Attention: Lisa Marsh

                 Administrative Manager

 

with a copy to:

 

Charles Marvin III, Esq.

120 Birmingham Drive, Suite 200

Cardiff, California 92207

11.    Address of Landlord
( Section 29.18 ):
   See Section 29.18 of the Lease.
12.    Broker(s)
( Section 29.24 ):
  

Colliers International

4660 La Jolla Village Drive, Suite 200

San Diego, California 92122

Attention: Thomas T. Nicholas

13.    Tenant Improvement Allowance
( Section 2 of Exhibit B ):
   $2,103,462.00 (which amount was calculated based upon (i) $65.00 per Rentable Square Foot for each of the 32,792 Rentable Square Feet of space in the Premises, less (ii) the sum of $28,018.00, which represents the cost of the pre-stocked drywall and metal studs previously paid for by Landlord, which is currently located on the sixth (6 th ) floor of the Building, and which shall be utilized in the construction of the Tenant Improvements).

 

   -4-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


ARTICLE 1

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

1.1 Premises, Building, Project and Common Areas .

1.1.1 The Premises . Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section  2.2 of the Summary (the “ Premises ”). The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions (the “ TCCs ”) herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such TCCs by it to be kept and performed and that this Lease is made upon the condition of such performance. The outline of the Premises is set forth in Exhibit A attached hereto; provided, however, the parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises in the “ Building ,” as that term is defined in Section  1.1.2 , below, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the “ Common Areas ,” as that term is defined in Section  1.1.3 , below, or the elements thereof or of the accessways to the Premises or the “ Project ,” as that term is defined in Section  1.1.2, below. Except as specifically set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B (the “ Tenant Work Letter ”), Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant’s business, except as specifically set forth in this Lease and the Tenant Work Letter. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were at such time in good and sanitary order, condition and repair, subject only to punchlist items, latent defects and Landlord’s obligations set forth in Article 7 of this Lease.

1.1.2 The Building and The Project . The Premises are a part of the building set forth in Section  2.1 of the Summary (the “ Building ”). The Building is part of a three (3)-building office project known as “ Del Mar Corporate Centre .” The term “ Project ,” as used in this Lease, shall mean (i) the Building and the Common Areas, and (ii) the land (which is improved with landscaping, parking facilities and other improvements) upon which the Building and the Common Areas are located.

1.1.3 Common Areas . Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “ Common Areas ”). The Common Areas shall consist of the “ Project Common Areas ” and the “ Building Common Areas .” The term “ Project Common Areas ,” as used in this Lease, shall mean the portion of the Project designated as such by Landlord. The term “ Building Common Areas ,” as used in this Lease,

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


shall mean the portions of the Common Areas located within the Building designated as such by Landlord; provided, however, the restrooms located on and serving the sixth (6 th ) floor of the Building shall designated for use solely by the occupants of the sixth (6 th ) floor of the Building; provided further, however, that to the extent the Premises is demised on a full-floor basis (i.e., to the extent the same is demised without any interior corridors or an interior corridor requirement), Tenant shall have (subject to the TCCs of Article 27 ), sole right of access to, and use of, such restrooms. The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord and the use thereof shall be subject to such reasonable rules, regulations and restrictions as Landlord may make from time to time, provided that such rules, regulations and restrictions do not unreasonably and materially interfere with the rights granted to Tenant under this Lease and the permitted use granted under Section  5.1 , below. Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas; provided that no such changes shall unreasonably and materially interfere with the rights granted to Tenant under this Lease, the permitted use granted under Section  5.1 , below, or Tenant’s right of access to the Premises. Except when and where Tenant’s right of access is specifically excluded in this Lease, Tenant shall have the right of access to the Premises, the Building, and the Project parking facility twenty-four (24) hours per day, seven (7) days per week during the “Lease Term,” as that term is defined in Section  2.1 , below.

1.2 Stipulation of Rentable Square Feet of Premises and Building . For purposes of this Lease, “rentable square feet” of the Premises shall be deemed as set forth in Section 2.2 of the Summary and the rentable square feet of the Building shall be deemed as set forth in Section  2.1 of the Summary. Landlord and Tenant hereby acknowledge and agree that such determination was calculated pursuant to Standard Method of Measuring Floor Area in Office Building, ANSI Z65.1 - 1996 (“ BOMA ”).

ARTICLE 2

LEASE TERM; OPTION TERM(S)

2.1 Initial Lease Term . The TCCs and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “ Lease Term ”) shall be as set forth in Section  3.1 of the Summary, shall commence on the date set forth in Section  3.2 of the Summary (the “ Lease Commencement Date ”), and shall terminate on the date set forth in Section  3.3 of the Summary (the “ Lease Expiration Date ”) unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term “ Lease Year ” shall mean each consecutive twelve (12) month period during the Lease Term; provided, however, that the first Lease Year shall commence on the Lease Commencement Date (i.e., December 15, 2004) and shall end on the last day of the eleventh full calendar month following such Lease Commencement Date (i.e., November 30, 2005), and the second (2 nd ) and each succeeding Lease Year shall commence on the first day of the next calendar month (i.e., December 1 st ); and further provided that the last Lease Year shall end on the Lease Expiration Date. At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit C , attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) business days of receipt thereof.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


2.2 Option Term(s) .

2.2.1 Option Right . Landlord hereby grants the tenants originally named in this Lease (collectively, the “ Original Tenants ” and each an “ Original Tenant ”), their “Affiliates,” as that term is set forth in Section 14.8 of this Lease, and any permitted assignee of either Original Tenant’s entire interest in this Lease approved by Landlord pursuant to Article 14 of this Lease (as so permitted, a “Permitted Assignee”), two (2) options to extend the Lease Term for the entire Premises, each by a period of five (5) years (each, an “ Option Term ”). Such option shall be exercisable only by Notice delivered by Tenant to Landlord as provided below, provided that, as of the date of delivery of such Notice, (i) Tenant is not then in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods), (ii) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, and (iii) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year period. Upon the proper exercise of such option to extend, and provided that, as of the end of the then applicable Lease Term, (A) Tenant is not in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods), (B) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, and (C) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year period, then the Lease Term, as it applies to the entire Premises, shall be extended for a period of five (5) years. The rights contained in this Section 2.2 shall only be exercised by either of the Original Tenants, their Affiliates and/or a Permitted Assignee (and not any other assignee, sublesee or other transferee of the Original Tenant’s interest in this Lease) if the Original Tenants (or either of them), their Affiliates and/or such Permitted Assignee is in occupancy of at least seventy-five percent (75%) of the entire then-existing Premises.

2.2.2 Option Rent . The Rent payable by Tenant during the Option Term (the “ Option Rent ”) shall be equal to the Market Rent as set forth below; provided, however, that the average annual, effective (including free rent, if applicable, on a straight line basis) base rent component of Market Rent, shall not be lower than the then existing “Base Rent,” as that term is set forth in Article 3 of this Lease, in effect immediately prior to the commencement of such Option Term. For purposes of this Lease, the term “ Market Rent ” shall mean rent (including additional rent and considering any “base year” or “expense stop” applicable thereto), including all escalations, at which tenants, as of the commencement of the applicable term are, pursuant to transactions completed within the twenty-four (24) months prior to the first day of the applicable Option Term, leasing non-sublease, non-encumbered, non-synthetic, non-equity space (unless such space was leased pursuant to a definition of “fair market” comparable to the definition of Market Rent) comparable in size, location (including freeway access and signage visibility) and quality to the Premises for a “Comparable Term,” as that term is defined in this Section 2.2.2 (the “ Comparable Deals ”), which comparable space is located in the “Comparable Buildings,” as that term is defined in this Section 2.2.2 , giving appropriate consideration to the annual rental rates per rentable square foot (adjusting the base rent component of such rate to reflect a net value after accounting for whether or not utility expenses are directly paid by the tenant such as

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Tenant’s direct utility payments provided for in Section 6.1 of this Lease), the standard of measurement by which the rentable square footage is measured, the ratio of rentable square feet to usable square feet, and taking into consideration only, and granting only, the following concessions (provided that the rent payable in Comparable Deals in which the terms of such Comparable Deals are determined by use of a discounted fair market rate formula shall be equitably increased in order that such Comparable Deals will not reflect a discounted rate) (collectively, the “ Rent Concessions ”): (a) rental abatement concessions or build-out periods, if any, being granted such tenants in connection with such comparable spaces; (b) tenant improvements or allowances provided or to be provided for such comparable space, taking into account the value of the existing improvements in the Premises, such value to be based upon the age, quality and layout of the improvements and the extent to which the same could be utilized by general office users as contrasted with this specific Tenant, (c) Proposition 13 protection, and (d) all other monetary concessions, if any, being granted such tenants in connection with such comparable space; provided, however, that notwithstanding anything to the contrary herein, no consideration shall be given to the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with the applicable term or the fact that the Comparable Deals do or do not involve the payment of real estate brokerage commissions. The term “ Comparable Term ” shall refer to the length of the lease term, without consideration of options to extend such term, for the space in question. In addition, the determination of the Market Rent shall include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant’s rent obligations during any Option Term. Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Transactions upon tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants). If in determining the Market Rent, Tenant is entitled to a tenant improvement or comparable allowance for the improvement of the Premises (the “ Option Term TI Allowance ”), Landlord may, at Landlord’s sole option, elect any or a portion of the following: (A) to grant some or all of the Option Term TI Allowance to Tenant in the form as described above (i.e., as an improvement allowance), and/or (B) to reduce the rental rate component of the Market Rent to be an effective rental rate which takes into consideration that Tenant will not receive the total dollar value of such excess Option Term TI Allowance (in which case the Option Term TI Allowance evidenced in the effective rental rate shall not be granted to Tenant). The term “ Comparable Buildings ” shall mean the Building and other first-class office buildings which are comparable to the Building in terms of age (based upon the date of completion of construction or major renovation as to the building containing the portion of the Premises in question), quality of construction, level of services and amenities (including the type (e.g., surface, covered, subterranean) and amount of parking), size and appearance, and are located in the Del Mar area of San Diego, California (the (“ Comparable Area ”).

2.2.3 Exercise of Option . The option contained in this Section 2.2 shall be exercised by the Original Tenants (or either of them), their Affiliates and/or a Permitted Assignee, if at all, only in the manner set forth in this Section 2.2.3 . Tenant shall deliver notice (the “ Exercise Notice ”) to Landlord not more than eighteen (18) months nor less than fifteen (15) months prior to the expiration of the then-existing Lease Term, stating that Tenant is exercising its option. Concurrently with such Exercise Notice, Tenant shall deliver to Landlord

 

   -8-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Tenant’s calculation of the Market Rent (the “ Tenant’s Option Rent Calculation ”). Landlord shall deliver notice (the “ Landlord Response Notice ”) to Tenant on or before the date which is thirty (30) days after Landlord’s receipt of the Exercise Notice and Tenant’s Option Rent Calculation (the “ Landlord Response Date ”), stating that (A) Landlord is accepting Tenant’s Option Rent Calculation as the Market Rent, or (B) rejecting Tenant’s Option Rent Calculation and setting forth Landlord’s calculation of the Market Rent (the “ Landlord’s Option Rent Calculation ”). Within thirty (30) days of its receipt of the Landlord Response Notice, Tenant may, at its option, accept the Market Rent contained in the Landlord’s Option Rent Calculation. If Tenant does not affirmatively accept or Tenant rejects the Market Rent specified in the Landlord’s Option Rent Calculation, the parties shall follow the procedure, and the Market Rent shall be determined as set forth in Section 2.2.4 .

2.2.4 Determination of Market Rent . In the event Tenant objects or is deemed to have objected to the Market Rent, Landlord and Tenant shall attempt to agree upon the Market Rent using reasonable good-faith efforts. If Landlord and Tenant fail to reach agreement within sixty (60) days following Tenant’s objection or deemed objection to the Landlord’s Option Rent Calculation (the “ Outside Agreement Date ”), Tenant may rescind the Exercise Notice by delivery written notice of such election to Landlord within five (5) business days following the Outside Agreement Date (the “ Rescission ”), in which event (A) such Election Notice shall be deemed never to have been delivered, (B) Tenant shall be deemed to waive any right to extend the Lease Term pursuant to the TCCs of this Section 2.2 , and (C) this Lease shall expire on the last day of the then existing Lease Term or any earlier termination. Unless such Rescission is timely received by Landlord pursuant to the TCCs of the foregoing sentence, then the Election Notice shall be ratified and (i) in connection with the Option Rent, Landlord’s Option Rent Calculation and Tenant’s Option Rent Calculation, each as previously delivered to the other party, shall be submitted to the arbitrators pursuant to the TCCs of this Section 2.2.4 , and (ii) in connection with any other contested calculation of market Rent, the parties shall each make a separate determination of the Market Rent and shall submit the same to the arbitrators pursuant to the TCCs of this Section 2.2.4 . The submittals shall be made concurrently with the selection of the arbitrators pursuant to this Section 2.2.4 and shall be submitted to arbitration in accordance with Section 2.2.4.1 through 2.2.4.7 of this Lease, but subject to the conditions, when appropriate, of Section 2.2.3 .

2.2.4.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker, appraiser or attorney who shall have been active over the five (5) year period ending on the date of such appointment in the leasing (or appraisal, as the case may be) of first-class office buildings in the Comparable Area. The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Market Rent, is the closest to the actual Market Rent as determined by the arbitrators, taking into account the requirements of Section 2.2.2 of this Lease. Each such arbitrator shall be appointed within fifteen (15) days after the applicable Outside Agreement Date. Landlord and Tenant may consult with their selected arbitrators prior to appointment and may select an arbitrator who is favorable to their respective positions. The arbitrators so selected by Landlord and Tenant shall be deemed (“ Advocate Arbitrators ”).

2.2.4.2 The two Advocate Arbitrators so appointed shall be specifically required pursuant to an engagement letter within ten (10) days of the date of the appointment of

 

   -9-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


the last appointed Advocate Arbitrator agree upon and appoint a third arbitrator (“ Neutral Arbitrator ”) who shall be qualified under the same criteria set forth hereinabove for qualification of the two Advocate Arbitrators except that neither the Landlord or Tenant or either party’s Advocate Arbitrator may, directly or indirectly, consult with the Neutral Arbitrator prior to subsequent to his or her appearance. The Neutral Arbitrator shall be retained via an engagement letter jointly prepared by Landlord’s counsel and Tenant’s counsel.

2.2.4.3 The three arbitrators shall within thirty (30) days of the appointment of the Neutral Arbitrator reach a decision as to Market Rent and determine whether the Landlord’s or Tenant’s determination of Market Rent as submitted pursuant to Section 2.2.4.1 and Section 2.2.3 of this Lease is closest to Market Rent as determined by the arbitrators and simultaneously publish a ruling (“ Award ”) indicating whether Landlord’s or Tenant’s submitted Market Rent is closest to the Market Rent as determined by the arbitrators. Following notification of the Award, the Landlord’s or Tenant’s submitted Market Rent determination, whichever is selected by the arbitrators as being closest to Market rent shall become the then applicable Market Rent.

2.2.4.4 The Award issued by the majority of the three arbitrators shall be binding upon Landlord and Tenant.

2.2.4.5 If either Landlord or Tenant fail to appoint an Advocate Arbitrator within fifteen (15) days after the applicable Outside Agreement Date, either party may petition the presiding judge of the Superior Court of San Diego County to appoint such Advocate Arbitrator subject to the criteria in Section 2.2.4.1 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such Advocate Arbitrator.

2.2.4.6 If the two Advocate Arbitrators fail to agree upon and appoint the Neutral Arbitrator, then either party may petition the presiding judge of the Superior Court of San Diego County to appoint the Neutral Arbitrator, subject to criteria in Section 2.2.4.1 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such arbitrator.

2.2.4.7 The cost of arbitration shall be paid by Landlord and Tenant equally.

ARTICLE 3

BASE RENT

Tenant shall pay, without prior notice or demand, to Landlord or Landlord’s agent at the management office of the Project, or, at Landlord’s option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“ Base Rent ”) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent for the first

 

   -10-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


full month of the Lease Term which occurs after the expiration of any free rent period shall be paid at the time of Tenant’s execution of this Lease. If any Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any such fractional month shall accrue on a daily basis during such fractional month and shall total an amount equal to the product of (i) a fraction, the numerator of which is the number of days in such fractional month and the denominator of which is the actual number of days occurring in such calendar month, and (ii) the then-applicable Monthly Installment of Base Rent. All other payments or adjustments required to be made under the TCCs of this Lease that require proration on a time basis shall be prorated on the same basis.

ARTICLE 4

ADDITIONAL RENT

4.1 General Terms . In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay “Tenant’s Share” of the annual “Direct Expenses,” as those terms are defined in Sections 4.2.6 and 4.2.2 , respectively, of this Lease, which are in excess of the amount of Direct Expenses applicable to the “Base Year,” as that term is defined in Section 4.2.1 , below; provided, however, that in no event shall any decrease in Direct Expenses for any Expense Year below Direct Expenses for the Base Year entitle Tenant to any decrease in Base Rent or any credit against sums due under this Lease. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the TCCs of this Lease, are hereinafter collectively referred to as the “ Additional Rent, ” and the Base Rent and the Additional Rent are herein collectively referred to as “ Rent. ” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 (to the extent accruing during the Lease Term or any holdover period pursuant to the TCCs of Article 16 of this Lease) shall survive the expiration of the Lease Term; provided, however, that Landlord shall bill Tenant for such Additional Rent within one (1) year following the calendar year in which the Lease Term expires, except to the extent such failure to timely furnish such bill as to any particular item includable as Additional Rent is beyond Landlord’s reasonable control (e.g., tax assessments that are late in arriving from the assessor), in which case such one (I) year limit shall not be applicable.    

4.2 Definitions of Key Terms Relating to Additional Rent . As used in this Article 4 , the following terms shall have the meanings hereinafter set forth:

4.2.1 “ Base Year ” shall mean the period set forth in Section 5 of the Summary.

4.2.2 “ Direct Expenses ” shall mean “Operating Expenses” and “Tax Expenses.”

4.2.3 “ Expense Year ” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change,

 

   -11-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Tenant’s Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

4.2.4 “ Operating Expenses ” shall be calculated under accounting principles consistently applied from year to year and shall mean all expenses, costs and amounts of every kind and nature which, in accordance with sound real estate management principles (consistently applied), Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project; provided, however, that if Landlord does not carry earthquake/flood insurance for the Project and/or the Building during any part of the Base Year but subsequently obtains earthquake/flood insurance for the Project and/or the Building during the Lease Term, then from and after the date upon which Landlord obtains such earthquake/flood insurance and continuing throughout the period during which Landlord maintains such insurance, Operating Expenses for the Base Year shall be deemed to be increased by the amount of the premium Landlord reasonably estimates it would have incurred had Landlord maintained such insurance for the same period of time during the Base Year as such insurance was maintained by Landlord during such subsequent Expense Year; provided further, however, any such earthquake/flood insurance shall be subject to Tenant’s reasonable approval (Tenant acknowledging and agreeing, however, that it shall be deemed unreasonable for Tenant to withhold such consent to the extent (A) such earthquake/flood insurance is mandated by applicable governmental entities or Landlord’s lender, or (B) landlords of Comparable Buildings are requiring such earthquake/flood insurance policies be maintained and Landlord’s earthquake/flood insurance policy is commercially reasonably vis-à-vis such third party policies); (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) costs incurred in connection with the parking areas servicing the Project; (vi) fees and other costs, including management fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project (which fees shall be commercially reasonable vis-à-vis the competitive fees being charged for similar services at Comparable Buildings in the Comparable Area); (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons (other than persons generally considered to be higher in rank than the position of Regional Asset Manager) engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Building; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization of the cost of acquiring or

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof (which amortization calculation shall include interest at the “Interest Rate,” as that term is set forth in Article 25 of this Lease); (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to effect economies in the operation or maintenance of the Project, or any portion thereof, (B) that are required to comply with present or anticipated conservation programs, (C) which are replacements or modifications of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, or (D) that are required under any governmental law or regulation by a federal, state or local governmental agency, except for capital repairs, replacements or other improvements to remedy a condition existing prior to the Lease Commencement Date which an applicable governmental authority, if it had knowledge of such condition prior to the Lease Commencement Date, would have then required to be remedied pursuant to then-current governmental laws or regulations in their form existing as of the Lease Commencement Date and pursuant to the then-current interpretation of such governmental laws or regulations by the applicable governmental authority as of the Lease Commencement Date; provided, however, that any capital expenditure shall be amortized with interest at the “Interest Rate,” as that term is set forth in Article 25 of this Lease, over the shorter of (X) seven (7) years, or (Y) its useful life as Landlord shall reasonably determine in accordance with sound real estate management and accounting principles; (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute “Tax Expenses” as that term is defined in Section 4.2.5 , below; and (xv) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building. Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

(a) costs, including marketing costs, legal fees, space planners’ fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any common areas of the Project or parking facilities);

(b) except as set forth in items (xii), (xiii), and (xiv) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest;

(c) costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(d) any bad debt loss, rent loss, or reserves for bad debts or rent loss;

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(e) costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord’s general corporate overhead and general and administrative expenses;

(f) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;

(g) amount paid as ground rental for the Project by the Landlord;

(h) overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(i) any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

(j) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

(k) all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

(l) costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art;

(m) any costs expressly excluded from Operating Expenses elsewhere in this Lease;

 

   -14-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(n) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

(o) costs arising from the gross negligence or willful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services;

(p) costs incurred to comply with laws relating to the removal of hazardous material (as defined under applicable law) which was in existence, or which resulted from events or activities which occurred, in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto; and costs incurred to remove, remedy, contain, or treat hazardous material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto;

(q) advertising and promotional expenditures;

(r) costs arising from Landlord’s charitable or political contributions;

(s) supervisory fees, overhead or profit to Landlord (1) for Landlord’s repairs or maintenance services, except to the extent that (i) the percentage of the cost of such services resulting in such fees, overhead or profit is consistent with the percentage rate commonly charged by third party managers of service providers in the vicinity of the Project and (ii) the total cost of such fees, overhead or profit included in Operating Expenses is consistent with the total cost associated with such services commonly charged by comparable providers in the vicinity of the Project, or (2) relating to Tenant’s alterations or repairs;

(t) construction costs, development fees, permits and similar costs relating to Landlord’s construction of the initial Base Shell and Core (as defined in the Tenant Work Letter), and any costs associated with correcting any defects in the construction of such Landlord Work;

(u) the cost of any after-hour utilities or other services provided to a tenant of the Project, which are available to Tenant without additional charge, or for which Landlord is entitled to receive direct payment from the requesting tenant; and

(v) operating reserves or contingency amounts in excess of the percentage of Operating Expenses allocated thereto in the Base Year.

 

   -15-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Project is not at least ninety-five percent (95%) occupied during all or a portion of the Base Year or any Expense Year, Landlord may elect to make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been incurred had the Project been ninety-five percent (95%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. Operating Expenses for the Base Year shall not include market-wide cost increases (including utility rate increases) due to extraordinary circumstances, including, but not limited to, Force Majeure, boycotts, strikes, conservation surcharges, embargoes or shortages, or amortized costs relating to capital improvements. In no event shall the components of Direct Expenses for any Expense Year related to Project utility, services, or insurance costs be less than the components of Direct Expenses related to Project utility, services, or insurance costs in the Base Year. Landlord shall not (i) make a profit by charging items to Operating Expenses that are otherwise also charged separately to others and (ii) subject to Landlord’s right to adjust the components of Operating Expenses described above in this paragraph, collect Operating Expenses from Tenant and all other tenants in the Building in an amount in excess of what Landlord incurs for the items included in Operating Expenses. If Landlord, in any Expense Year following the Base Year, begins providing any new services, then for such period of time in which such new services apply, Operating Expenses for the Base Year shall be increased by the amount that Landlord reasonably determines it would have incurred had Landlord provided such new service during the same period of time during the Base Year as such new service was provided during such subsequent Expense Year. Notwithstanding the foregoing, no adjustment to the Operating Expenses for the Base Year shall occur to the extent such new service (1) is attributable to Tenant’s particular use of the Premises (as opposed to office use generally), in which case Landlord may elect (Y) to include the cost of such new services in Operating Expenses, or (Z) to invoice Tenant directly for such costs, depending upon the nature of the service and the extent to which the need for such service is directly attributable to Tenant’s particular use, as determined in Landlord’s reasonable discretion, (2) is being offered by landlords in the majority of Comparable Buildings, or (3) is required by “Applicable Laws,” as that Term is set forth in Article 24 . If Landlord, in any Expense Year after the Base Year, discontinues any service, then for such period of time in which such services are discontinued, Operating Expenses for the Base Year shall be decreased by the amount that Landlord reasonably determines it incurred for such service throughout the Base Year.

4.2.5 Taxes .

4.2.5.1 “ Tax Expenses ” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery,

 

   -16-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), excluding fines, default interest and penalties (unless due to Tenant’s failure to pay Additional Rent when due), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof. All assessments shall be paid by Landlord in the maximum number of installments permitted by law and shall not be included as Tax Expenses except in the year in which the assessment installment is actually paid.

4.2.5.2 Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (“ Proposition 13 ”) and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project’s contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises (provided that Tax Expenses shall not include any documentary transfer taxes associated with the conveyance of Landlord’s interest in any portion of the Project); provided, however, in no event shall Tax Expenses include items paid by Tenant under Section 4.5 of this Lease.

4.2.5.3 Any costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. Except as set forth in Section 4.2.5.4 , below, refunds of Tax Expenses shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax Expenses included by Landlord as Building Tax Expenses pursuant to the TCCs of this Lease; provided, however, Landlord shall diligently pursue an appeal thereof should Tenant reasonably conclude that such increase is not

 

   -17-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


warranted. Notwithstanding anything to the contrary contained in this Section 4.2.5.3 (except as set forth in Section 4.2.5.1 , above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.    

4.2.5.4 Notwithstanding anything to the contrary set forth in this Lease, the amount of Tax Expenses for the Base Year and any Expense Year shall be calculated without taking into account any decreases in real estate taxes obtained in connection with Proposition 8, and, therefore, the Tax Expenses in the Base Year and/or an Expense Year may be greater than those actually incurred by Landlord, but shall, nonetheless, be the Tax Expenses due under this Lease; provided that (i) any costs and expenses incurred by Landlord in securing any Proposition 8 reduction shall not be included in Direct Expenses for purposes of this Lease, and (ii) tax refunds under Proposition 8 shall not be deducted from Tax Expenses, but rather shall be the sole property of Landlord. Landlord and Tenant acknowledge that this Section 4.2.5.4 is not intended to in any way affect (A) the inclusion in Tax Expenses of the statutory two percent (2.0%) annual increase in Tax Expenses (as such statutory increase may be modified by subsequent legislation), or (B) the inclusion or exclusion of Tax Expenses pursuant to the terms of Proposition 13, which shall be governed pursuant to the terms of Sections 4.2.5.1 through 4.2.5.3 , above.

4.2.5.5 Landlord shall not voluntarily issue any assessments or bonds for the Project which would increase Tenant’s payment of Tax Expenses without Tenant’s prior written consent.

4.2.6 “ Tenant’s Share ” shall mean the percentage set forth in Section 6 of the Summary.

4.2.7 “ Operating Expense Budget ” shall mean the estimated Operating Expenses for the Base Year prepared by Landlord and attached hereto as Exhibit G . Tenant acknowledges that the Operating Expense Budget is merely an estimate and that actual Operating Expenses may exceed or be less than the Operating Expense Budget for the Base Year.

4.3 Intentionally Omitted .

4.4 Calculation and Payment of Additional Rent . If for any Expense Year ending or commencing within the Lease Term, Tenant’s Share of Direct Expenses for such Expense Year exceeds Tenant’s Share of Direct Expenses applicable to the Base Year, then Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1 , below, and as Additional Rent, an amount equal to the excess (the “ Excess ”).

4.4.1 Statement of Actual Building Direct Expenses and Payment by Tenant . Landlord shall endeavor to give to Tenant following the end of each Expense Year, but in no event later than June 1, a statement (the “ Statement ”) which shall state in general major categories the Building Direct Expenses incurred or accrued for the Base Year or such preceding

 

   -18-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Expense Year, as applicable, and which shall indicate the amount of the Excess. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay, within thirty (30) days after receipt of the Statement, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as “Estimated Excess,” as that term is defined in Section 4.4.2 , below, and if Tenant paid more as Estimated Excess than the actual Excess, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord from collecting the Excess for a period of one (1) year after the expiration of the Expense Year for which the Statement applies, except where the failure to timely furnish the Statement as to any particular item includable in the Statement is beyond Landlord’s reasonable control (e.g. tax assessments that are late in arriving from the assessor), in which case such one (1) year limit shall not be applicable. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Building Direct Expenses for the Expense Year in which this Lease terminates, if an Excess is present, Tenant shall, within thirty (30) days after receipt of the Statement, pay to Landlord such amount, and if Tenant paid more as Estimated Excess than the actual Excess, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term.

4.4.2 Statement of Estimated Building Direct Expenses . In addition, Landlord shall give Tenant a yearly expense estimate statement (the “ Estimate Statement ”), but in no event later than July 1, which shall set forth in general major categories Landlord’s commercially reasonable estimate (the “ Estimate ”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “ Estimated Excess ”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Additional Rent under this Article 4 , nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Excess theretofore delivered to the extent necessary. Thereafter, Tenant shall pay, within thirty (30) days after receipt of the Estimate Statement, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the second to last sentence of this Section 4.4.2 ), Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate Statement delivered by Landlord to Tenant. Throughout the Lease Term Landlord shall maintain books and records with respect to Building Direct Expenses in accordance with generally accepted real estate accounting and management practices, consistently applied.

4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible .

4.5.1 Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes’ levied against Tenant’s equipment, furniture, fixtures and any other personal property

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


located in or about the Premises. If any such taxes on Tenant’s equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

4.5.2 If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than Sixty-Five and No/100 Dollars ($65.00) per rentable square foot of the Premises, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.5.1 , above.

4.5.3 Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facility; or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.6 Landlord’s Books and Records .

4.6.1 Tenant’s Review and Audit Rights . Upon Tenant’s written request given not more than ninety (90) days after Tenant’s receipt of a Statement for a particular Expense Year, and provided that Tenant is not then in default under this Lease beyond the applicable cure period provided in this Lease, Landlord shall furnish Tenant with such reasonable supporting documentation in connection with said Building Direct Expenses as Tenant may reasonably request. Landlord shall provide said information to Tenant within sixty (60) days after Tenant’s written request therefor. Within one hundred eighty (180) days after receipt of a Statement by Tenant (the “ Review Period ”), if Tenant disputes the amount of Additional Rent set forth in the Statement, an independent certified public accountant (which accountant (A) is a member of a nationally or regionally recognized accounting firm, and (B) is not working on a contingency fee basis), designated and paid for by Tenant, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records with respect to the Statement at Landlord’s offices, provided that Tenant is not then in default under this Lease (beyond any applicable notice and cure periods) and Tenant has paid all amounts required to be paid under the applicable Estimate Statement and Statement, as the case may be. In connection with such inspection, Tenant and Tenant’s agents must agree in advance to follow Landlord’s reasonable rules and procedures regarding inspections of Landlord’s records, and shall execute a commercially reasonable confidentiality agreement regarding such inspection. Tenant’s failure to dispute the amount of Additional Rent set forth in any Statement within the Review Period shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute

 

   -20-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


the amounts set forth in such Statement. If after such inspection, Tenant still disputes such Additional Rent, a determination as to the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant (the “ Accountant ”) selected by Landlord and subject to Tenant’s reasonable approval; provided that if such determination by the Accountant proves that Direct Expenses were overstated by more than five percent (5%), then the cost of the Accountant and the cost of such determination shall be paid for by Landlord. Promptly following the parties receipt of such determination, the parties shall make such appropriate payments or reimbursements, as the case may be, to each other, as are determined to be owing pursuant to such determination, together with interest at the Interest Rate (as defined in Article 25 below). Tenant hereby acknowledges that Tenant’s sole right to inspect Landlord’s books and records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Section 4.6.1 , and Tenant hereby waives any and all other rights pursuant to applicable law to inspect such books and records and/or to contest the amount of Direct Expenses payable by Tenant.

4.6.2 AMN Audit, Determination and Reconciliation . In addition to the foregoing, in the event that (i) AMN Healthcare, Inc., a Nevada corporation (“ AMN ”), continues to lease the remainder of the Building pursuant to its lease with Landlord (the “ AMN Lease ”), (ii) AMN exercises its right under the AMN Lease (which right is substantially similar to Tenant’s corresponding right pursuant to the TCCs of Section 4.6.1 , above) to have a third-party independent certified public accountant (which third-party independent certified public accountant would be referred to as the Accountant pursuant to Section 4.6.1 if Tenant, rather than AMN, were exercising such right) audit Landlord’s books and records in connection with Building Direct Expenses with respect to a particular Expense Year, and (iii) such third-party independent certified public accountant (i.e., Accountant) makes a certification which is binding on Landlord and AMN as to the actual amount of Direct Expenses applicable under the AMN Lease for such Expense Year, then within thirty (30) days following the date of such certification Landlord shall, utilizing the information set forth in such certification, make a corresponding reconciliation with Tenant.

ARTICLE 5

USE OF PREMISES

5.1 Permitted Use . Tenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which shall not be unreasonably withheld by Landlord.

5.2 Prohibited Use s . The uses prohibited under this Lease shall include, without limitation, use of the Premises or a portion thereof for (i) offices of any agency or bureau of the United States or any state or political subdivision thereof; (ii) offices or agencies of any foreign governmental or political subdivision thereof; (iii) offices of any health care professionals or service organization; (iv) schools or other training facilities which are not ancillary to corporate, executive or professional office use; (v) retail or restaurant uses; or (vi) communications firms such as radio and/or television stations. Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit D , attached hereto, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project) including, without limitation, any such laws, ordinances, regulations or requirements relating to hazardous materials or substances, as those terms are defined by applicable laws now or hereafter in effect; provided, however, Landlord shall not enforce, change or modify the Rules and Regulations in a discriminatory manner and Landlord agrees that the Rules and Regulations shall not be unreasonably modified or enforced in a manner which will unreasonably interfere with the normal and customary conduct of Tenant’s business. Tenant shall not do or permit anything to be done in or about the Premises which will in any way damage the reputation of the Project or obstruct or interfere with the rights of other tenants or occupants of the Building, or injure or annoy them or use or allow the Premises to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall comply with all recorded covenants, conditions, and restrictions now or hereafter affecting the Project.

5.3 CC&Rs . Tenant shall comply with all recorded covenants, conditions, and restrictions currently affecting the Project. Additionally, Tenant acknowledges that the Project may be subject to any future covenants, conditions, and restrictions (the “ CC&Rs ”) which Landlord, in Landlord’s discretion, deems reasonably necessary or desirable, and Tenant agrees that this Lease shall be subject and subordinate to such CC&Rs; provided, however, such future CC&R’s shall not materially adversely affect Tenant’s use or occupancy of the Premises nor any of its rights hereunder. Landlord shall have the right to require Tenant to execute and acknowledge, within fifteen (15) business days of a request by Landlord, a “Recognition of Covenants, Conditions, and Restriction,” in a form substantially similar to that attached hereto as Exhibit F , agreeing to and acknowledging the CC&Rs.

ARTICLE 6

SERVICES AND UTILITIES

6.1 Standard Tenant Services . Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.

6.1.1 Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating and air conditioning (“ HVAC ”) when necessary for normal comfort for normal office use in the Premises from 7:30 A.M. to 6:00 P.M. Monday through Friday, and on Saturdays from 9:00 A.M. to 12:00 P.M. (collectively, the “ Building Hours ”), except for the date of observation of New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and, at Landlord’s discretion, other locally or nationally recognized holidays (collectively, the “ Holidays ”); provided, however, in no event shall Martin Luther King Day, Columbus Day, or Veterans Day be included as Holidays.

6.1.2 Landlord shall provide adequate electrical wiring and facilities for connection to Tenant’s lighting fixtures and incidental use equipment, provided that (i) the

 

   -22-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


connected electrical load of the incidental use equipment does not exceed an average of five (5) watts per usable square foot of the Premises during the Building Hours on a monthly basis, and the electricity so furnished for incidental use equipment will be at a nominal one hundred twenty (120) volts and no electrical circuit for the supply of such incidental use equipment will require a current capacity exceeding twenty (20) amperes, and (ii) the connected electrical load of Tenant’s lighting fixtures does not exceed an average of one and one-half (1 1 / 2 ) watts per usable square foot of the Premises during the Building Hour’s on a monthly basis, and the electricity so furnished for Tenant’s lighting will be at a nominal two hundred seventy-seven (277) volts, which electrical usage shall be subject to applicable laws and regulations, including Title 24. Tenant will design Tenant’s electrical system serving any equipment producing nonlinear electrical loads to accommodate such nonlinear electrical loads, including, but not limited to, oversizing neutral conductors, derating transformers and/or providing power-line filters. Engineering plans shall include a calculation of Tenant’s fully connected electrical design load with and without demand factors and shall indicate the number of watts of unmetered and submetered loads. Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises. Tenant shall be provided access to the lighting controls for each floor of the Building within the Premises.

6.1.3 Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in the Building Common Areas.

6.1.4 Landlord shall provide janitorial services to the Premises five (5) business days per week, except the date of observation of the Holidays, in and about the Premises and window washing services on a quarterly basis in a manner consistent with other comparable buildings in the vicinity of the Building.

6.1.5 Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours, shall have one elevator available at all other times, except on the Holidays. The elevators currently have the capacity to restrict access to the various floors of the Building based upon a “key card” activation system. In connection therewith, Landlord shall cooperate with Tenant, subject to the TCCs of Article 27 , to restrict elevator access to the sixth (6 th ) floor during the non-Building Hours, unless triggered by a “card key” issued to Tenant; provided, however, any actual costs incurred by Landlord with regard to the implementation of such “card key” restricted access program shall be reimbursed by Tenant as Additional Rent within thirty (30) days of billing therefore.

Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

6.2 Above Standard Tenant Services . Notwithstanding anything to the contrary set forth in Section 4.2.4 or this Article 6 , Tenant shall directly pay to Landlord one hundred percent (100%) of the total cost (including any permitting and/or other implementation costs) of providing all services (and related equipment) required by Tenant which are in excess of the services set forth in Section 6.1 , above, including, but not limited to, (i) twenty-four (24) hour security services to the Project, (ii) parking management systems, equipment and/or personnel, and (iii) twenty-four (24) hour porter service.

 

   -23-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


6.3 Direct Payment of Premises Utility Costs . Notwithstanding anything to the contrary set forth in Section 4.2.4 or this Article 6 , Tenant shall pay one hundred percent (100%) of the cost of all utilities (including without limitation, electricity, gas, sewer and water) attributable to its use of the entire Premises. Tenant’s utility use shall include electricity, water, and gas use for lighting, incidental use and HVAC. All such Premises utility (as opposed to corresponding payments attributable to the Common Areas) shall be excluded from Operating Expenses and shall be paid directly by Tenant prior to the date on which the same are due to the utility provider. Landlord and Tenant hereby acknowledge and agree that the Premises shall, as part of the Tenant Improvements being constructed pursuant to the Tenant Work Letter, be separately metered.

6.4 Security . Other than as expressly set forth in this Section 6.4 , Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project. Any such security measures for the benefit of the Premises, the Building or the Project shall be provided by Tenant, at Tenant’s sole cost and expense. Landlord shall provide reasonable access control services for the Building lobby during the Building Hours (i.e., an attendant in the Building lobby); provided, however, Landlord shall in no case be liable for personal injury or property damage for any error with regard to the admission to or exclusion from the Building of any person or any thing. Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed.

6.5 Overstandard Tenant Use .

6.5.1 Generally . Tenant shall not, without Landlord’s prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If such consent is given, Landlord shall have the right to install (or to require Tenant to itself install) supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the cost thereof, including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Tenant to Landlord upon billing by Landlord, and the cost of the utility usage in connection therewith shall be paid for by Tenant in accordance with the terms and conditions of Section 6.3 , above. If Tenant uses water, electricity, heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption. Tenant’s use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation.

6.5.2 HVAC . Tenant shall be provided access to the HVAC controls for the sixth (6 th ) floor of the Building. If Tenant uses HVAC in excess of two hundred forty (240) cumulative hours during any calendar month of the Lease Term, such excess-hours of HVAC (the “ After Hours HVAC ”) shall be provided to Tenant subject to Tenant’s payment to Landlord of an amount reasonably determined by Landlord to be its actual cost of providing such service

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(which cost shall specifically include, but not be limited to, a reasonable administration expense, electrical costs, and the amount directly attributable to increased wear, tear and maintenance on existing Building Systems caused by such After Hours HVAC); provided, however, promptly following Tenant’s request therefore, Landlord shall provide reasonable backup documentation in support of Landlord’s determination of such excess-hours charge. As of the execution of this Lease, the excess-hours charge is anticipated to total approximately $38.43 per floor per hour. Amounts payable by Tenant to Landlord for such excess-hours use shall be deemed Additional Rent and shall be paid within thirty (30) days after Tenant’s receipt of an invoice therefor.

6.6 Interruption of Use . Except as otherwise provided in this Lease, Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease, except as otherwise provided in this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6 .

6.7 Rent Abatement . If (i) Landlord fails to perform the obligations required of Landlord under the TCCs of this Lease, (ii) such failure causes all or a portion of the Premises to be untenantable and unusable by Tenant, and (iii) such failure relates to (A) the nonfunctioning of the heat, ventilation, and air conditioning system in the Premises, the electricity in the Premises, the nonfunctioning of the elevator service to the Premises, or the nonfunctioning of telecommunication services to the Premises, or (B) a failure to provide access to the Premises, then Tenant shall give Landlord notice (the “ Initial Notice ”), specifying such failure to perform by Landlord (the “ Landlord Default ”). If Landlord has not cured such Landlord Default within three (3) business days after the receipt of the Initial Notice (the “ Eligibility Period ”), Tenant may deliver an additional notice to Landlord (the “ Additional Notice ”), specifying such Landlord Default and Tenant’s intention to abate the payment of Rent under this Lease. If Landlord does not cure such Landlord Default within two (2) business days of receipt of the Additional Notice, Tenant may, upon written notice to Landlord, immediately abate Rent payable under this Lease for that portion of the Premises rendered untenantable and not used by Tenant, for the period beginning on the date three (3) business days after the Initial Notice to the earlier of the date Landlord cures such Landlord Default or the date Tenant recommences the use of such portion of the Premises. Such right to abate Rent shall be Tenant’s sole and exclusive remedy at law or in equity for a Landlord Default. Except as provided in this Section 6.4 , nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


ARTICLE 7

REPAIRS

7.1 In General . Landlord shall maintain in first-class condition and operating order and keep in good repair and condition the structural portions of the Building, including the foundation, floor/ceiling slabs, roof structure (as opposed to roof membrane), curtain wall, exterior glass and mullions, columns, beams, shafts (including elevator shafts), stairs, parking areas, landscaping, exterior Project signage, stairwells, elevator cab, men’s and women’s washrooms, Building mechanical, electrical and telephone closets, and all common and public areas (collectively, “ Building Structure ”) and the Base Building mechanical, electrical, life safety, plumbing, sprinkler systems and HVAC systems which were not constructed by Tenant Parties (collectively, the “ Building Systems ”) and the Project Common Areas. Notwithstanding anything in this Lease to the contrary, Tenant shall be required to repair the Building Structure and/or the Building Systems to the extent caused due to Tenant’s use of the Premises for other than normal and customary business office operations, unless and to the extent such damage is covered by insurance carried or required to be carried by Landlord pursuant to Article 10 and to which the waiver of subrogation is applicable (such obligation to the extent applicable to Tenant as qualified and conditioned will hereinafter be defined as the “ BS/BS Exception ”). Tenant shall, at Tenant’s own expense, keep the Premises, including all improvements, fixtures and furnishings therein, and the floor or floors of the Building on which the Premises are located, in good order, repair and condition at all times during the Lease Term, but such obligation shall not extend to the Building Structure and the Building Systems except pursuant to the BS/BS Exception. In addition, Tenant shall, at Tenant’s own expense, but under the supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, at Landlord’s option, or if Tenant fails to make such repairs, Landlord may, after written notice to Tenant and Tenant’s failure to repair within five (5) days thereafter, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord’s involvement with such repairs and replacements forthwith upon being billed for same. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree; provided, however, except for (i) emergencies, (ii) repairs, alterations, improvements or additions required by governmental or quasi-governmental authorities or court order or decree, or (iii) repairs which are the obligation of Tenant hereunder, any such entry into the Premises by Landlord shall be performed in a manner so as not to materially interfere with Tenant’s use of, or access to, the Premises; provided that, with respect to items (ii) and (iii) above, Landlord shall give Tenant twenty-four (24) hours prior written notice of such entry (except in the event of an emergency in which case no notice shall be required), and Landlord shall use commercially reasonable efforts to minimize interference with Tenant’s use of, or access to, the Premises. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

7.2 Tenant Self-Help Right . Notwithstanding any provision set forth in this Article 7 to the contrary, if Tenant provides written notice to Landlord of an event or circumstance which requires the action of Landlord with respect to repair and/or maintenance of the Premises only (and not any other portion of the Project), and Landlord fails to provide such action within a reasonable period of time, given the circumstances, after the receipt of such notice, but in no event earlier than thirty (30) days after Landlord’s receipt of such notice, then Tenant may proceed to take the required action upon delivery of an additional ten (10) days notice to Landlord specifying that Tenant is taking such required action, and if such action was required under the terms of this Lease to be taken by Landlord and was not taken by Landlord within such ten (10) day period, then Tenant shall be entitled to prompt reimbursement by Landlord of Tenant’s actual, reasonable costs in taking such action. In the event Tenant takes such action, and such work will affect the systems of the Building or the structural integrity of the Building, Tenant shall use only those contractors used by Landlord in the Project for work on such Building systems or structure unless such contractors are unwilling or unable to perform, or timely perform, such work, in which event Tenant may utilize the services of any other qualified contractor which normally and regularly performs similar work in first-class office buildings in the Del Mar Heights/UTC area.

ARTICLE 8

ADDITIONS AND ALTERATIONS

8.1 Landlord’s Consent to Alterations . Tenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “ Alterations ”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than ten (10) business days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building. Notwithstanding the foregoing, Tenant shall be permitted to make Alterations following ten (10) business days notice to Landlord, but without Landlord’s prior consent, to the extent that such Alterations do not adversely affect the systems and equipment of the Building, exterior appearance of the Building, or structural aspects of the Building (the “ Cosmetic Alterations ”). The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8 .

8.2 Manner of Construction . Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors reasonably approved by Landlord, and the requirement that upon Landlord’s timely request (as more particularly set forth in Section 8.5, below ). Tenant shall, at Tenant’s expense, remove such Alterations upon the expiration or any early termination of the Lease Term and return the affected portion of the

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Premises to a “warm shell” condition as reasonably determined by Landlord; provided, however, Landlord shall only require the removal of Alterations to the extent such Alterations are not consistent with (i) general office improvements, or (ii) the character of the Project as a first-class office project. Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the City of San Diego, all in conformance with Landlord’s construction rules and regulations; provided, however, that prior to commencing to construct any Alteration, Tenant shall meet with Landlord to discuss Landlord’s design parameters and code compliance issues. In the event Tenant performs any Alterations in the Premises which require or give rise to governmentally required changes to the “Base Building,” as that term is defined below, then Landlord shall, at Tenant’s expense, make such changes to the Base Building. The “ Base Building ” shall include the structural portions of the Building, and the public restrooms, elevators, exit stairwells and the systems and equipment located in the internal core of the Building on the floor or floors on which the Premises are located. In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project. Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord’s reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. In addition to Tenant’s obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of San Diego in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project construction manager a reproducible copy of the “as built” drawings of the Alterations, to the extent applicable, as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

8.3 Payment for Improvements . If payment is made directly to contractors, Tenant shall (i) comply with Landlord’s requirements for final lien releases and waivers in connection with Tenant’s payment for work to contractors, and (ii) sign Landlord’s standard contractor’s rules and regulations. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to three percent (3%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work. If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord’s reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord’s review of such work.

8.4 Construction Insurance . In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries “Builder’s All Risk” insurance in an amount reasonably approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Landlord may, in its reasonable discretion, require Tenant to obtain a lien and completion bond or some alternate form of

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.

8.5 Landlord’s Property . All Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed in or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord, except that Tenant may remove any Alterations, improvements, fixtures and/or equipment which Tenant can substantiate to Landlord have not been paid for with any Tenant improvement allowance funds provided to Tenant by Landlord, provided Tenant repairs any damage to the Premises and Building caused by such removal and returns the affected portion of the Premises to a “warm shell” condition as reasonably determined by Landlord. Furthermore, Landlord may, by written notice to Tenant prior to the end of the Lease Term, or given following any earlier termination of this Lease, require Tenant, at Tenant’s expense, to (i) remove any Alterations or improvements in the Premises to the extent such Alterations are not (A) consistent with general office improvements, or (B) the character of the Project as a first-class office project, and/or (ii) remove any “Above Building Standard Tenant Improvements,” as that term is defined in Section 2.4 of the Tenant Work Letter, located within the Premises and replace the same with then existing “Building Standard Tenant Improvements,” as that term is defined in Section 2.3 of the Tenant Work Letter, and to repair any damage to the Premises and Building caused by such removal and return the affected portion of the Premises to a “warm shell” condition as reasonably determined by Landlord; provided, however, if, in connection with its notice to Landlord with respect to any such Alterations or Cosmetic Alterations, (x) Tenant requests Landlord’s decision with regard to the removal of such Alterations or Cosmetic Alterations, and (y) landlord thereafter agrees in writing to waive the removal requirement with regard to such Alterations or Cosmetic Alterations, then Tenant shall not be required to so remove such Alterations or Cosmetic Alterations; provided further, however, that if Tenant requests such a determination from Landlord and Landlord, within ten (10) business days following Landlord’s receipt of such request from Tenant with respect to Alterations or Cosmetic Alterations, fails to address the removal requirement with regard to such Alterations or Cosmetic Alterations, Landlord shall be deemed to have agreed to waive the removal requirement with regard to such Alterations or Cosmetic Alterations. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations or improvements in the Premises, and return the affected portion of the Premises to a “warm shell” condition as reasonably determined by Landlord, then at Landlord’s option, either (1) Tenant shall be deemed to be holding over in the Premises and Rent shall continue to accrue in accordance with the terms of Article 16 , below, until such work shall be completed, or (2) Landlord may do so and may charge the cost thereof to Tenant. Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


ARTICLE 9

COVENANT AGAINST LIENS

Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys’ fees and costs) arising out of same or in connection therewith. Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under applicable laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility. Tenant shall remove any such lien or encumbrance by bond or otherwise within five (5) days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof. The amount so paid shall be deemed Additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall subject Landlord’s title to the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord’s option shall attach only against Tenant’s interest in the Premises and shall in all respects be subordinate to Landlord’s title to the Project, Building and Premises.

ARTICLE 10

INSURANCE

10.1 Indemnification and Waiver . To the extent not prohibited by law and except as otherwise expressly provided herein to the contrary, Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever and agrees that Landlord, its partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, “ Landlord Parties ”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant. Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) (collectively, “ Claims ”) incurred in connection with or arising from any cause in, on or about the Premises, any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant or any such person (collectively, the “ Tenant Parties ”), in, on or about the Project or any breach of the TCCs of this Lease, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the negligence or willful misconduct of Landlord Parties. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant’s occupancy of the Premises, and except to the extent such suit arises from the negligence or willful misconduct of Landlord, Tenant shall pay to

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as appraisers’, accountants’ and attorneys’ fees. Subject to Section 10.5 below, Landlord hereby indemnifies the Tenant Parties and holds the Tenant Parties harmless from any Claims to the extent resulting from the negligence or willful misconduct of Landlord or the Landlord Parties and not covered by insurance required to be carried under this Lease by Tenant or actually carried by Tenant; provided, however, that (i) Landlord hereby indemnifies and holds Tenant harmless from any Claims to any property outside of the Premises to the extent such Claim is covered by such insurance, even if resulting from the negligent acts or omissions of Tenant or those of its agents, contractors, or employees, and (ii) because Tenant must carry insurance pursuant to Section 10.3.2 to cover its personal property within the Premises and the Improvements, Tenant hereby indemnifies and holds Landlord harmless from any Claim to any property within the Premises, to the extent such Claim is covered by such insurance, even if resulting from the negligent acts or omissions of Landlord or those of its agents, contractors, or employees. Further, Landlord’s and Tenant’s agreement to indemnify the Tenant Parties and the Landlord Parties, respectively, pursuant to this Section 10.1 is not intended and shall not relieve any insurance carrier of its obligations under policies required to be carried by Landlord or Tenant, respectively, pursuant to the provisions of this Lease, to the extent such policies cover the matters subject to Landlord’s or Tenant’s indemnification obligations, as the case may be; nor shall they supersede any inconsistent agreement of the parties set forth in any other provision of this Lease. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination. Notwithstanding anything to the contrary contained in this Lease, nothing in this Lease shall impose any obligations on Tenant or Landlord to be responsible or liable for, and each hereby releases the other from all liability for, consequential damages other than those consequential damages incurred by Landlord in connection with a holdover of the Premises by Tenant after the expiration or earlier termination of this Lease.

10.2 Landlord’s Fire, Casualty and Liability Insurance .

10.2.1 Landlord shall maintain Commercial/Comprehensive General Liability Insurance with respect to the Building during the Lease Term covering claims for bodily injury, personal injury and property damage in the Project Common Areas and with respect to Landlord’s activities in the Premises.

10.2.2 Landlord shall insure the Building and Landlord’s remaining interest in the Tenant Improvements and Alterations with a policy of Physical Damage Insurance including building ordinance coverage, written on a standard Causes of Loss – Special Form basis (against loss or damage due to fire and other casualties covered within the classification of fire and extended coverage, vandalism, and malicious mischief, sprinkler leakage, water damage and special extended coverage), covering the full replacement cost of the Base Building, Premises and other improvements (including coverages for enforcement of Applicable Laws requiring the upgrading, demolition, reconstruction and/or replacement of any portion of the Building as a result of a covered loss) without deduction for depreciation.

10.2.3 Landlord shall maintain Boiler and Machinery/Equipment Breakdown Insurance covering the Building against risks commonly insured against by a Boiler &

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Machinery/Equipment Breakdown policy and such policy shall cover the full replacement costs, without deduction for depreciation.

10.2.4 The foregoing coverages shall contain commercially reasonable deductible amounts from such companies, and on such other terms and conditions, as Landlord may from time to time reasonably determine.

10.2.5 Additionally, at the option of Landlord, such insurance coverage may include the risk of (i) earthquake, (ii) flood damage and additional hazards, (iii) a rental loss endorsement for a period of up to two (2) years, (iv) one or more loss payee endorsements in favor of holders of any mortgages or deeds of trust encumbering the interest of Landlord in the Building, or any portion thereof.

10.2.6 Notwithstanding the foregoing provisions of this Section 10.2 , the coverage and amounts of insurance carried by Landlord in connection with the Building shall, at a minimum, be comparable to the coverage and amounts of insurance which are carried by reasonably prudent landlords of Comparable Buildings, and Worker’s Compensation and Employer’s Liability coverage as required by applicable law. Tenant shall, at Tenant’s expense, comply with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.3 Tenant’s Insurance . Tenant shall maintain the following coverages in the following amounts.

10.3.1 Commercial/Comprehensive General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) arising out of Tenant’s operations, and contractual liabilities (covering the performance by Tenant of its indemnity agreements) including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than:

 

Bodily Injury and

Property Damage Liability

  

$5,000,000 each occurrence

$5,000,000 annual aggregate, or any combination of primary insurance and excess insurance

Personal Injury Liability

   $5,000,000 each occurrence
  

$5,000,000 annual aggregate, or any combination of primary insurance and excess insurance

0% Insured’s participation

10.3.2 Property Insurance covering (i) all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant,

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(ii) the “Tenant Improvements,” as that term is defined in Section 2.1 of the Tenant Work Letter, and any other improvements which exist in the Premises as of the Lease Commencement Date (excluding the Base Building) (the “ Original Improvements ”), and (iii) all other improvements, alterations and additions to the Premises. Such insurance shall be written on an “all risks” of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion, and providing business interruption coverage for a period of one year.

10.3.3 Worker’s Compensation or other similar insurance pursuant to all applicable state and local statutes and regulations, and Employer’s Liability Insurance or other similar insurance pursuant to all applicable state and local statutes and regulations, with a waiver of subrogation endorsement and with minimum limits of One Million and No/100 Dollars ($1,000,000.00) per employee and One Million and No/100 Dollars ($1,000,000.00) per occurrence.

10.3.4 Comprehensive Automobile Liability Insurance covering all owned, hired, or non-owned vehicles with the following limits of liability: One Million Dollars ($1,000,000.00) combined single limit for bodily injury and property damage.

10.3.5 Business Interruption, loss of income and extra expense insurance in such amounts as will reimburse Tenant for actual direct or indirect loss of earnings for up to one (1) year attributable to the risks outlined in Section 10.3.2 , above.

10.4 Form of Policies . The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, and any other party the Landlord so specifies that has a material financial interest in the Project, as an additional insured, including Landlord’s managing agent, if any; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Landlord and any mortgagee of Landlord, the identity of whom has been provided to Tenant in writing. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Lease Commencement Date and at least thirty (30) days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, after written notice to Tenant and Tenant’s failure to obtain such insurance within five (5) days thereafter, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within thirty (30) days after delivery to Tenant of bills therefor.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


10.5 Subrogation . Landlord and Tenant intend that their respective property loss risks shall be borne by reasonable insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. The parties agree that their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor.

10.6 Additional Insurance Obligations . Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord. Notwithstanding the foregoing, Landlord’s request shall only be considered reasonable if such increased coverage amounts and/or such new types of insurance are consistent with the requirements of a majority of Comparable Buildings, and Landlord shall not so increase the coverage amounts or require additional types of insurance during the first five (5) years of the Lease Term and thereafter no more often than one time in any five (5) year period.

ARTICLE 11

DAMAGE AND DESTRUCTION

11.1 Repair of Damage to Premises by Landlord . Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11 , restore the Base Building and such Common Areas. Such restoration shall be to substantially the same condition of the Base Building and the Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project, provided that access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Upon the occurrence of any damage to the Premises, upon notice (the “ Landlord Repair Notice ”) to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under Section 10.3 of this Lease, and Landlord shall repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord’s commencement of repair of the damage. In the event that Landlord does not deliver the Landlord Repair Notice within

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


sixty (60) days following the date the casualty becomes known to Landlord, Tenant shall, at its sole cost and expense, repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition. Whether or not Landlord delivers a Landlord Repair Notice, prior to the commencement of construction, Tenant shall submit to Landlord, for Landlord’s review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, and the Premises are not occupied by Tenant as a result thereof, then during the time and to the extent the Premises are unfit for occupancy, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the purposes permitted under this Lease bears to the total rentable square feet of the Premises. In the event that Landlord shall not deliver the Landlord Repair Notice, Tenant’s right to rent abatement pursuant to the preceding sentence shall terminate as of the date which is reasonably determined by Landlord to be the date Tenant should have completed repairs to the Premises assuming Tenant used reasonable due diligence in connection therewith.

11.2 Landlord’s Option to Repair . Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage is not fully covered by Landlord’s insurance policies (excluding deductible amounts), and such shortfall exceeds Five Hundred Thousand Dollars ($500,000.00); (iv) the damage occurs during the last twelve (12) months of the Lease Term; or (v) any owner of any other portion of the Project, other than Landlord, does not intend to repair the damage to such portion of the Project; provided, however, that if Landlord does not elect to terminate this Lease pursuant to Landlord’s termination right as provided above, and the repairs cannot, in the reasonable opinion of Landlord, be completed within one hundred eighty (180) days after being commenced, then Landlord shall provide written notice to Tenant (the “ Repair Period Notice ”) within sixty (60) days after the date of discovery of the damage, which Repair Period Notice shall set forth Landlord’s opinion of the repair period, and thereafter Tenant may, within thirty (30) days of its receipt of such Repair Period Notice, elect to terminate this Lease by written notice to Landlord effective as of the date specified in Tenant’s termination notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such termination notice is given by Tenant. At any time, from time to time, after the date occurring sixty (60) days after the date of the damage, Tenant may request that Landlord inform Tenant of Landlord’s reasonable opinion of the date of completion of the repairs and Landlord shall

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


respond to such request within five (5) business days. Notwithstanding the provisions of this Section 11.2 , Tenant shall have the right to terminate this Lease under this Section 11.2 only if each of the following conditions is satisfied: (a) the damage to the Project by fire or other casualty was not caused by the gross negligence or intentional act of Tenant or its partners or subpartners and their respective officers, agents, servants, employees, and independent contractors; (b) Tenant is not then in default under this Lease; and, (c) as a result of the damage, Tenant cannot reasonably conduct business from the Premises. In the event this Lease is terminated in accordance with the terms of this Section 11.2 , Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under items (ii) and (iii) of Section 10.3.2 of this Lease.

11.3 Waiver of Statutory Provisions . The provisions of this Lease, including this Article 11 , constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.

ARTICLE 12

NONWAIVER

No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


ARTICLE 13

CONDEMNATION

If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. If (i) more than ten percent (10%) of the rentable square feet of the Premises is taken (ii) more than ten percent (10%) of Tenant’s parking spaces are taken (and Landlord does not provide Tenant with substitute parking spaces within thirty (30) days after such taking sufficient to cause the total number of parking spaces available to Tenant to be at least ninety percent (90%) of Tenant’s total allocated parking spaces), or (iii) access to the Premises is substantially impaired, in each case for a period in excess of one hundred twenty (120) days, then Tenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant, All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure. Notwithstanding anything to the contrary contained in this Article 13 , in the event of a temporary taking of all or any portion of the Premises for a period of one hundred twenty (120) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

14.1 Transfers . Subject to the TCCs of Section 14.8 , below, Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as “ Transfers ” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “ Transferee ”). If Tenant desires Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “ Transfer Notice ”) shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “ Subject Space ”), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the “ Transfer Premium ”, as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, provided that Landlord shall have the right to require Tenant to utilize Landlord’s standard Transfer documents in connection with the documentation of such Transfer, (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee’s business and proposed use of the Subject Space and (v) an executed estoppel certificate from Tenant in the form attached hereto as Exhibit E . Any Transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant under this Lease. Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord’s review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys’, accountants’, architects’, engineers’ and consultants’ fees) incurred by Landlord, within thirty (30) days after written request by Landlord, in an amount not to exceed One Thousand Five Hundred and No/100 Dollars ($1,500.00) in the aggregate, for a Transfer in the ordinary course of business. Landlord and Tenant hereby agree that a proposed Transfer shall not be considered “in the ordinary course of business” if such Transfer involves the review of documentation by Landlord on more than two (2) occasions. In connection with Tenant’s expectation that it will, at the beginning of the Lease Term, attempt to sublease a portion of the Premises, Tenant may, subject to (A) Landlord’s prior written approval (which shall not be unreasonably withheld, conditioned or delayed), (B) the “Sign Specifications” set forth in Section 23.5.1 , below, be permitted to install and maintain during the first nine (9) months of the initial Lease Term one (1) standard brokerage sign in an exterior location to be mutually and reasonably designated by Landlord and Tenant to market sublease space to third-party subtenants.

14.2 Landlord’s Consent . Landlord shall not unreasonably withhold its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply:

14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project;

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


14.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;

14.2.3 The Transferee is either a governmental agency or instrumentality thereof;

14.2.4 The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested;

14.2.5 The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease;

14.2.6 The terms of the proposed Transfer will allow the Transferee (except to the extent a Permitted Assignee) to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Tenant (or will allow the Transferee to occupy space leased by Tenant pursuant to any such right); or

14.2.7 Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) is negotiating with Landlord to lease space in the Project at such time, or (ii) has negotiated with Landlord during the twelve (12)-month period immediately preceding the Transfer Notice; provided, however, this Section 14.2.7 shall only apply to the extent Landlord has available space in the Building suitable for such proposed Transferee; or

14.2.8 The Transferee does not intend to occupy the entire Subject Space and conduct its business therefrom for a substantial portion of the term of the Transfer.

If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord’s consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2 , or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenant’s original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord’s right of recapture, if any, under Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14 , their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee. Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims, damages, costs, expenses, causes of action and proceedings involving any third party or

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


parties (including without limitation Tenant’s proposed subtenant or assignee) who claim they were damaged by Landlord’s wrongful withholding or conditioning of Landlord’s consent, except to the extent that a court of competent jurisdiction determines that Landlord unreasonably withheld or delayed its consent to a Transfer under this Article 14 .

Landlord and Tenant hereby acknowledge that Tenant anticipates subleasing portions of the Premises during the Lease Term and therefore, notwithstanding anything to the contrary set forth in this Section 14.2 , Landlord and Tenant hereby agree that to the extent (i) Tenant desires to enter into a sublease during the initial Lease Term, (ii) such sublease is not a subterfuge by Tenant to avoid its obligations under this Lease, (iii) such sublease otherwise satisfies all of the applicable TCCs of this Article 14 , and (iv) thereafter, no more than 8,000 rentable square feet of space in the Premises, based upon the total of all then-existing subleases, is so subleased (as applicable, an “ Excess Capacity Sublease ”), then for purposes of Landlord’s consent thereto, the TCCs of Sections 14.2.4 , 14.2.7 and 14.2.8 of this Lease, above, shall not apply.

14.3 Transfer Premium . If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3 , received by Tenant from such Transferee, “ Transfer Premium ” shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any free base rent or other economic concessions reasonably provided to the Transferee, and (iii) any brokerage commissions in connection with the Transfer. “Transfer Premium” shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for (A) services rendered by Tenant to Transferee, or (B) for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. In the calculations of the Rent (as it relates to the Transfer Premium calculated under this Section 14.3 ), and the Transferee’s Rent and Quoted Rent under Section 14.2 of this Lease, the Rent paid during each annual period for the Subject Space, and the Transferee’s Rent and the Quoted Rent, shall be computed after adjusting such rent to the actual effective rent to be paid, taking into consideration any and all leasehold concessions granted in connection therewith, including, but not limited to, any rent credit and tenant improvement allowance. For purposes of calculating any such effective rent all such concessions shall be amortized on a straight-line basis over the relevant term. Notwithstanding anything to the contrary set forth in this Section 14.3 , the TCCs of this Section 14.3 with regard to the Transfer Premium shall not apply to any Excess Capacity Sublease to the extent such Excess Capacity Sublease is entered into and approved pursuant to the TCCs of this Article 14 during the first thirty-six (36) months of the initial Lease Term.

14.4 Landlord’s Option as to Subject Space . In the event that a proposed Transfer, if consented to, would cause forty percent (40%) or more of the Premises to be subleased or licensed to a party (or parties) other than the Original Tenants (or either of them), their Affiliates and/or a Permitted Assignee, then notwithstanding anything to the contrary contained in this Article 14 , Landlord shall have the option, by giving written notice to Tenant within thirty (30)

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


days after receipt of any Transfer Notice, to recapture the Subject Space; provided, however, in the event Landlord so elects to recapture the Subject Space, Tenant may rescind its Transfer Notice (in which no Landlord-recapture shall result) by delivering written notice of Tenant’s rescission election to Landlord within ten (10) business days following Tenant’s receipt of Landlord’s recapture notice. Unless so rescinded by Tenant pursuant to the immediately preceding sentence, such recapture notice shall cancel and terminate this Lease with respect to the Subject Space as of the date stated in the Transfer Notice as the effective date of the proposed Transfer until the last day of the term of the Transfer as set forth in the Transfer Notice (or at Landlord’s option, shall cause the Transfer to be made to Landlord or its agent, in which case the parties shall execute the Transfer documentation promptly thereafter). In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner to recapture the Subject Space under this Section 14.4 , then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject Space to the proposed Transferee, subject to provisions of this Article 14 . Notwithstanding anything to the contrary set forth in this Section 14.4 , to the extent of an Excess Capacity Sublease, the TCCs of this Section 14.4 with regard to recapture shall not apply to such Excess Capacity Sublease.

14.5 Effect of Transfer . If Landlord consents to a Transfer, (i) the TCCs of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord’s request a complete statement, certified by an independent certified public accountant, or Tenant’s chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space. Landlord or its authorized representatives shall have the right at all reasonable times, and upon forty-eight (48) hours advance written notice to Tenant, to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than three percent (3%), Tenant shall pay Landlord’s costs of such audit.

14.6 Additional Transfers . For purposes of this Lease, the term “ Transfer ” shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of fifty percent (50%) or more of partnership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant (a

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Reorganization ”) which would have a material adverse economic impact on the business of Tenant or would otherwise materially adversely alter Tenant’s ability to satisfy Tenant’s financial obligations set forth in this Lease, or (B) the sale or other transfer of an aggregate of fifty percent (50%) or more of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12)-month period (a “ Sale ”) which would have a material adverse economic impact on the business of Tenant or would otherwise materially adversely alter Tenant’s ability to satisfy Tenant’s financial obligations set forth in this Lease, or (C) the sale, mortgage, hypothecation or pledge of an aggregate of fifty percent (50%) or more of the value of the unencumbered assets of Tenant within a twelve (12)-month period; provided, however, in the event of any such Reorganization or Sale (regardless of whether or not the remaining requirements of this Section 14.6 are satisfied in connection therewith), Tenant shall nevertheless notify Landlord in writing with regard to such Reorganization or Sale and shall promptly supply Landlord with any documents or information reasonably requested by Landlord regarding such Reorganization or Sale.

14.7 Occurrence of Default . Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to: (i) treat such Transfer as cancelled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer. If Tenant shall be in default under this Lease, Landlord is hereby irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such default is cured. Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Landlord’s enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord’s right to enforce any term of this Lease against Tenant or any other person. If Tenant’s obligations hereunder have been guaranteed, Landlord’s consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

14.8 Non-Transfers . Notwithstanding anything to the contrary contained in this Article 14 , (i) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant or the principals of either of the Original Tenants), (ii) an assignment of the Premises to an entity which acquires all or substantially all of the assets or interests (partnership, stock or other) of Tenant, or (iii) an assignment of the Premises to an entity which is the resulting entity of a merger or consolidation of Tenant, shall not be deemed a Transfer under this Article 14 , provided that Tenant notifies Landlord of any such assignment or sublease and promptly supplies Landlord with any documents or information requested by Landlord regarding such assignment or sublease or such affiliate, and further provided that such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease. The transferee under a transfer specified in items (i), (ii) or (iii) above shall be referred to as a “ Affiliate .” “ Control ,” as used in

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


this Section 14.8 , shall mean the ownership, directly or indirectly, of at least fifty-one percent (51%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty-one percent (51%) of the voting interest in, any person or entity.

ARTICLE 15

SURRENDER OF PREMISES; OWNERSHIP AND

REMOVAL OF TRADE FIXTURES

15.1 Surrender of Premises . No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated, The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

15.2 Removal of Tenant Property by Tenant . Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15 , quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, business and trade fixtures, free-standing cabinet work, movable partitions and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.

ARTICLE 16

HOLDING OVER

If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Rent shall be payable at a monthly rate equal to the product of (i) the Rent applicable during the last rental period of the Lease Term under this Lease, and (ii) a percentage equal to one hundred ten percent (110%) during the first two (2) months immediately following the expiration or earlier termination of the Lease Term, and one hundred twenty percent (120%) thereafter. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this Article 16 shall be

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom.

ARTICLE 17

ESTOPPEL CERTIFICATES

Within ten (10) days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E , attached hereto (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord’s mortgagee or prospective mortgagee. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes. On or before May 1 st of each calendar year during the Lease Term, Tenant shall provide Landlord with a current (i.e., for the most recently completed fiscal year), combined and audited financial statement (the “ Financial Statements ”); provided, however, together with its first delivery of such Financial Statements during the Lease Term, Tenant shall concurrently provide Landlord with the Financial Statements attributable to the two (2) immediately preceding years. In addition, at any other time during the Lease Term (but in no event more one (1) additional time in any Lease Year), Landlord may require Tenant to provide Landlord with unaudited financial statements (otherwise consistent with such Financial Statements) promptly following Landlord’s delivery of a written request therefore. Such Financial Statements shall be prepared in accordance with generally accepted accounting principles. Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception.

ARTICLE 18

SUBORDINATION

Subject to Tenant’s receipt of an appropriate non-disturbance agreement(s) as set forth below, this Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. As of the date of this Lease, and except with regard to that certain construction loan which matures in August 2004, Landlord covenants that no other deed of trust, mortgage, other encumbrance, or ground or underlying lease encumbers the Premises, Building or Project. Landlord’s delivery to Tenant of commercially reasonable non-disturbance agreement(s) (the “ Nondisturbance Agreement ”) in favor of Tenant from any ground lessor, mortgage holders or lien holders of Landlord who later come into existence at any time prior to the expiration of the Lease Term shall be in consideration of, and a condition precedent to, Tenant’s agreement to be bound by the terms and conditions of this Article 18 . Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as Tenant timely pays the rent and observes and performs the TCCs of this Lease to be observed and performed by Tenant. Landlord’s interest herein may be assigned as security at any time to any lienholder. Tenant shall, within ten (10) business days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Subject to Tenant’s receipt of the Nondisturbance Agreement described herein, Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.

ARTICLE 19

DEFAULTS; REMEDIES

19.1 Events of Default . The occurrence of any of the following shall constitute a default of this Lease by Tenant:

19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease within five (5) business days of Tenant’s receipt of written notice from Landlord that the same was not paid when due; or

19.1.2 Except where a specific time period is otherwise set forth for Tenant’s performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2 , any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


and cure such default, but in no event exceeding a period of time in excess of sixty (60) days after written notice thereof from Landlord to Tenant; or

19.1.3 To the extent permitted by law, a general assignment by Tenant or any guarantor of this Lease for the benefit of creditors, or the taking of any corporate action in furtherance of bankruptcy or dissolution whether or not there exists any proceeding under an insolvency or bankruptcy law, or the filing by or against Tenant or any guarantor of any proceeding under an insolvency or bankruptcy law, unless in the case of a proceeding filed against Tenant or any guarantor the same is dismissed within sixty (60) days, or the appointment of a trustee or receiver to take possession of all or substantially all of the assets of Tenant or any guarantor, unless possession is restored to Tenant or such guarantor within thirty (30) days, or any execution or other judicially authorized seizure of all or substantially all of Tenant’s assets located upon the Premises or of Tenant’s interest in this Lease, unless such seizure is discharged within thirty (30) days; or

19.1.4 Abandonment or vacation of all or a substantial portion of the Premises by Tenant; or

19.1.5 The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease where such failure continues for more than five (5) business days after notice from Landlord; or

The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

19.2 Remedies Upon Default . Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:

(a) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

(b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(c) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

(e) At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term “rent” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 19.2.1(a) and (b) , above, the “worth at the time of award” shall be computed by allowing interest at the Interest Rate. As used in Section 19.2.1(c) , above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

19.2.3 Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

19.3 Subleases of Tenant . Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19 , Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements. In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

19.4 Form of Payment After Default . Following the occurrence of an event of default by Tenant, Landlord shall have the right to require that any or all subsequent amounts paid by Tenant to Landlord hereunder, whether to cure the default in question or otherwise, be paid in the form of cash, money order, cashier’s or certified check drawn on an institution

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


acceptable to Landlord, or by other means approved by Landlord, notwithstanding any prior practice of accepting payments in any different form.

19.5 Efforts to Relet . No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord’s interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

19.6 Landlord Default . Notwithstanding anything to the contrary set forth in this Lease, Landlord shall be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease if Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord’s failure to perform; provided, however, if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursues the same to completion. Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity. Any award from a court or arbitrator in favor of Tenant requiring payment by Landlord which is not paid by Landlord within the time period directed by such award, may be offset by Tenant from Rent next due and payable under this Lease; provided, however, Tenant may not deduct the amount of the award against more than fifty percent (50%) of Base Rent next due and owing (until such time as the entire amount of such judgment is deducted) to the extent following a foreclosure or a deed-in-lieu of foreclosure.

ARTICLE 20

COVENANT OF QUIET ENJOYMENT

Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other TCCs, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the TCCs, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

ARTICLE 21

SECURITY DEPOSIT

21.1 In General . Concurrent with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a security deposit (the “ Security Deposit ”) in the amount set forth in Section 8 of the Summary (the “ Security Deposit Amount ”), as security for the faithful

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


performance by Tenant of all of its obligations under this Lease. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, the removal of property and the repair of resultant damage, Landlord may, without notice to Tenant, but shall not be required to apply all or any part of the Security Deposit for the payment of any Rent or any other sum in default and Tenant shall, upon demand therefor, restore the Security Deposit to its original amount. Any unapplied portion of the Security Deposit shall be returned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder, within forty-five (45) days following the expiration of the Lease Term. Landlord shall hold Tenant’s Security Deposit (i.e., the entire Security Deposit Amount) in an interest bearing short-term certificate of deposit account (the “ CD ”), maintained at a bank selected by Landlord, which CD shall be in Landlord’s name; provided, however, such CD shall provide for all interest to be payable to Tenant. Any penalty assessed by the financial institution for the early withdrawal from such account due to a default by Tenant shall be borne by Tenant. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, or any successor statute.

21.2 Conditional Reduction of Security Deposit Amount . Landlord and Tenant hereby acknowledge and agree that, to the extent Tenant satisfies the TCCs of this Section 21.2 , the Security Deposit Amount is subject to an annual reduction equal to ten percent (10%) of the initial Security Deposit Amount throughout the Lease Term. Notwithstanding anything to the contrary set forth in this Section 21.2, Tenant shall only be entitled to such conditional reduction to the extent (1) Tenant is not then in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods), (2) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, (3) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year period, (4) Tenant has timely delivered to Landlord the applicable annual Financial Statement in accordance with the TCCs of Article 17, above, and (5) Landlord receives the auditor’s opinion letter, delivered in connection with the annual Financial Statements, confirming that Tenant continues to have the financial ability as an ongoing concern to satisfy Tenant’s then-remaining economic obligations set forth in this Lease. For purposes of example only, and assuming that upon each anniversary of the Lease Commencement Date Tenant is entitled to the conditional reduction pursuant to the TCCs of this Section 21.2, then the Security Deposit Amount would be reduced pursuant to the foregoing schedule.

 

Reduction Date:

   Security Deposit Amount:

First (1 st ) anniversary of
Lease Commencement Date

   $101,819.25

Second (2 nd ) anniversary of
Lease Commencement Date

   $90,506.00

Third (3 rd ) anniversary of
Lease Commencement Date

   $79,192.75

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Fourth (4 th ) anniversary of
Lease Commencement Date

   $67,879.50

Fifth (5 th ) anniversary of
Lease Commencement Date

   $56,566.25

Sixth (6 th ) anniversary of
Lease Commencement Date

   $45,253.00

Seventh (7 th ) anniversary of
Lease Commencement Date

   $33,939.75

Eighth (8 th ) anniversary of
Lease Commencement Date

   $22,626.50

Ninth (9 th ) anniversary of
Lease Commencement Date

   $11,313.25

ARTICLE 22

TELECOMMUNICATIONS EQUIPMENT

At any time during the Lease Term, subject to the TCCs of this Article 22 and Article 8 of this Lease. Tenant may install, at Tenant’s sole cost and expense, but without the payment of any Rent or a license or similar fee or charge, up to one (1) twenty-four inch (24”) satellite dish (and reasonable equipment related thereto), servicing the business conducted by Tenant from within the Premises (all such equipment is defined collectively as the “ Telecommunications Equipment ”) upon the portion of the roof of the Building designated by Landlord for such equipment. The physical appearance and the size of the Telecommunications Equipment shall be subject to Landlord’s reasonable approval, the location of any such installation of the Telecommunications Equipment shall be designated by Tenant subject to Landlord’s reasonable approval and Landlord may require Tenant to install screening around such Telecommunications Equipment, at Tenant’s sole cost and expense, as reasonably designated by Landlord. Tenant shall maintain such Telecommunications Equipment, at Tenant’s sole cost and expense. In the event Tenant elects to exercise its right to install the Telecommunication Equipment, then Tenant shall give Landlord prior notice thereof. Tenant shall reimburse to Landlord the actual costs reasonably incurred by Landlord in approving such Telecommunications Equipment, provided, however, such reimbursement shall not exceed Five Hundred and No/100 Dollars ($500.00) per approval. Tenant shall remove such Telecommunications Equipment upon the expiration or earlier termination of this Lease and shall return the affected portion of the rooftop and the Building to the condition the rooftop and the Building would have been in had no such Telecommunications Equipment been installed (reasonable wear and tear accepted). Such Telecommunications Equipment shall be installed pursuant to plans and specifications approved by Landlord, which approval will not be unreasonably withheld, conditioned, or delayed. Such Telecommunications Equipment shall, in all instances, comply with applicable governmental

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


laws, codes, rules and regulations. Tenant shall not be entitled to license its Communication Equipment to any unrelated third party, nor shall Tenant be permitted to receive any revenues, fees or any other consideration for the use of such Communication Equipment by an unrelated third party. Tenant’s right to install such Telecommunication Equipment shall be non-exclusive, and Tenant hereby expressly acknowledges Landlord’s continued right (i) to itself utilize any rooftop space, and (ii) to re-sell, license or lease any rooftop space to an unaffiliated third party; provided, however, such Landlord (or third-party) use shall not materially interfere with (or preclude the installation of) Tenant’s Telecommunications Equipment

ARTICLE 23

SIGNS

23.1 Full Floors . Subject to Landlord’s prior written approval, in its reasonable discretion, and provided all such signs are in keeping with the quality, design and style of the Building and Project, Tenant may, to the extent the Premises comprises an entire floor of the Building and at Tenant’s sole cost and expense, install identification signage anywhere in the Premises including in the elevator lobby of the Premises; provided, however, in no event shall such signs be visible from the exterior of the Building.

23.2 Multi-Tenant Floors . If other tenants occupy space on the floor on which the Premises is located, Tenant’s identifying signage shall be provided by Landlord, at Tenant’s cost, and such signage shall be comparable to that used by Landlord for other similar floors in the Building and shall comply with Landlord’s Building standard signage program.

23.3 Prohibited Signage and Other Items . Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant. Except as expressly set forth in Section 23.5, below, Tenant may not install any signs on the exterior or roof of the Project or the Common Areas. Any signs (subject to the TCCs of Section 23.5 of this Lease), window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion.

23.4 Building Directory . Tenant shall have the right, at Tenant’s sole cost and expense, to use three (3) name strips on the building directory located in the lobby of the Building, with which to identify Tenant and the location of the Premises within the Building (i.e., “Suite 600”).

23.5 Tenant’s Signage . In connection with Tenant’s lease of the Premises, and subject to the remaining TCCs of this Section 23.5 , Tenant shall be entitled to the following signage in connection with Tenant’s lease of the Premises (collectively, the “ Tenant’s Signage ”);

 

  (i) One (1) non-exclusive building-top sign (maximum size being 100 square feet) identifying Tenant’s name or logo located at the top of the south-facing elevation of the Building (the “ Building-Top Sign ”)

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


  (ii) Two (2) strips on the existing monument sign for the Project (the “ Project Monument Sign ”), which strips shall initially reference the two (2) Original Tenants under this Lease; provided, however, to the extent the same satisfies the remaining TCCs of this Section 23.5, Tenant may use one (1) such strip to reference an approved Transferee pursuant to the TCCs of Article 14 ; provided further, however, Landlord shall be able to locate its standard identification signage on the Project Monument Sign (with a relative size equal to no greater than twenty-five percent (25%) of Tenant’s signage thereon)

23.5.1 Specifications and Permits . Tenant’s Signage shall set forth Tenant’s name and logo as determined by Tenant in its sole discretion; provided, however, in no event shall Tenant’s Signage include an “Objectionable Name,” as that term is defined in Section 23.5.2, of this Lease. The graphics, materials, color, design, lettering, lighting, size, illumination, specifications and exact location of Tenant’s Signage (collectively, the “ Sign Specifications ”) shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, and shall be consistent and compatible with the quality and nature of the Project and the Building Standard Signage Specifications. For purposes of this Section 23.5.1, the reference to “name” shall mean name and/or logo. In addition, Tenant’s Signage shall be subject to Tenant’s receipt of all required governmental permits and approvals and shall be subject to all Applicable Law and to any covenants, conditions and restrictions affecting the Project. Landlord shall use commercially reasonable efforts to assist Tenant in obtaining all necessary governmental permits and approvals for Tenant’s Signage. Tenant hereby acknowledges that, notwithstanding Landlord’s approval of Tenant’s Signage, Landlord has made no representation or warranty to Tenant with respect to the probability of obtaining all necessary governmental approvals and permits for Tenant’s Signage. In the event Tenant does not receive the necessary governmental approvals and permits for Tenant’s Signage, Tenant’s and Landlord’s rights and obligations under the remaining TCCs of this Lease shall be unaffected.

23.5.2 Objectionable Name . To the extent either of the Original Tenants, their Affiliates and/or a Permitted Assignee desires to change the name and/or logo set forth on Tenant’s Signage, such name and/or logo shall not have a name which relates to an entity which is of a character or reputation, or is associated with a political faction or orientation, which is inconsistent with the quality of the Project, or which would otherwise reasonably offend a landlord of the Comparable Buildings (an “ Objectionable Name ”). The parties hereby agree that the name “Relational Group” or any reasonable derivation thereof, shall not be deemed an Objectionable Name.

23.5.3 Termination of Right to Tenant’s Signage . The rights contained in this Section 23.4 shall be personal to the Original Tenants, and may only be exercised by the Original Tenants (or either of them), their Affiliates, a Permitted Assignee (and not any other assignee, sublessee or other transferee of either of the Original Tenant’s interest in this Lease) if (i) the Original Tenants, their Affiliates, a Permitted Assignee and/or any subtenant under an Excess Capacity Sublease are, collectively, in occupancy of no less than ninety percent (90%) of the then existing Premises, (ii) Tenant is not then in economic default or material non-economic

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


default under this Lease (beyond any applicable notice and cure periods), (iii) Tenant has not been in economic default or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, and (iv) Tenant has not been in economic default or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year period.

23.5.4 Cost and Maintenance . The costs of the actual signs comprising Tenant’s Signage and the installation, design, construction, and any and all other costs associated with Tenant’s Signage, including, without limitation, utility charges and hook-up fees, permits, and maintenance and repairs, shall be the sole responsibility of Tenant; provided that Landlord shall construct and install the Project Monument Sign(s) (including, but not limited to, running sufficient power and utilities to the site of the Project Monument Sign), at Tenant’s sole cost and expense, and Tenant shall be responsible for the cost of Tenant’s sign on the Project Monument Sign(s), but Landlord shall maintain all monument signs set forth in this Article 23 in good condition and repair, the cost of which in connection with the Project Monument Sign(s) shall be included in Operating Expenses. Should Tenant’s Signage require repairs and/or maintenance, as determined in Landlord’s reasonable judgment, Landlord shall have the right to provide Notice thereof to Tenant and Tenant (except as set forth above) shall cause such repairs and/or maintenance to be performed within thirty (30) days after receipt of such Notice from Landlord, at Tenant’s sole cost and expense; provided, however, if such repairs and/or maintenance are reasonably expected to require longer than thirty (30) days to perform, Tenant shall commence such repairs and/or maintenance within such thirty (30) day period and shall diligently prosecute such repairs and maintenance to completion. Should Tenant fail to perform such repairs and/or maintenance within the periods described in the immediately preceding sentence, Landlord shall, upon the delivery of an additional five (5) business days’ prior written notice, have the right to cause such work to be performed and to charge Tenant as Additional Rent for the Actual Cost of such work. Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, cause Tenant’s Signage to be removed and shall cause the areas in which such Tenant’s Signage was located to be restored to the condition existing immediately prior to the placement of such Tenant’s Signage. If Tenant fails to timely remove such Tenant’s Signage or to restore the areas in which such Tenant’s Signage was located, as provided in the immediately preceding sentence, then Landlord may perform such work, and all Actual Costs incurred by Landlord in so performing shall be reimbursed by Tenant to Landlord within thirty (30) days after Tenant’s receipt of an invoice therefor. The TCCs of this Section 23.5.4 shall survive the expiration or earlier termination of this Lease.

ARTICLE 24

COMPLIANCE WITH LAW

Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, “ Applicable Laws ”). At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws which relate to (i) Tenant’s use of the Premises for non-general office use, (ii) the Alterations or Tenant Improvements in the Premises, or (iii) the Base

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Building, but, as to the Base Building, only to the extent such obligations are triggered by Tenant’s Alterations, the Tenant Improvements, or use of the Premises for non-general office use. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant. Landlord shall comply with all Applicable Laws relating to the Base Building, provided that compliance with such Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord’s failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably and materially affect the safety of Tenant’s employees or create a significant health hazard for Tenant’s employees. Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent consistent with the terms of Section 4.2.4 , above.

ARTICLE 25

LATE CHARGES

If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) business days after Tenant’s receipt of written notice from Landlord that the same was not paid when due, then Tenant shall pay to Landlord a late charge equal to three (3%) of the overdue amount plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at the “Interest Rate,” For purposes of this Lease, the “ Interest Rate ” shall be an annual rate equal to the lesser of (i) the annual “ Bank Prime Loan ” rate cited in the Federal Reserve Statistical Release Publication G.13(415), published on the first Tuesday of each calendar month (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published), plus four (4) percentage points, and (ii) the highest rate permitted by applicable law.

ARTICLE 26

LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

26.1 Landlord’s Cure . All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


excess of the time allowed under Section 19.1.2, above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be obligated to, following prior written notice to Tenant, make any such payment or perform any such act on Tenant’s part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder.

26.2 Tenant’s Reimbursement . Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, upon delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant’s defaults pursuant to the provisions of Section 26.1 ; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all reasonable legal fees and other amounts so expended. Tenant’s obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.

ARTICLE 27

ENTRY BY LANDLORD

Landlord reserves the right at all reasonable times (during Building Hours with respect to items (i) and (ii) below) and upon at least twenty-four (24) hours prior written notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or during the last twelve (12) months of the Lease Term, to prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment. A representative of Tenant shall accompany Landlord in connection with any such entry; provided, however, the foregoing shall not apply in the case of an emergency where a representative of Tenant is not readily available to accompany Landlord. Notwithstanding anything to the contrary contained in this Article 27, Landlord may enter the Premises at any time to (A) perform services required of Landlord, including janitorial service; (B) take possession due to any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform. Landlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and may take such reasonable steps as required to accomplish the stated purposes; provided, however, except for (i) emergencies, (ii) repairs, alterations, improvements or additions required by governmental or quasi-governmental authorities or court order or decree, or (iii) repairs which are the obligation of Tenant hereunder, any such entry shall be performed in a manner so as not to materially interfere with Tenant’s use of, or access to, the Premises and shall be performed after normal business hours if reasonably practical. With respect to items (ii) and (iii) above, Landlord shall not materially interfere with Tenant’s use of, or access to, the Premises. Except as otherwise set forth in Section 6.4, Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


in the Premises, excluding Tenant’s vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. No provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed to be performed by Landlord herein.

ARTICLE 28

TENANT PARKING

Tenant shall have the right to use, at no cost to Tenant during the entire Lease Term, commencing on the Lease Commencement Date, the amount of parking passes set forth in Section 9 of the Summary, on a monthly basis throughout the Lease Term, which parking passes shall pertain to the Project parking facility. Notwithstanding the foregoing, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by Tenant or the use of the parking facility by Tenant. Except to the extent expressly identified to the contrary herein, each parking pass shall be for unreserved parking within the Project parking facility. Twenty-five (25) of such passes shall be applicable to reserved covered parking spaces individually designated for particular employees of Tenant (the “ Individually Reserved Spaces ”), the location of which spaces shall be mutually and reasonable determined by Landlord and Tenant prior to the Lease Commencement Date. Tenant’s continued right to use the parking passes is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the parking facility where the parking passes are located, including any sticker or other identification system established by Landlord, Tenant’s cooperation in seeing that Tenant’s employees and visitors also comply with such rules and regulations and Tenant not being in default under this Lease. Except as expressly set forth below to the contrary, Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project parking facility at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Project parking facility for purposes of permitting or facilitating any such construction, alteration or improvements; provided, however, Landlord and Tenant hereby acknowledge and agree that the current configuration and location of exclusive, reserved and unreserved parking spaces in the Project parking facility are as set forth on the diagram attached hereto as Exhibit H ; provided further, however, Landlord shall not make or permit any material modifications to such configuration without Tenant’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes rented by Tenant pursuant to this Article 28 are provided to Tenant solely for use by Tenant’s own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord’s prior approval. Tenant may validate visitor parking by such method or methods as the Landlord may establish, at the validation rate from time to time generally applicable to visitor parking. Notwithstanding

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


anything to the contrary set forth in this Article 28 , above, Landlord shall not grant any “permanent” parking rights in the Project parking facility to any third-party that is not a tenant or other occupant of the Project, except to the extent of Tenant’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, for purposes of this Article 28, “permanent” parking rights shall mean parking rights for a period in excess of one hundred twenty (120) days; provided further, however, the location of any permitted third-party parking rights (whether temporary or approved by Tenant) shall be limited to the top level of the Project parking facility.

ARTICLE 29

MISCELLANEOUS PROVISIONS

29.1 Terms; Captions . The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

29.2 Binding Effect . Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

29.3 No Air Rights . No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.

29.4 Modification of Lease . Should any current or prospective mortgagee or ground lessor for the Building or Project require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) days following a request therefor. At the request of Landlord or any mortgagee or ground lessor, Tenant agrees to execute a short form of Lease and deliver the same to Landlord within ten (10) days following the request therefor.

29.5 Transfer of Landlord’s Interest . Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


performance of Landlord’s obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee. Tenant further acknowledges that Landlord may assign its interest in this Lease to a mortgage lender as additional security and agrees that such an assignment shall not release Landlord from its obligations hereunder and that Tenant shall continue to look to Landlord for the performance of its obligations hereunder.

29.6 Prohibition Against Recording . Except as provided in Section 29.4 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant.

29.7 Landlord’s Title . Landlord’s title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

29.8 Relationship of Parties . Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant.

29.9 Application of Payments . Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

29.10 Time of Essence . Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

29.11 Partial Invalidity . If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

29.12 No Warranty . In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.

29.13 Landlord Exculpation . The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the net interest of Landlord (following payment of any outstanding liens and/or mortgages, whether attributable to sales or insurance proceeds or otherwise) in the Building

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


(including any sales or insurance proceeds which Landlord receives). Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section 29.13 shall inure to the benefit of Landlord’s and the Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord’s obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

29.14 Entire Agreement . It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties’ entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

29.15 Right to Lease . Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

29.16 Force Majeure . Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except as to Tenant’s obligations under Articles 5 and 24 of this Lease (collectively, a “ Force Majeure ”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

29.17 Waiver of Redemption by Tenant . Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


29.18 Notices . All notices, demands, statements, designations, approvals or other communications (collectively, “ Notices ”) given or required to be given by either party to the other hereunder or by law shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested (“ Mail ”), (B) transmitted by telecopy, if such telecopy is promptly followed by a Notice sent by Mail, (C) delivered by a nationally recognized overnight courier, or (D) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the telecopy is transmitted, (iii) the date the overnight courier delivery is made, or (iv) the date personal delivery is made or attempted to be made. If Tenant is notified of the identity and address of Landlord’s mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease by registered or certified mail, and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such default prior to Tenant’s exercising any remedy available to Tenant. As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

Kilroy Realty Corporation

12200 West Olympic Boulevard

Suite 200

Los Angeles, California 90064

Attention: Legal Department

with copies to:

Kilroy Realty Corporation

3611 Valley Centre Drive, Suite 550

San Diego, California 92130

Attention: Ms. Jennifer Young

and

Allen Matkins Leck Gamble & Mallory LLP

1901 Avenue of the Stars, Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

29.19 Joint and Several . If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several.

29.20 Authority . If Tenant is a corporation, trust or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


is authorized to do so. In such event, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord satisfactory evidence of such authority and, if a corporation, upon demand by Landlord, also deliver to Landlord satisfactory evidence of (i) good standing in Tenant’s state of incorporation and (ii) qualification to do business in California.

29.21 Attorneys’ Fees . In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

29.22 Governing Law; WAIVER OF TRIAL BY JURY . This Lease shall be construed and enforced in accordance with the laws of the State of California. IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

29.23 Submission of Lease . Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

29.24 Brokers . Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 12 of the Summary (the “Brokers”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Landlord shall pay such Broker pursuant to separate written agreements between Landlord and the Broker, Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party.

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


29.25 Independent Covenants . This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

29.26 Project or Building Name and Signage . Landlord shall have the right at any time to change the name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord’s sole discretion, desire; provided, however, Landlord shall not change the name of the Project or Building to the name of a third-party tenant to the extent such third-party tenant (i) is one of Tenant’s direct competitors, and (ii) leases less than two (2) full floors of the Building. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.

29.27 Counterparts . This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease.

29.28 Confidentiality . Tenant acknowledges that the content of this Lease and any related documents are confidential information. Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant’s financial, legal, and space planning consultants.

29.29 Transportation Management . Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.

29.30 Building Renovations . It is specifically understood and agreed that Landlord has made no representation or warranty to Tenant and has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, or any part thereof and that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant except as specifically set forth herein or in the Tenant Work Letter. However, Tenant hereby acknowledges that Landlord is currently renovating or may during the Lease Term renovate, improve, alter, or modify (collectively, the “ Renovations ”) the Project, the Building and/or the Premises including without limitation the parking structure, common areas, systems and equipment, roof, and structural portions of the same, which Renovations may include, without limitation, (i) installing sprinklers in the Building common areas and tenant spaces, (ii) modifying the common areas and tenant spaces to comply with applicable laws and regulations, including regulations relating to the physically disabled, seismic conditions, and building safety and security, and (iii) installing new floor covering, lighting, and wall coverings

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


in the Building common areas, and in connection with any Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in the Building, limit or eliminate access to portions of the Project, including portions of the common areas, or perform work in the Building, which work may create noise, dust or leave debris in the Building. Tenant hereby agrees that such Renovations and Landlord’s actions in connection with such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no responsibility or for any reason be Liable to Tenant for any direct or indirect injury to or interference with Tenant’s business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant’s personal property or improvements resulting from the Renovations or Landlord’s actions in connection with such Renovations, or for any inconvenience or annoyance occasioned by such Renovations or Landlord’s actions. Landlord shall use commercially reasonable efforts to minimize any interference to Tenant’s use of, or access to, the Premises resulting from such Renovations.

29.31 No Violation . Tenant hereby warrants and represents that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, arising from Tenant’s breach of this warranty and representation.

29.32 Communications and Computer Lines . Tenant may install, maintain, replace, remove or use any communications or computer wires and cables (collectively, the “ Lines ”) at the Project in or serving the Premises, provided that (i) Tenant shall obtain Landlord’s prior written consent, which consent shall not be unreasonably withheld, use an experienced and qualified contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Project, as determined in Landlord’s reasonable opinion, (iii) the Lines therefor (including riser cables) shall be (x) appropriately insulated to prevent excessive electromagnetic fields or radiation, (y) surrounded by a protective conduit reasonably acceptable to Landlord, and (z) identified in accordance with the “Identification Requirements,” as that term is set forth hereinbelow, (iv) any new or existing Lines servicing the Premises shall comply with all applicable governmental laws and regulations, (v) as a condition to permitting the installation of new Lines, Tenant shall remove existing Lines located in or serving the Premises and repair any damage in connection with such removal, and (vi) Tenant shall pay all costs in connection therewith. All Lines shall be clearly marked with adhesive plastic labels (or plastic tags attached to such Lines with wire) to show Tenant’s name, suite number, telephone number and the name of the person to contact in the case of an emergency (A) every four feet (4’) outside the Premises (specifically including, but not limited to, the electrical room risers and other Common Areas), and (B) at the Lines’ termination point(s) (collectively, the “ Identification Requirements ”). Landlord reserves the right to require that Tenant remove any Lines located in or serving the Premises which are installed in violation of these provisions, or which are at any time (1) are in violation of any Applicable Laws, (2) are inconsistent with then-existing industry standards (such as the standards promulgated by the National Fire Protection Association (e.g., such organization’s

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


“2002 National Electrical Code”)), or (3) otherwise represent a dangerous or potentially dangerous condition.

29.33 Hazardous Substances .

29.33.1 Definitions . For purposes of this Lease, the following definitions shall apply: “ Hazardous Material (s)” shall mean any solid, liquid or gaseous substance or material that is described or characterized as a toxic or hazardous substance, waste, material, pollutant, contaminant or infectious waste, or any matter that in certain specified quantities would be injurious to the public health or welfare, or words of similar import, in any of the “Environmental Laws,” as that term is defined below, or any other words which are intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity or reproductive toxicity and includes, without limitation, asbestos, petroleum (including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas, nuclear or radioactive matter, medical waste, soot, vapors, fumes, acids, alkalis, chemicals, microbial matters (such as molds, fungi or other bacterial matters), biological agents and chemicals which may cause adverse health effects, including but not limited to, cancers and /or toxicity. “ Environmental Laws ” shall mean any and all federal, state, local or quasi-governmental laws (whether under common law, statute or otherwise), ordinances, decrees, codes, rulings, awards, rules, regulations or guidance or policy documents now or hereafter enacted or promulgated and as amended from time to time, in any way relating to (i) the protection of the environment, the health and safety of persons (including employees), property or the public welfare from actual or potential release, discharge, escape or emission (whether past or present) of any Hazardous Materials or (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Materials.

29.33.2 Compliance with Environmental Laws . Landlord covenants that during the Lease Term, Landlord shall comply with all Environmental Laws in accordance with, and as required by, the TCCs of Article 24 of this Lease. Tenant represents and warrants that, except as herein set forth, it will not use, store or dispose of any Hazardous Materials in or on the Premises. However, notwithstanding the preceding sentence, Landlord agrees that Tenant may use, store and properly dispose of commonly available household cleaners and chemicals to maintain the Premises and Tenant’s routine office operations (such as printer toner and copier toner) (hereinafter the “ Permitted Chemicals ”). Landlord and Tenant acknowledge that any or all of the Permitted Chemicals described in this paragraph may constitute Hazardous Materials. However, Tenant may use, store and dispose of same, provided that in doing so, Tenant fully complies with all Environmental Laws.

29.33.3 LandIord’s Right of Environmental Audit . Landlord may, upon reasonable notice to Tenant, be granted access to and enter the Premises no more than once annually to perform or cause to have performed an environmental inspection, site assessment or audit. Such environmental inspector or auditor may be chosen by Landlord, in its sole discretion, and be performed at Landlord’s sole expense. To the extent that the report prepared upon such inspection, assessment or audit, indicates the presence of Hazardous Materials in violation of Environmental Laws, or provides recommendations or suggestions to prohibit the release,

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


discharge, escape or emission of any Hazardous Materials at, upon, under or within the Premises, or to comply with any Environmental Laws, Tenant shall promptly, at Tenant’s sole expense, comply with such recommendations or suggestions, including, but not limited to performing such additional investigative or subsurface investigations or remediation(s) as recommended by such inspector or auditor. Notwithstanding the above, if at any time, Landlord has actual notice or reasonable cause to believe that Tenant has violated, or permitted any violations of any Environmental Law, then Landlord will be entitled to perform its environmental inspection, assessment or audit at any time, notwithstanding the above mentioned annual limitation, and Tenant must reimburse Landlord for the cost or fees incurred for such as Additional Rent.

29.33.4 Indemnifications . Landlord agrees to indemnify, defend, protect and hold harmless the Tenant Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys’ fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials to the extent such liability, obligation, damage or costs was a result of actions caused or permitted by Landlord or a Landlord Party. Tenant agrees to indemnify, defend, protect and hold harmless the Landlord Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys’ fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials or breach of any provision of this section, to the extent such liability, obligation, damage or costs was a result of actions caused or permitted by Tenant or a Tenant Party.

29.34 Development of the Project .

29.34.1 Subdivision . Landlord reserves the right to further subdivide all or a portion of the Project, Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from such subdivision.

29.34.2 The Other Improvements . If portions of the Project or property adjacent to the Project (collectively, the “ Other Improvements ”) are owned by an entity other than Landlord, Landlord, at its option, may enter into an agreement with the owner or owners of any or all of the Other Improvements to provide (i) for reciprocal rights of access and/or use of the Project and the Other Improvements, (ii) for the common management, operation, maintenance, improvement and/or repair of all or any portion of the Project and the Other Improvements, (iii) for the allocation of a portion of the Direct Expenses to the Other Improvements and the operating expenses and taxes for the Other Improvements to the Project, and (iv) for the use or improvement of the Other Improvements and/or the Project in connection with the improvement, construction, and/or excavation of the Other Improvements and/or the Project. Nothing contained herein shall be deemed or construed to limit or otherwise affect Landlord’s right to convey all or any portion of the Project or any other of Landlord’s rights described in this Lease.

29.34.3 Construction of Project and Other Improvements . Tenant acknowledges that portions of the Project and/or the Other Improvements may be under construction following Tenant’s occupancy of the Premises, and that such construction may result in levels of noise, dust, obstruction of access, etc. which are in excess of that present in a

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


fully constructed project. Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction. Landlord shall use commercially reasonable efforts to minimize any interference to Tenant’s use of, or access to, the Premises resulting from such construction.

29.35 Office and Communications Services .

29.35.1 The Provider . Landlord has advised Tenant that SBC and Time Warner currently offer certain office and communications services to tenants of the Building (“ Provider ”). Tenant shall be permitted to contract with Provider for the provision of any or all of such services on such terms and conditions as Tenant and Provider may agree.

29.35.2 Other Terms . Tenant acknowledges and agrees that: (i) Landlord has made no warranty or representation to Tenant with respect to the availability of any such services, or the quality, reliability or suitability thereof; (ii) the Provider is not acting as the agent or representative of Landlord in the provision of such services, and Landlord shall have no liability or responsibility for any failure or inadequacy of such services, or any equipment or facilities used in the furnishing thereof, or any act or omission of Provider, or its agents, employees, representatives, officers or contractors; (iii) Landlord shall have no responsibility or liability for the installation, alteration, repair, maintenance, furnishing, operation, adjustment or removal of any such services, equipment or facilities; and (iv) any contract or other agreement between Tenant and Provider shall be independent of this Lease, the obligations of Tenant hereunder, and the rights of Landlord hereunder, and, without limiting the foregoing, no default or failure of Provider with respect to any such services, equipment or facilities, or under any contract or agreement relating thereto, shall have any effect on this Lease or give to Tenant any offset or defense to the full and timely performance of its obligations hereunder, or entitle Tenant to any abatement of rent or additional rent or any other payment required to be made by Tenant hereunder, or constitute any accrual or constructive eviction of Tenant, or otherwise give rise to any other claim of any nature against Landlord.

29.36 Consents . To the extent no particular standard is expressly set forth with regard to any consent or approval of Landlord or Tenant required under this Lease (e.g., “which consent may be granted, withheld or conditioned in Tenant’s sole and absolute discretion”), then such consent or approval shall be deemed to require Landlord and/or Tenant’s reasonable determination (i.e., the same shall not be unreasonably withheld, conditioned or delayed).

29.37 No Discrimination . Tenant covenants by and for itself, its heirs, executors, administrators and assigns, and all persons claiming under or through Tenant, and this Lease is made and accepted upon and subject to the following conditions: that there shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, sex, religion, marital status, ancestry or national origin in the leasing, subleasing, transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any person claiming under or through Tenant, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy, of tenants, lessees, sublessees, subtenants or vendees in the Premises.

[signature page follows]

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

 

“LANDLORD”:

 

KILROY REALTY, L.P.,

a Delaware limited partnership

 

By:     Kilroy Realty Corporation, a Maryland corporation, General Partner

 

  By:                                         
          Its:                                         
  By:                                                 
          Its:                                         

 

“TENANT”:

 

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

 

  By: /s/ James J. Zehentbauer
        Its: Principal
  By: /s/ David H. Batchelder
        Its: Principal

 

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

 

  By: /s/ James J. Zehentbauer
        Its: Principal
  By: /s/ David H. Batchelder
        Its: Principal

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT A

DEL MAR CORPORATE CENTRE

OUTLINE OF PREMISES

[ATTACHED]

 

  

EXHIBIT A

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


LOGO

 

     

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT B

DEL MAR CORPORATE CENTRE

TENANT WORK LETTER

This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the tenant improvements in the Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Tenant Work Letter to Articles or Sections of “this Lease” shall mean the relevant portion of Articles 1 through 29 of the Office Lease to which this Tenant Work Letter is attached as Exhibit B and of which this Tenant Work Letter forms a part, and all references in this Tenant Work Letter to Sections of “this Tenant Work Letter” shall mean the relevant portion of Sections 1 through 5 of this Tenant Work Letter.

SECTION 1

LANDLORD’S INITIAL CONSTRUCTION IN THE PREMISES

1.1 In General . Landlord has constructed (or will construct), at its sole cost and expense, the base, shell, and core (i) of the Premises and (ii) of the floor of the Building on which the Premises is located (collectively, the Base, Shell, and Core ”). The Base, Shell and Core shall consist of those portions of the Premises which are in existence in the Premises for the prior tenant of the Premises, and shall also include the items set forth on Schedule 2 attached to this Tenant Work Letter.

1.2 Life Safety . Landlord has previously constructed a life safety system for the sixth (6 th ) floor of the Building which Landlord shall, at Landlord’s sole cost and expense (except as set forth hereinbelow), upgrade and/or modify to the extent necessary to integrate with the existing life safety system in the remainder of the Building (the Life Safety Work ”) which Life Safety Work is more particularly set forth on Schedule 2. Notwithstanding the foregoing, to the extent the Premises is not demised on a full-floor basis (i.e., to the extent the same is demised with any interior corridors or an interior corridor requirement), then to the extent the actual cost to perform the Life Safety Work exceeds $20,000.00, then Tenant shall pay for such excess as a deduction from the “Tenant Improvement Allowance” (as defined in Section 2, below) (the amount of such excess, the “Life Safety Excess”).

SECTION 2

TENANT IMPROVEMENTS

2.1 Tenant Improvement Allowance . Tenant shall be entitled to a one-time tenant improvement allowance (the “ Tenant Improvement Allowance ”) in the amount of $2,103,462.00 (which amount was calculated based upon (i) $65.00 per Rentable Square Foot for each of the 32,792 Rentable Square Feet of space in the Premises, less (ii) the sum of $28,018.00, which represents the cost of the pre-stocked drywall and metal studs previously paid

 

  

EXHIBIT B

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


for by Landlord, which is currently located on the sixth (6 th ) floor of the Building, and which shall be utilized in the construction of the Tenant Improvements) for the costs relating to the initial design and construction of Tenant’s improvements which are permanently affixed to the Premises (the “ Tenant Improvements ”). Landlord shall not be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance. All Tenant Improvements for which the Tenant Improvement Allowance has been made available shall be deemed Landlord’s property under the terms of the Lease.

2.2 Disbursement of the Tenant Improvement Allowance . Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord’s disbursement process) for costs related to the construction of the Tenant Improvements and for the following items and costs (collectively, the “ Tenant Improvement Allowance Items ”): (i) payment of the fees of the “Architect” and the “Engineers,” as those terms are defined in Section 3.1 of this Tenant Work Letter, payment of any fees of any project manager hired by Tenant in connection with the construction of the Tenant Improvements (but not in an amount in excess of $1.50 per usable square foot of the Premises), and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord’s consultants in connection with the preparation and review of the “Construction Drawings,” as that term is defined in Section 3.1 of this Tenant Work Letter; (ii) the cost of any changes in the Base, Shell and Core when such changes are required by the Construction Drawings; (iii) the cost of any changes to the Construction Drawings or Tenant Improvements required by all applicable building codes (the “Code”); (iv) the cost of any voice and/or data cabling installed in the Premises in connection with Tenant’s phone and computer systems (but not in an amount in excess of $5.00 per usable square foot of the Premises), (v) the “Landlord Supervision Fee”, as that term is defined in Section 4.3.2 of this Tenant Work Letter; (vi) the cost of Landlord-approved window coverings installed within the Premises, (vii) the cost to refurbish/replace the existing floor and wall coverings in the sixth (6 th ) floor elevator lobby (the “ Elevator Lobby Improvements ”), which Elevator Lobby Improvements shall be deemed Tenant Improvements subject to the terms and conditions of this Tenant Work Letter, and (viii) the Life Safety Excess, if any.

2.3 Standard Tenant Improvement Package . Landlord has established specifications (the “ Building Standard Tenant Improvements ”) for the Building standard components to be used in the construction of the Tenant Improvements in the Premises; provided, however, to the extent that Tenant elects, in conjunction with the construction of the Tenant Improvements, to demise the Premises on a multi-tenant basis (as opposed to demising the Premises on a full-floor basis without any interior corridor or corridor requirement), then Tenant shall apply no less than $45.00 dollars of the Tenant Improvement Allowance per rentable square foot of each demised portion of the Premises (in the aggregate, on a suite-by-suite basis) towards the cost of construction of the Tenant Improvements. The quality of Tenant Improvements shall be equal to or of greater quality than the quality of the Building Standard Tenant Improvements, provided that Landlord may, at Landlord’s option, require the Tenant Improvements to comply with certain Building Standard Tenant Improvements. Landlord may make reasonable changes to the Specifications for the Standard Improvement Package from time to time provided Landlord gives Tenant reasonable prior written notice thereof.

 

  

EXHIBIT B

-2-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


2.4 Removal of Above Building Standard Tenant Improvements . “Above Standard Tenant Improvements” shall mean (i) any part of the Tenant Improvements which are not consistent (functionally and aesthetically) with the Building Standard Tenant Improvements, including, but not limited to, plumbing and millwork; and (ii) a configuration of the Tenant Improvements which is not usual and customary for normal “general office” occupancy; provided, however, Landlord shall identify any such Tenant Improvements (or changes thereto) as “Above Building Standard Tenant Improvements” concurrently with Landlord’s review and approval of the Approved Working Drawings (or on a timely basis following Tenant’s request for such change/addition identified above); provided further, however, Landlord and Tenant hereby acknowledge and agree that the Elevator Lobby Improvements, if so identified by Landlord on a timely basis pursuant to the immediately preceding clause, would be deemed to constitute Above Standard Tenant Improvements. If so directed by Landlord prior to the end of the Term of this Lease, Tenant, at its sole cost and expense, shall (A) remove from the Premises any Above Standard Tenant Improvements so identified for removal,(B) repair any damage caused by the removal of such Above Standard Tenant Improvements, and (C) return the affected portion of the Premises to a building-standard “warm shell” condition as reasonably determined by Landlord; provided, however, to the extent the Elevator Lobby Improvements are timely identified by Landlord as Above Standard Tenant Improvements, Tenant shall remove the same upon the expiration or earlier termination of this Lease, and following such removal, Tenant shall return the affected portions of the sixth (6 th ) floor elevator lobby to the condition existing prior to Tenant’s construction of such Elevator Lobby Improvements. Such removal and replacement of Above Standard Tenant Improvements shall be performed promptly and shall be completed by Tenant on or before the end of the Term of this Lease if notice of removal is given at least thirty (30) days prior to the end of the Term, and if Tenant fails to remove and/or return the affected portion of the Premises to a building-standard “warm shell” condition, Landlord may do so and Tenant shall reimburse Landlord for the cost of such removal and/or replacement.

SECTION 3

CONSTRUCTION DRAWINGS

3.1 Selection of Architect/Construction Drawings . Tenant shall retain Howard Sneed (the “ Architect ”) to prepare the “Construction Drawings,” as that term is defined in this Section 3.1. Tenant shall promptly notify Landlord in writing of Tenant’s selection of Architect. Tenant shall retain the engineering consultants designated by Landlord (the “ Engineers ”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work of the Tenant Improvements. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “ Construction Drawings .” All Construction Drawings shall comply with the drawing format and specifications as determined by Landlord, and shall be subject to Landlord’s approval, which approval shall not be unreasonably withheld; provided, however, it shall be deemed reasonable for Landlord to disapprove Construction Drawings for the following reasons: (i) such Construction Drawing would have an adverse effect on the structural integrity of the Building; (ii) such Construction Drawing fails to comply with applicable Code and or other applicable governmental regulations; (iii) such Construction Drawing would have an adverse effect on the systems and equipment of the Building; or (iv) such Construction Drawing would have an adverse effect on the exterior appearance of the

 

  

EXHIBIT B

-3-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Building (individually or collectively, a “ Design Problem ”). Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base Building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord’s review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenant’s waiver and indemnity set forth in this Lease shall specifically apply to the Construction Drawings.

3.2 Final Space Plan . On or before the date set forth in Schedule 1, attached hereto, Tenant and the Architect shall prepare the final space plan for Tenant Improvements in the Premises (collectively, the “ Final Space Plan ”), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver the Final Space Plan to Landlord for Landlord’s approval pursuant to the terms of Section 3.1 , above. Landlord shall advise Tenant within three (3) business days after Landlord’s receipt of the Final Space Plan for the Premises if the same is unsatisfactory as the result of a Design Problem or is otherwise incomplete in any respect (based upon a commercially reasonable standard). If Tenant is so advised, Tenant shall promptly direct the Architect to cause the Final Space Plan to be revised to correct any deficiencies or other matters Landlord may reasonably require, and immediately thereafter Architect shall promptly re-submit the Final Space Plan to Landlord for its approval. Such procedure shall continue until the Final Space Plan is approved by Landlord. Landlord’s failure to object to the Final Space Plan within such three (3) business days shall constitute Landlord’s approval of the Final Space Plan.

3.3 Final Working Drawings . On or before the date set forth in Schedule 1, Tenant, the Architect and the Engineers shall complete the architectural and engineering drawings for the Premises, and the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “ Final Working Drawings ”) and shall submit the same to Landlord for Landlord’s approval pursuant to the terms of Section 3.1 , above. Landlord shall, within five (5) business days after Landlord’s receipt of all of the Final Working Drawings, either (i) approve the Final Working Drawings, (ii) approve the Final Working Drawings subject to specified conditions which must be stated in a reasonably clear and complete manner to be satisfied by Tenant prior to submitting the Approved Working Drawings for permits as set forth in Section 3.4 , below of this Tenant Work Letter, to the extent the Final Working Drawings contain a Design Problem, or (iii) disapprove and return the Final Working Drawings to Tenant with requested revisions to the extent the Final Working Drawings contain a Design Problem; provided, however, any such conditions and/or disapprovals shall only be made by Landlord pursuant to commercially reasonable standards. If Landlord disapproves the Final Working Drawings, Tenant may resubmit the Final Working Drawings to Landlord at any time, and Landlord shall approve or disapprove the resubmitted Final Working Drawings, based upon the

 

  

EXHIBIT B

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


criteria set forth in this Section 3.3 . within three (3) business days after Landlord receives such resubmitted Final Working Drawings. Such procedure shall be repeated until the Final Working Drawings are approved. Landlord’s failure to timely respond to Tenant within any applicable response period referenced herein shall be deemed Landlord’s approval of the Final Working Drawings.

3.4 Permits . The Final Working Drawings shall be approved by Landlord (the “ Approved Working Drawings ”) prior to the commencement of the construction of the Tenant Improvements. Tenant shall cause Architect to immediately submit the Approved Working Drawings to the appropriate municipal authorities for all applicable building permits necessary to allow “Contractor,” as that term is defined in Section 4.1 , below, to commence and fully complete the construction of the Tenant Improvements (the “ Permits ”), and, in connection therewith, Tenant shall coordinate with Landlord in order to allow Landlord, at its option, to take part in all phases of the permitting process and shall supply Landlord, as soon as possible, with all plan check numbers and dates of submittal and obtain the Permits on or before the date set forth in Schedule 1 . Notwithstanding anything to the contrary set forth in this Section 3.4 , Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that the obtaining of the same shall be Tenant’s responsibility; provided however that Landlord shall, in any event, cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord.

3.5 Time Deadlines . Tenant shall use good faith efforts and all due diligence to cooperate with the Architect, the Engineers, and Landlord to complete all phases of the Construction Drawings and the permitting process and to receive the permits, and with Contractor for approval of the “Cost Proposal,” as that term is defined in Section 4.2 of this Tenant Work Letter, as soon as possible after the execution of the Lease, and, in that regard, shall meet with Landlord on a scheduled basis to be determined by Landlord. The applicable dates for approval of items, plans and drawings as described in this Section 3 , Section 4 , below, and in this Tenant Work Letter are set forth and further elaborated upon in Schedule 1 (the “ Time Deadlines ”), attached hereto. Tenant agrees to comply with the Time Deadlines.

SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1 Contractor . Reno Contracting (“ Contractor ”) shall construct the Tenant Improvements.

4.2 Cost Proposal . After the Approved Working Drawings are signed by Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in accordance with the Approved Working Drawings, which cost proposal shall include, as nearly as possible, the cost of all Tenant Improvement Allowance Items to be incurred by Tenant in connection with the design and construction of the Tenant Improvements (the “ Cost Proposal ”). Tenant shall approve and deliver the Cost Proposal to Landlord within five (5) business days of the receipt of

 

  

EXHIBIT B

-5-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


the same, and upon receipt of the same by Landlord, Landlord shall be released by Tenant to purchase the items set forth in the Cost Proposal and to commence the construction relating to such items. The date by which Tenant must approve and deliver the Cost Proposal to Landlord shall be known hereafter as the “Cost Proposal Delivery Date”. The Cost Proposal shall be accompanied by a subcontractor “back-up” and a “scope sheet” recapping all bids for each trade. The Contractor shall obtain a minimum of three (3) bids per for each major trade. Contractor’s contracting fee shall be determined pursuant to that certain Reno GC&Fee Proposal dated May 10, 2004.

4.3 Construction of Tenant Improvements by Contractor under the Supervision of Landlord.

4.3.1 Over-Allowance Amount . On the Cost Proposal Delivery Date, Tenant and Landlord shall identify the amount (the “ Over-Allowance Amount ”) equal to the difference between (i) the amount of the Cost Proposal and (ii) the amount of the Tenant Improvement Allowance. Tenant shall pay, within five (5) business days of written notice from Landlord, a percentage of each amount disbursed by Landlord to the Contractor or otherwise disbursed under this Tenant Work Letter, which percentage shall be equal to the amount of the Over-Allowance Amount divided by the amount of the Cost Proposal, and such payment by Tenant shall be a condition to Landlord’s obligation to pay any amounts of the Tenant Improvement Allowance, In the event that, after the Cost Proposal Delivery Date, any revisions, changes, or substitutions shall be made to the Construction Drawings or the Tenant Improvements, any additional costs which arise in connection with such revisions, changes or substitutions or any other additional costs shall be paid by Tenant to Landlord immediately upon Landlord’s request as an addition to the Over-Allowance Amount. In addition, if the Final Working Drawings or any amendment thereof or supplement thereto shall require alterations in the Base, Shell and Core (as contrasted with the Tenant Improvements), and if Landlord in its sole and exclusive discretion agrees to any such alterations, and notifies Tenant of the need and cost for such alterations, then Tenant shall pay the cost of such required changes upon receipt of bills therefor. Tenant shall pay all direct architectural and/or engineering fees in connection therewith.

4.3.2 Landlord’s Retention of Contractor . Landlord shall independently retain Contractor, on behalf of Tenant, to construct the Tenant Improvements in accordance with the Approved Working Drawings and the Cost Proposal and Landlord shall supervise the construction by Contractor, and Tenant shall pay a construction supervision and management fee (the “ Landlord Supervision Fee ”) to Landlord in an amount equal to the product of (i) one percent (1%) and (ii) an amount equal to the hard costs incurred in connection with the construction of the Tenant Improvement, which Landlord Supervision Fee shall be (A) a Tenant Improvement Allowance Item as set forth in Section 2.2(v) of this Tenant Work Letter and (B) deducted from the Tenant Improvement Allowance.

4.3.3 Contractor’s Warranties and Guaranties . Landlord hereby assigns to Tenant all warranties and guaranties by Contractor relating to the Tenant Improvements, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements, Landlord shall use commercially reasonable efforts to cooperate with Tenant in the enforcement of such warranties and guaranties.

 

  

EXHIBIT B

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


4.3.4 Tenant’s Covenants . Tenant hereby indemnifies Landlord for any loss, claims, damages or delays arising from the actions of Architect on the Premises or in the Building. Within ten (10) days after completion of construction of the Tenant Improvements, Contractor may cause a Notice of Completion to be recorded in the office of the County Recorder of the county in which the Building is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute and furnish a copy thereof to Landlord upon recordation, failing which, Landlord may itself execute and file the same on behalf of Tenant as Tenant’s agent for such purpose. In addition, immediately after the substantial completion of the Premises, Tenant shall have prepared and delivered to the Building a copy of the “as built” plans and specifications (including all working drawings) for the Tenant Improvements.

4.3.5 Construction Meetings . During the construction of the Tenant Improvements, Landlord and Tenant shall meet on a scheduled basis to be determined by Landlord, to discuss the progress in the construction of the Tenant Improvements.

SECTION 5

INTENTIONALLY OMITTED

SECTION 6

MISCELLANEOUS

6.1 Tenant’s Entry Into the Premises Prior to Substantial Completion . Provided that Tenant and its agents do not interfere with Contractor’s work in the Building and the Premises, Contractor shall allow Tenant reasonable access to the Premises prior to the Lease Commencement Date for the purpose of Tenant installing overstandard equipment or fixtures (including Tenant’s data and telephone equipment) in the Premises. Prior to Tenant’s entry into the Premises as permitted by the terms of this Section 6.1, Tenant shall submit a schedule to Landlord and Contractor, for their approval, not be unreasonably withheld or delayed, which schedule shall detail the timing and purpose of Tenant’s entry. In addition, Contractor shall allow Tenant reasonable site visitation rights during the construction of the Tenant Improvements in order to allow Tenant to reasonably monitor such construction; provided that Tenant shall be required to schedule all such site visits in advance with Contractor. Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises and against injury to any persons caused by Tenant’s actions pursuant to this Section 6.1 .

6.2 Tenant’s Representative . Tenant has designated Mr. Kirt Gilliland of Irving Hughes as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

6.3 Landlord’s Representative . Landlord has designated Mr. Jim Edwards as “Project Manager” who shall be responsible for the implementation of all Tenant Improvements to be performed by Landlord in the Premises. With regard to all matters

 

  

EXHIBIT B

-7-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


involving such Tenant Improvements, Tenant shall communicate with the Project Manager rather than with the Contractor. Landlord shall not be responsible for any statement, representation or agreement made between Tenant and the Contractor or any subcontractor. It is hereby expressly acknowledged by Tenant that such Contractor is not Landlord’s agent and has no authority whatsoever to enter into agreements on Landlord’s behalf or otherwise bind Landlord. The Project Manager will furnish Tenant with notices of substantial completion, cost estimates for Above Standard Tenant Improvements, Landlord’s approvals or disapprovals of all documents to be prepared by Tenant pursuant to this Tenant Work Letter and changes thereto.

6.4 Tenant’s Agents . Landlord and Tenant shall reasonably cooperate with each other, the Contractor, and other contractors and vendors performing the construction or installation of the Tenant Improvements in the Premises to promote labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment to the extent that, notwithstanding the good faith efforts of the parties to maintain labor harmony, the use of such contractors, services, workmen, labor, materials or equipment would disturb such labor harmony.

6.5 Time of the Essence in This Tenant Work Letter . Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord’s sole option, at the end of such period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.

6.6 Tenant’s Lease Default . Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in the Lease, or a default by Tenant under this Tenant Work Letter, has occurred at any time on or before the substantial completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease.

 

  

EXHIBIT B

-8-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


SCHEDULE 1 TO EXHIBIT B

TIME DEADLINES

 

     Dates    Actions to be Performed

A.

   June 7, 2004    Final Space Plan to be completed by Tenant and delivered to Landlord.

B.

   July 23, 2004    Tenant to deliver Final Working Drawings to Landlord for submittal to City.

C.

   September 3, 2004    Tenant to deliver Permits to Contractor.

D.

   Five (5) business days after the receipt of the Cost Proposal by Tenant    Tenant to approve Cost Proposal and deliver Cost Proposal to Landlord.

 

  

SCHEDULE 1 TO

EXHIBIT B

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


SCHEDULE 2 TO EXHIBIT B

BASE, SHELL AND CORE WORK

Landlord shall cause the Base, Shell and Core to include the following:

HVAC :

1. Main supply air duct loop for the entire sixth (6 th ) floor of the Building.

2. Main hot water re-heat loop piping.

Electrical :

1. One (1) four inch (4”) conduit from the Building’s main electrical room to the Building’s sixth (6 th ) floor electrical distribution room; provided, however, Tenant acknowledges that Tenant shall install, as part of the Tenant Improvements and as a Tenant Improvement Allowance Item, a separate electrical meter (or meters) in the Building’s main electrical room with regard to the Premises electricity.

2. One (1) four inch (4”) conduit from the Building’s main telephone room (MPOE) to the Tenant telephone room on the sixth (6 th ) floor of the Building.

Life Safety :

The Building is equipped with a life safety system including horns, strobes and pull stations. As part of the Base, Shell and Core, Landlord has provided, or will provide pursuant to the terms and conditions of Section 1.2 of the Tenant Work Letter, life safety systems within the sixth (6 th ) floor elevator lobby, restrooms and stairways which are consistent and compatible with the life safety systems in the remainder of the Building. To the extent such life safety systems on the remainder of the sixth (6 th ) floor of the Building must be modified in order (i) to be integrated into the life safety systems within the remainder of the Building, or (ii) for Tenant to obtain or maintain a certificate suitable for general office occupancy, then such modification shall be performed by Landlord pursuant to the terms and conditions of Section 1.2 of the Tenant Work Letter.

Drywall Systems :

1. Core and shaft walls shall be taped and finished to a level 4 trim and ready to receive paint.

2. Perimeter walls shall be insulated.

 

  

SCHEDULE 2 TO

EXHIBIT B

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT C

DEL MAR CORPORATE CENTRE

NOTICE OF LEASE TERM DATES

 

To:      
 

 

 

 

 

 

Re: Office Lease dated                              , 200                  between                                               , a

                                                          (“Landlord”), and                                                                   , a

                                                                                   (“Tenant”) concerning Suite              on floor(s)

                                          of the office building located at                                                              ,

                                  , California.

Gentlemen:

In accordance with the Office Lease (the “Lease”), we wish to advise you and/or confirm as follows:

 

  1. The Lease Term shall commence on or has commenced on                                               for a term of                                                   ending on                                          .

 

  2. Rent commenced to accrue on                                                           , in the amount of                                     .

 

  3. If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease.

 

  4. Your rent checks should be made payable to                                               at                                              .

 

  5. The exact number of rentable/usable square feet within the Premises is                                          square feet.

EXHIBIT C

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


  6. Tenant’s Share as adjusted based upon the exact number of usable square feet within the Premises is                    %.

 

“Landlord”:  

 

  ,
a  

 

By:  

 

        Its:  

 

Agreed to and Accepted

as of                , 200        .

“Tenant”:

 

 

                                             

a                                            

 

 

By:                                      

        Its:                              

EXHIBIT C

 

   -2-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT D

DEL MAR CORPORATE CENTRE

RULES AND REGULATIONS

Tenant shall faithfully observe and comply with the following Rules and Regulations, Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project. In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.

1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord’s prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant, Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. Upon the termination of this Lease, Tenant shall restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant and in the event of the loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.

2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.

3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the San Diego, California area. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. Landlord will furnish passes to persons for whom Tenant requests same in writing. Tenant shall be responsible for all persons for whom Tenant requests passes and shall be liable to Landlord for all acts of such persons. The Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.

4. No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates.

EXHIBIT D

 

   -1-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.

5. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours, in such specific elevator and by such personnel as shall be designated by Landlord.

6. The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

7. No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord. Tenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same.

8. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.

9. Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws (other than typical types of hardware required to hang normal, customary types of artwork in the Premises), or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlord’s prior written consent.

10. Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

11. Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline, explosive material, corrosive material, material capable of emitting toxic fumes, or other inflammable or combustible fluid chemical, substitute or material. Tenant shall provide material safety data sheets for any Hazardous Material used or kept on the Premises.

12. Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord.

EXHIBIT D

 

   -2-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


13. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein, whether by the use of any musical instrument, radio, phonograph, or in any other way. Tenant shall not throw anything out of doors, windows or skylights or down passageways.

14. Tenant shall not bring into or keep within the Project, the Building or the Premises any animals, birds, aquariums, or, except in areas designated by Landlord, bicycles or other vehicles.

15. No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

16. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises provided for in the Summary. Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Landlord. Tenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.

17. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

18. Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises.

19. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building’s heating and air conditioning system, and shall refrain from attempting to adjust any controls. Tenant shall participate in recycling programs undertaken by Landlord.

20. Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in San Diego, California without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate. If the Premises

EXHIBIT D

 

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KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


is or becomes infested with vermin as a result of the use or any misuse or neglect of the Premises by Tenant, its agents, servants, employees, contractors, visitors or licensees, Tenant shall forthwith, at Tenant’s expense, cause the Premises to be exterminated from time to time to the satisfaction of Landlord and shall employ such licensed exterminators as shall be approved in writing in advance by Landlord.

21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

22. Any persons employed by Tenant to do janitorial work shall be subject to the prior written approval of Landlord, and while in the Building and outside of the Premises, shall be subject to and under the control and direction of the Building manager (but not as an agent or servant of such manager or of Landlord), and Tenant shall be responsible for all acts of such persons.

23. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard drapes. All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Landlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord. Tenant shall be responsible for any damage to the window film on the exterior windows of the Premises and shall promptly repair any such damage at Tenant’s sole cost and expense. Tenant shall keep its window coverings closed during any period of the day when the sun is shining directly on the windows of the Premises. Prior to leaving the Premises for the day, Tenant shall draw or lower window coverings and extinguish all lights. Tenant shall abide by Landlord’s regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas.

24. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

25. Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.

26. Tenant must comply with any applicable “NO-SMOKING” ordinances. If Tenant is required under the ordinance to adopt a written smoking policy, a copy of said policy shall be on file in the office of the Building. Additionally, Tenant must provide at least one area within the Premises in which its employees, invitees and visitors may smoke.

27. Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures (other than the lobby attendant during Building Hours as set forth in Section 6.4 of this Lease) for the benefit of the Premises, the Building or the Project. Tenant hereby assumes all responsibility for the protection of Tenant and its agents.

EXHIBIT D

 

   -4-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof. Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences. Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by law.

28. All office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise and annoyance.

29. Tenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.

30. No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Landlord.

31. No tenant shall use or permit the use of any portion of the Premises for living quarters, sleeping apartments or lodging rooms.

32. Tenant shall not purchase spring water, towels, janitorial or maintenance or other similar services from any company or persons not approved by Landlord. Landlord shall approve a sufficient number of sources of such services to provide Tenant with a reasonable selection, but only in such instances and to such extent as Landlord in its judgment shall consider consistent with the security and proper operation of the Building.

33. Tenant shall install and maintain, at Tenant’s sole cost and expense, an adequate, visibly marked and properly operational fire extinguisher next to any duplicating or photocopying machines or similar heat producing equipment, which may or may not contain combustible material, in the Premises.

Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

EXHIBIT D

 

   -5-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT E

DEL MAR CORPORATE CENTRE

FORM OF TENANT’S ESTOPPEL CERTIFICATE

The undersigned as Tenant under that certain Office Lease (the “Lease”) made and entered into as of                     , 200     by and between                      as Landlord, and the undersigned as Tenant, for Premises on the                          floor(s) of the office building located at                      ,                      , California                      , certifies as follows:

1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

2. The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on                      , and the Lease Term expires on                      , and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.

3. Base Rent became payable on                     .

4. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A .

5. Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:

6. Tenant shall not modify the documents contained in Exhibit A without the prior written consent of Landlord’s mortgagee.

7. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through                      . The current monthly installment of Base Rent is $                             .

8. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder.

9. No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.

EXHIBIT E

 

  

 

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


10. As of the date hereof, there are no existing defenses or offsets, or, to the undersigned’s knowledge, claims or any basis for a claim, that the undersigned has against Landlord.

11. If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

12. There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

13. Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises.

14. To the undersigned’s knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full.

The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

Executed at                          on the                  day of                      , 200    .

 

“Tenant”:
                                                                        ,
a                                                                      
By:                                                                  
                Its:                                                  
By:                                                                  
                Its:                                                  

EXHIBIT E

 

  

 

-2-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT F

DEL MAR CORPORATE CENTRE

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

ALLEN MATKINS LECK GAMBLE

    & MALLORY LLP

1901 Avenue of the Stars, 18th Floor

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

 

 

 

RECOGNITION OF COVENANTS,

CONDITIONS, AND RESTRICTIONS

This Recognition of Covenants, Conditions, and Restrictions (this “ Agreement ”) is entered into as of the         day of                    , 200    , by and between                             (“Landlord”), and                             (“Tenant”), with reference to the following facts:

A. Landlord and Tenant entered into that certain Office Lease Agreement dated            , 200     (the “Lease”). Pursuant to the Lease, Landlord leased to Tenant and Tenant leased from Landlord space (the “Premises”) located in an office building on certain real property described in Exhibit A attached hereto and incorporated herein by this reference (the “Property” ).

B. The Premises are located in an office building located on real property which is part of an area owned by Landlord containing approximately         (        ) acres of real property located in the City of                    , California (the “Project” ), as more particularly described in Exhibit B attached hereto and incorporated herein by this reference.

C. Landlord, as declarant, has previously recorded, or proposes to record concurrently with the recordation of this Agreement, a Declaration of Covenants, Conditions, and Restrictions (the “Declaration”), dated                     , 200    , in connection with the Project.

D. Tenant is agreeing to recognize and be bound by the terms of the Declaration, and the parties hereto desire to set forth their agreements concerning the same.

NOW, THEREFORE, in consideration of (a) the foregoing recitals and the mutual agreements hereinafter set forth, and (b) for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows,

1. Tenant’s Recognition of Declaration . Notwithstanding that the Lease has been executed prior to the recordation of the Declaration, Tenant agrees to recognize and by bound by all of the terms and conditions of the Declaration.

 

 

   EXHIBIT F   

KILROY REALTY

12400 High Bluff

   -1-    [Relational Advisors/Relational Investors]


2. Miscellaneous .

2.1 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, estates, personal representatives, successors, and assigns.

2.2 This Agreement is made in, and shall be governed, enforced and construed under the laws of, the State of California.

2.3 This Agreement constitutes the entire understanding and agreements of the parties with respect to the subject matter hereof, and shall supersede and replace all prior understandings and agreements, whether verbal or in writing. The parties confirm and acknowledge that there are no other promises, covenants, understandings, agreements, representations, or warranties with respect to the subject matter of this Agreement except as expressly set forth herein.

2.4 This Agreement is not to be modified, terminated, or amended in any respect, except pursuant to any instrument in writing duly executed by both of the parties hereto.

2.5 In the event that either party hereto shall bring any legal action or other proceeding with respect to the breach, interpretation, or enforcement of this Agreement, or with respect to any dispute relating to any transaction covered by this Agreement, the losing party in such action or proceeding shall reimburse the prevailing party therein for all reasonable costs of litigation, including reasonable attorneys’ fees, in such amount as may be determined by the court or other tribunal having jurisdiction, including matters on appeal.

2.6 All captions and heading herein are for convenience and ease of reference only, and shall not be used or referred to in any way in connection with the interpretation or enforcement of this Agreement.

2.7 If any provision of this Agreement, as applied to any party or to any circumstance, shall be adjudged by a court of competent jurisdictions to be void or unenforceable for any reason, the same shall not affect any other provision of this Agreement, the application of such provision under circumstances different form those adjudged by the court, or the validity or enforceability of this Agreement as a whole.

2.8 Time is of the essence of this Agreement.

2.9 The Parties agree to execute any further documents, and take any further actions, as may be reasonable and appropriate in order to carry out the purpose and intent of this Agreement.

2.10 As used herein, the masculine, feminine or neuter gender, and the singular and plural numbers, shall each be deemed to include the others whenever and whatever the context so indicates.

EXHIBIT F

 

   -2-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


SIGNATURE PAGE OF RECOGNITION OF

COVENANTS, CONDITIONS AND RESTRICTIONS

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

 

     “LANDLORD”:
    

KILROY REALTY, L,P.,

a Delaware limited partnership

     By:   

Kilroy Realty Corporation,

a Maryland corporation,

General Partner

        By:                                                                                    
           Its:                                                                          
        By:                                                                                    
           Its:                                                                          
     “TENANT”:
    

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of-Series B thereof

     By:    /s/ James J. Zehentbauer                                               
        Its:    Principal
     By:    /s/ David H. Batchelder                                               
        Its:    Principal
    

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

     By:    /s/ James J. Zehentbauer                                               
        Its:    Principal
     By:    /s/ David H. Batchelder                                               
        Its:    Principal

EXHIBIT F

 

   -3-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


EXHIBIT G

OPERATING EXPENSE BUDGET

[ATTACHED]

EXHIBIT G

 

   -1-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


LOGO   

Del Mar Corporate Centre III

12400 High Bluff Drive

Estimated 2004 Operating Budget

 

216,968 r.s.,f.

  
  

 

     Amount      $/RSF       

Property Mgmt. G&A

   $ 43,200.00      $ 0.20     

Utilities: Electric

   $ 100,000.00      $ 0.46      Includes four level parking structure

Utilities: Water & Sewer

   $ 9,500.00      $ 0.04     

Utilities: Rubbish

   $ 13,000.00      $ 0.06     

Contract Services: Elevators

   $ 14,400.00      $ 0.07     

Contract Services: Landscaping

   $ 32,064.00      $ 0.15     

Contract Services: Security

   $ 53,684.00      $ 0.25     

Contract Services: Window Cleaning

   $ 18,000.00      $ 0.08     

Contract Services: Parking

   $ 8,600.00      $ 0.04     

Contract Services: Other

   $ 75,000.00      $ 0.35     

Contract Services: Janitorial

   $ 169,235.00      $ 0.78     

Janitorial Supplies

   $ 26,400.00      $ 0.12     

Dayporter

   $ 54,300.00      $ 0.25     

Contract Services: HVAC Monitoring

   $ 3,866.00      $ 0.02     

Contract Services: FLS Monitoring

   $ 600.00      $ 0.00     

Contract Services: Pest Control

   $ 2,220.00      $ 0.01     

Office of the Building

   $ —        $ —       

Communications

   $ 3,400.00      $ 0.02     

Other Direct Expenses

   $ —        $ —       

Fees, Permits and Licenses

   $ 600.00      $ 0.00     

Association Assessments

   $ 19,236.00      $ 0.09     

Property Tax: Other

   $ 360.00      $ 0.00     

Property Tax: Amortization

   $ 646,158.00      $ 2.98     

Insurance: Amortization

   $ 68,570.00      $ 0.32     

Repairs & Maintenance: Supplies

   $ 3,000.00      $ 0.01     

Repairs & Maintenance: Repairs

   $ 4,000.00      $ 0.02     

Repairs & Maintenance: Other

   $ —        $ —       

Repairs & Maintenance: Elevator Repairs

   $ —        $ —       

Repairs & Maintenance: Electrical Repairs

   $ 3,600.00      $ 0.02     

Repairs & Maintenance: HVAC Repairs

   $ 2,000.00      $ 0.01     

Repairs & Maintenance: Landscape Repairs

   $ 800.00      $ 0.00     

Repairs & Maintenance: Plumbing Repairs

   $ 150.00      $ 0.00     

Repairs & Maintenance: Roof Repairs

   $ —        $ —       

Management Cost

   $ 318,942.96      $ 1.47      Note: Based on $3.50 + utilities and management fee of 3.5%
  

 

 

    

 

 

    
   $ 1,694,885.96      $ 7.81     


EXHIBIT H

PARKING LOCATIONS IN PROJECT PARKING FACILITY

[ATTACHED]

 

  

EXHIBIT H

 

-1-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


LOGO


SIGNATURE PAGE OF RECOGNITION OF

COVENANTS, CONDITIONS AND RESTRICTIONS

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

 

“LANDLORD” :

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   Kilroy Realty Corporation,
  a Maryland corporation,
  General Partner
  By:                                                                                           
 

Its:                                                                                    

  By:                                                                                           
 

Its:                                                                                    

“TENANT”:

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

By:  

/s/ James J. Zehentbauer

  Its: Principal
By:  

/s/ David H. Batchelder

  Its: Principal

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By:  

/s/ James J. Zehentbauer

  Its: Principal
By:  

/s/ David H. Batchelder

  Its: Principal

 

  

EXHIBIT F

 

-3-

  

KILROY REALTY

12400 High Bluff

[Relational Advisors Relational Investors]


IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

 

“LANDLORD” :

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   Kilroy Realty Corporation,
  a Maryland corporation,
  General Partner
  By: ILLEGIBLE                                             
 

Its:   Senior Vice President

  By: /s/ Jeffrey C. Hawken                                               
 

Its:   Executive Vice President

Chief Operating Officer

“TENANT”:

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

By:  

/s/ James J. Zehentbauer

  Its: Principal
By:  

/s/ David H. Batchelder

  Its: Principal

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By:  

/s/ James J. Zehentbauer

  Its: Principal
By:  

/s/ David H. Batchelder

  Its: Principal

 

   -67-   

KILROY REALTY

12400 High Bluff

[Relational Advisors/Relational Investors]


FIRST AMENDMENT TO OFFICE LEASE

This FIRST AMENDMENT TO OFFICE LEASE (“ First Amendment ”) is made and entered into as of the 23 rd day of July 2004, by and between KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), and RELATIONAL ADVISORS LLC, a Delaware limited liability company, acting on behalf of Series B thereof, and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (collectively, as “ Tenant ”).

R E C I T A L S :

A. Landlord and Tenant entered into that certain Office Lease dated June 1, 2004 (the “ Lease ”), whereby Landlord leases to Tenant and Tenant leases from Landlord approximately 32,792 rentable (30,675 usable) square feet of space consisting of the entire sixth (6 th ) floor of the building (the “ Building ”) located at 12400 High Bluff Drive, San Diego, California 92130, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, which Premises is commonly known, collectively, as Suite 600 (the “ Premises ”).

B. Article 21 of the Lease required Tenant to deposit with Landlord a security deposit (the “ Security Deposit ”) with Landlord in the initial amount of One Hundred Thirteen Thousand One Hundred Thirty-Two and 50/100 Dollars ($113,132.50), which Security Deposit would be held by Landlord in an interest bearing short-term certificate of deposit account (the “ CD ”) in accordance with the terms and conditions of such Article 21 . The parties acknowledge that while Tenant has itself established a CD in the applicable amount with the intent of satisfying its obligations under Article 21 of the Lease, Tenant has never actually delivered the Security Deposit amount to Landlord pursuant to the terms of Article 21 .

C. Landlord and Tenant desire that, instead of the Security Deposit and CD obligations set forth in Article 21 of the Lease, Tenant substitute therefore a letter of credit (the “ L-C ”) on the terms and conditions set forth in this First Amendment, and the parties therefore desire to amend the Lease accordingly.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Capitalized Terms . All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Agreement unless expressly provided otherwise in this First Amendment.

 

   -1-   

KILROY REALTY L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


2. Letter of Credit .

2.1 Delivery of Letter of Credit . Tenant shall deliver to Landlord, concurrently with Tenant’s execution of this First Amendment, an unconditional, clean, irrevocable letter of credit (the “ L-C ”) in an amount equal to One Hundred Thirteen Thousand One Hundred Thirty-Two and 50/100 Dollars ($113,132.50) (the “ L-C Amount ”), which L-C shall be issued by a money-center bank (a bank which accepts deposits, maintains accounts, has a Southern California office which will negotiate a letter of credit, and whose deposits are insured by the FDIC) reasonably acceptable to Landlord, and which L-C shall be in the form of Exhibit A , attached hereto; provided, however, Landlord hereby pre-approves Wells Fargo Bank as such a money-center bank. Tenant shall pay all expenses, points and/or fees incurred by Tenant in obtaining the L-C. Immediately following (i) the full execution and delivery of this First Amendment, and (ii) Landlord’s receipt of the L-C for the L-C Amount, (A) Tenant’s obligations under Article 21 of the Lease to deliver the Security Deposit to Landlord shall be deemed satisfied, (B) Tenant shall be deemed to have been in satisfaction of the terms and conditions of Article 21 of the Lease from the effective date of the Lease through the date of this First Amendment, (C) Tenant shall, following the date hereof, have no further obligations with respect to Article 21 of the Lease (which Article 21 of the Lease is hereby terminated in its entirety), and (D) Tenant shall, as of the date hereof, be deemed to be in satisfaction of the terms and conditions of this Section  2 of this First Amendment.

2.2 Conditional Reduction of L-C Amount . Landlord and Tenant hereby acknowledge and agree that, to the extent Tenant satisfies the TCCs of this Section  2.2, the L-C Amount is subject to an annual reduction equal to ten percent (10%) of the initial L-C Amount throughout the Lease Term. Notwithstanding anything to the contrary set forth in this Section  2.2, Tenant shall only be entitled to such conditional reduction to the extent (1) Tenant is not then in economic or material non-economic default under the Lease (as hereby amended; beyond any applicable notice and cure periods), (2) Tenant has not been in economic or material non-economic default under the Lease (as hereby amended; beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, (3) Tenant has not been in economic or material non-economic default under the Lease (as hereby amended; beyond any applicable notice and cure periods) more than three (3) times during the immediately preceding five (5) year period, (4) Tenant has timely delivered to Landlord the applicable annual Financial Statement in accordance with the TCCs of Article 17 of the Lease, and (5) Landlord receives the auditor’s opinion letter, delivered in connection with the annual Financial Statements, confirming that Tenant continues to have the financial ability as an ongoing concern to satisfy Tenant’s then-remaining economic obligations set forth in the Lease (as hereby amended). For purposes of example only, and assuming that upon each anniversary of the Lease Commencement Date Tenant is entitled to the conditional reduction pursuant to the TCCs of this Section  2.2, then the L-C Amount would be reduced pursuant to the foregoing schedule.

 

   -2-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


Reduction Date:

   L-C Amount:  

First (1 st ) anniversary of
Lease Commencement Date

   $ 101,819.25  

Second (2 nd ) anniversary of
Lease Commencement Date

   $ 90,506.00  

Third (3 rd ) anniversary of
Lease Commencement Date

   $ 79,192.75  

Fourth (4 th ) anniversary of
Lease Commencement Date

   $ 67,879.50  

Fifth (5 th ) anniversary of
Lease Commencement Date

   $ 56,566.25  

Sixth (6 th ) anniversary of
Lease Commencement Date

   $ 45,253.00  

Seventh (7 th ) anniversary of
Lease Commencement Date

   $ 33,939.75  

Eighth (8 th ) anniversary of
Lease Commencement Date

   $ 22,626.50  

Ninth (9 th ) anniversary of
Lease Commencement Date

   $ 11,313.25  

2.3 Application of Letter of Credit . Landlord shall have the immediate right to draw upon the L-C, in whole or in part and without prior notice to Tenant, other than that required under the Lease, at any time and from time to time: (i) if a default occurs under the Lease (as hereby amended; beyond any applicable notice and cure period), or (ii) Tenant either files a voluntary petition, or an involuntary petition is filed against Tenant by an entity other than Landlord, under any chapter of the Federal Bankruptcy Code or Tenant executes an assignment for the benefit of creditors, No condition or term of the Lease (as hereby amended) shall be deemed to render the L-C conditional, thereby justifying the issuer of the L-C in failing to honor a drawing upon such L-C in a timely manner. The L-C and its proceeds shall constitute Landlord’s sole and separate property (and not Tenant’s property or, in the event of a bankruptcy filing by Tenant, property of Tenant’s bankruptcy estate) and Landlord may immediately upon any draw (and without notice to Tenant) apply or offset the proceeds of the L-C: (a) against any amounts payable by Tenant under the Lease (as hereby amended) that are not paid when due, after the expiration of any applicable notice and cure period; (b) against all losses and damages that Landlord has suffered or may reasonably estimate that it may suffer as a result of any default by Tenant under the Lease (as hereby amended), including any damages arising under Section 1951.2 of the California Civil Code for rent due following termination of the Lease (as hereby amended); and (c) against any costs incurred by Landlord in connection with the Lease (as hereby amended) (including attorneys’ fees). Provided Tenant has performed all of its obligations under the Lease (as hereby amended), Landlord agrees to pay to Tenant within thirty (30) days after the Lease Expiration Date the amount of any proceeds of the L-C received by Landlord and not applied as allowed above, and return the L-C to Tenant within the foregoing thirty (30) day period; provided that if prior to the Lease Expiration Date a voluntary petition is filed by Tenant, or an involuntary petition is filed against Tenant by any of Tenant’s creditors other than Landlord, under the Federal Bankruptcy Code, or Tenant executes an assignment for the benefit of creditors, then Landlord shall not be obligated to return the L-C or any proceeds of the L-C until all statutes of limitations for any preference avoidance statutes applicable to such

 

   -3-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


bankruptcy or assignment for the benefit of creditors have elapsed or the bankruptcy court or assignee, whichever is applicable, has executed a binding release releasing the Landlord of any and all liability for preferential transfers relating to payments made under the Lease (as hereby amended), and Landlord may retain and offset against any remaining L-C proceeds the full amount Landlord is required to pay to any third party on account of preferential transfers relating to this Lease. If Landlord draws on the L-C as permitted in this Section  2.3 , then, upon demand of Landlord, Tenant shall restore the amount available under the L-C to the then-current L-C Amount set forth in Section 2.2 , above, by providing Landlord with an amendment to the L-C evidencing that the amount available under the L-C has been restored to the then-current L-C Amount set forth in Section 2.2 , above. In the alternative, Tenant may provide Landlord with cash, to be held by Landlord in accordance with this Section  2.3 in an amount equal to the restoration amount required under this Section  2.3 , Tenant shall pay all expenses, points and fees incurred by Tenant or Landlord in renewing, replacing, drawing or transferring the L-C. Landlord and Tenant (1) acknowledge and agree that in no event or circumstance shall the L-C or any renewal thereof or substitute therefor or any proceeds thereof be deemed to be or treated as a “security deposit” under any law applicable to security deposits in the commercial context, including, but not limited to, Section 1950.7 of the California Civil Code, as such Section now exists or as it may be hereafter amended or succeeded (the “ Security Deposit Laws ”) , (2) acknowledge and agree that the L-C (including any renewal thereof or substitute therefor or any proceeds thereof) is not intended to serve as a security deposit, and the Security Deposit Laws shall have no applicability or relevancy thereto, and (3) waive any and all rights, duties and obligations that any such party may now, or in the future will, have relating to or arising from the Security Deposit Laws. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code and all other provisions of law, now or hereafter in effect, which (A) establish the time frame by which a landlord must refund a security deposit under a lease, and/or (B) provide that a landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a tenant or to clean the premises, it being agreed that Landlord may, in addition, claim those sums specified in this Section  2.3 and/or those sums reasonably necessary to compensate Landlord for any loss or damage caused by Tenant’s breach of this Lease (as hereby amended), including any damages Landlord suffers following termination of this Lease (as hereby amended).

3. No Further Modification . Except as specifically set forth in this First Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

[ the remainder of this page intentionally left blank ]

 

   -4-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


IN WITNESS WHEREOF, this First Amendment has been executed as of the day and year first above written.

 

“LANDLORD” :

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   Kilroy Realty Corporation,
  a Maryland corporation,
  General Partner
  By: /s/ Jeffrey C. Hawken                                
 

     Its: Executive Vice President

           Chief Operating Officer

 

By: /s/ John T. Fucci                                        

 

     Its: Sr. Vice President

           Asset Management

TENANT ”:

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

By:  

/s/ James J. Zehentbauer

  Its:
By:  

/s/ David H. Batchhelder

  Its:

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

By:  

/s/ James J. Zehentbauer

  Its:
By:  

/s/ David H. Batchhelder

  Its:

 

   -5-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHlBIT A

12400 HIGH BLUFF

FORM OF LETTER OF CREDIT

( Letterhead of a money center bank

acceptable to the Landlord )

 

                     , 200     
 
 
 
 

Gentlemen:

We hereby establish our Irrevocable Letter of Credit and authorize you to draw on us at sight for the account of                     , a                                                  , the aggregate amount of                                                ($                     ).

Funds under this Letter of Credit are available to the beneficiary hereof as follows:

Any or all of the sums hereunder may be drawn down at any time and from time to time from and after the date hereof by a representative of                              (“Beneficiary”) when accompanied by this Letter of Credit and a written statement signed by a representative of Beneficiary, certifying that such moneys are due and owing to Beneficiary.

This Letter of Credit is transferable in its entirety at no cost to Beneficiary. Should a transfer be desired, such transfer will be subject to the return to us of this advice, together with written instructions.

The amount of each draft must be endorsed on the reverse hereof by the negotiating bank. We hereby agree that this Letter of Credit shall be duly honored upon presentation and delivery of the certification specified above.

This Letter of Credit shall expire on                      .

Notwithstanding the above expiration date of this Letter of Credit, the term of this Letter of Credit shall be automatically renewed for successive, additional one (1) year periods unless, at least thirty (30) days prior to any such date of expiration, the undersigned shall give written notice to Beneficiary, by certified mail, return receipt requested and at the address set forth above or at such other address as may be given to the undersigned by Beneficiary, that this Letter of Credit will not be renewed.

EXHIBIT A

 

   -1-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


This Letter of Credit is governed by the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication 500.

 

Very truly yours,

(Name of Issuing Bank)

 

By:  

     

EXHIBIT A

 

   -2-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


RELEASE AGREEMENT

This RELEASE AGREEMENT (this “ Agreement ”) is entered into as of the 22 nd day of December, 2005, by and among KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), RELATIONAL ADVISORS LLC, a Delaware limited liability company, acting on behalf of Series B thereof (“ Advisors ”), and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (“ Investors ”).

R E C I T A L S :

A. Advisors and Investors, collectively, as tenant (“ Tenant ”), and Landlord, as landlord, entered into that certain Office Lease dated June 1, 2004 (the “ Office Lease ”), as amended by the terms of that certain First Amendment to Office Lease dated as of July 23, 2004 (the “ First Amendment ”) (the Office Lease and the First Amendment are, collectively, the “ Lease ”), whereby Landlord leased to Tenant, and Tenant leased from Landlord, approximately 32,792 rentable (30,675 usable) square feet of space consisting of the entire sixth (6 th ) floor of the building (the “ Building ”) located at 12400 High Bluff Drive, San Diego, California 92130, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, which Premises is commonly known, collectively, as Suite 600 (the “ Premises ”).

B. Advisors, Investors and Landlord desire to enter into this Agreement in order to (i) terminate Advisors’ right, title and interest in and to the Lease, and (ii) release Advisors from further obligations under the Lease, except as otherwise provided herein.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing recitals and the conditions and the covenants hereinafter contained, and for other consideration hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, Landlord, Advisors and Investors hereby agree as follows.

1. Termination of Advisors’ Interest in L ease; Continuation of Investors’ Interest in Lease . Commencing as of 11:59 p.m. on December 31, 2005 (the “Release Date ”), all of Advisors’ right, title and interest in and to the Lease and the Premises shall terminate and, as between Landlord and Advisors only, the Lease shall be of no further force or effect. Both Advisors and Investors expressly acknowledge and agree that notwithstanding the foregoing, (i) the Lease shall not terminate and shall continue on in full force and effect between Landlord and Investors only, and (ii) commencing as of the Release Date, Investors shall be fully and solely liable for the performance of all the obligations of Tenant under the Lease.

 

 

     

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


2. Release of Liability . Except as otherwise provided in Section 3 below, and conditioned on the performance by the parties of the provisions of this Agreement:

(a) Commencing as of the Release Date, Advisors shall be released from any obligation or liability under the Lease to the extent attributable to the period following such Release Date; provided, however, Advisors shall remain fully liable, on a joint and several basis with Investors, for the payment of rents and for the performance of all other obligations of Tenant under the Lease (including, without limitation, Tenant’s payment of reconciliation of Operating Expenses) to the extent attributable to the period preceding and including to the Release Date.

(b) This Agreement shall fully and finally settle all demands, charges, claims, accounts or causes of action of any nature, including, without limitation, both known and unknown claims and causes of action that may arise out of or in connection with the obligations of Advisors, and the obligations of Landlord with respect to Advisors, after the Release Date.

Each of the parties hereto expressly waives the provisions of California Civil Code Section 1542, which provides:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

Each party acknowledges that it has received the advice of legal counsel with respect to the aforementioned waiver and understands the terms thereof.

3. Representations of Advisors . Advisors represents and warrants to Landlord that (a) except with regard to (i) that certain sublease to Del Mar Heritage, LLC (“ Heritage ”) dated as of February 25, 2005 (consented to by Landlord pursuant to that certain Consent to Standard Sublease dated as of March 29, 2005), and (ii) that certain sublease to RSF Management Services, Inc. (“ RSF ”) dated as of July 27, 2005 (consented to by Landlord pursuant to that certain Consent to dated as of August 2, 2005), Advisors has not heretofore assigned or sublet all or any portion of its interest in the Lease; (b) other than with respect to Investors, Heritage and RSF, no other person, firm or entity has any right, title or interest in the Lease; (c) Advisors has the full right, legal power and actual authority to enter into this Agreement and to terminate its rights in and to the Lease and the Premises without the consent of any person, firm or entity; and (d) Advisors has the full right, legal power and actual authority to bind Advisors to the terms and conditions hereof. Advisors further represents and warrants to Landlord that, as of the date hereof and to its actual knowledge, there are no, and as of the Release Date there shall not be any, mechanic’s liens or other liens encumbering all or any portion of the Premises, by virtue of any act or omission on the part of Advisors, its predecessors, contractors, agents, employees, successors or assigns. Notwithstanding the termination of Advisors’ rights in and to the Lease and the release of liability provided for herein, the representations and warranties set forth in this Section 3 shall survive the Release Date and Advisors shall be liable to Landlord for any inaccuracy or any breach thereof.

 

   -2-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


4. Attorneys’ Fees . Should any dispute arise between the parties hereto or their legal representatives, successors and assigns concerning any provision of this Agreement or the rights and duties of any person in relation thereto, the party prevailing in such dispute shall be entitled, in addition to such other relief that may be granted, to recover reasonable attorneys’ fees and legal costs in connection with such dispute.

5. Governing Law . This Agreement shall be governed and construed under the laws of the State of California.

6. Counterpar ts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but such counterparts, when taken together, shall constitute one agreement.

7. Binding Effect . This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective legal representatives, successors and assigns.

8. Time of the Essence . Time is of the essence of this Agreement and the provisions contained herein.

9. Further Assurances . Landlord, Advisors and Investors hereby agree to execute such further documents or instruments as may be necessary or appropriate to carry out the intention of this Agreement.

10. Voluntary Agreement . The parties have read this Agreement and mutual release as contained herein, and on the advice of counsel they have freely and voluntarily entered into this Agreement.

[ signature page immediately follows ]

 

   -3-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


IN WITNESS WHEREOF, Landlord, Advisors and Investors have executed this Agreement as of the day and year first above written.

 

“LANDLORD”:

 

KILROY REALTY, L.P.,

a Delaware limited partnership

 

By:  

Kilroy Realty Corporation,

a Maryland corporation,

General Partner

 

  By:  

/s/ Jeffrey G. Hawken

    Its:  

Executive Vice President

Chief Operating Officer

  By:  

/s/ John T. Fucci

    Its:   SR. Vice president asset management

“ADVISORS”:

 

RELATIONAL ADVISORS LLC,

a Delaware limited liability company,

acting on behalf of Series B thereof

 

By:  

/s/ James J. Zehentbauer

  Its:  

[ILLEGIBLE]

By:  

[ILLEGIBLE]

  Its:  

 

INVESTORS ”:

 

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

 

By:  

[ILLEGIBLE]

  Its:  

CAO

By:  

 

  Its:  

 

 

 

   -4-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


SECOND AMENDMENT TO OFFICE LEASE

This SECOND AMENDMENT TO OFFICE LEASE (the “ Second Amendment ”) is made and entered into as of the 1 st day of May 2014, by and between KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (“ Tenant ”).

R E C I T A L S :

A. Landlord, Tenant and Relational Advisors LLC entered into that certain Office Lease dated June 1, 2004 (the “ Office Lease ”), as amended by that certain First Amendment to Office Lease dated as of July 13, 2004 (the “ First Amendment ”), and as further amended by that certain Release Agreement dated as of December 22, 2005 (the “ Release ”, together with the Office Lease and the First Amendment, collectively the “ Lease ”), whereby Landlord leases to Tenant and Tenant leases from Landlord approximately 32,792 rentable (30,675 usable) square feet of space consisting of the entire sixth (6 th ) floor of the building (the “ Building ”) located at 12400 High Bluff Drive, San Diego, California 92130, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, which Remaining Premises is commonly known, collectively, as Suite 600 (the “ Existing Premises ”).

B. Landlord and Tenant desire to (i) extend the Lease Term (beyond the currently scheduled termination date of November 30, 2014) with respect to an anticipated portion of the Existing Premises consisting of approximately 15,784 rentable (14,414 usable) square feet of space located on the sixth (6th) floor of the Building, the exact size, location and configuration of which shall be determined in accordance with the provisions more particularly set forth in Section 2 of this Second Amendment (the “ Remaining Premises ”), (ii) allow the Lease Term with respect to the balance of the Existing Premises (the “ Expiration Space ”) to expire on the currently scheduled termination date of November 30, 2014, and (iii) otherwise amend the Lease on the terms and conditions set forth in this Second Amendment.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Capitalized Terms . All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Agreement unless expressly provided otherwise in this Second Amendment.

2. Anticipated Configuration of Remaining Premises . Landlord and Tenant hereby acknowledge and agree that the size, location and configuration of the Remaining Premises and the Expiration Space will be dependent on whether or not Landlord enters into a direct lease with Tenant’s current sub-tenant, Zogenix, in a form acceptable to Landlord in its sole and absolute discretion (such direct lease, the “ Zogenix Lease” ) by June 1, 2014 or any later date to which Tenant provides its written consent (the “Remaining Premises Condition” ).

 

   -1-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


Landlord shall notify Tenant in writing promptly following any execution of such Zogenix Lease whenever consummated (the “ Direct Lease Notice ”), and if such notice has not been provided by June 1, 2014, Landlord shall provide Tenant a status report within five (5) business days following such date.

2.1 Configuration of Remaining Premises if Remaining Premises Condition Occurs . To the extent the Remaining Premises Condition timely occurs, Landlord shall separately demise the Existing Premises as depicted on Exhibit A . In such event, Tenant’s resulting portion of the Existing Premises shall, for purposes of the remaining provisions of this Second Amendment, constitute the “Remaining Premises” and the remainder of the Existing Premises shall constitute the “Expiration Space.”

2.2 Configuration of Remaining Premises if Remaining Premises Condition does not Occur . To the extent the Remaining Premises Condition is not timely achieved, Landlord shall separately demise the Existing Premises as so depicted on Exhibit B . In such event, Tenant’s resulting portion of the Existing Premises shall, for purposes of the remaining provisions of this Second Amendment, constitute the “Remaining Premises” and the remainder of the Existing Premises shall constitute the “Expiration Space” for the remainder of this Second Amendment.

2.3 Remeasurement . Regardless of whether the Exhibit A or Exhibit B demising shall have occurred in accordance with the foregoing provisions of this Section 2 , the resulting rentable square feet and usable square feet attributable to the Remaining Premises shall be calculated pursuant to the Office Buildings: Standard Methods of Measurement and Calculating Rentable Area – 2010 (Method B), and its accompanying guidelines (collectively, “ BOMA ”). Within sixty (60) days after the completion of the “Demising Work” (as defined in Exhibit C attached hereto), Landlord’s space planner/architect shall measure the rentable and usable square feet of the Remaining Premises. The determination of Landlord’s space planner/architect shall be conclusive and binding upon the parties. All amounts, percentages and figures appearing or referred to in this Second Amendment based upon the presently contemplated configuration (as identified in Recital B , above), shall be modified in accordance with such determination. Upon such determination, the same will be confirmed in writing by Landlord to Tenant.

3. Reduction of Currently-Existing Premises .

3.1 Give Back of Expiration Space . Landlord and Tenant hereby acknowledge and agree that Tenant’s lease with respect to the Expiration Space shall expire on November 30, 2014 (the “ 2014 Expiration Date ”), and Tenant shall then quit and surrender and deliver exclusive possession of such Expiration Space to Landlord in accordance with the terms of the Lease. Effective as of the day immediately following the 2014 Expiration Date (the “ Reduction Date ”), (i) the Expiration Space shall no longer constitute a part of the Premises, and (ii) the “ Premises ” (as that term is used in the Lease) shall thereupon and thereafter consist only of the Remaining Premises. In the event Tenant does not timely vacate the Expiration Space in accordance with the terms hereof, then, notwithstanding any contrary provision of the Lease, Tenant shall be deemed to be in holdover with respect to the Expiration Space, and the terms and conditions of Article 16 of the Office Lease shall apply with respect thereto.

 

   -2-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


(a) Marketing of the Expiration Space . Notwithstanding any provision to the contrary in this Second Amendment, to the extent the direct Zogenix Lease is not consummated by June 1, 2014, Landlord and any third parties designated by Landlord shall be permitted to enter the Expiration Space upon reasonable advance notice to show the same to prospective tenants.

(b) Surrender of the Expiration Space . Tenant hereby agrees to vacate the Expiration Space and surrender and deliver exclusive possession of the Expiration Space to Landlord, on or before the 2014 Expiration Date in accordance with the terms and conditions of Sections 8.5 and 15.2 of the Office Lease (which surrender requirements shall be deemed to include the removal of any and all communications or computer wires and cables located in the Expiration Space and the delivery of the Expiration Space to Landlord in broom clean condition; provided, however, the foregoing obligation shall not apply to the extent Landlord enters into the Zogenix Lease prior to the Expiration Date). In the event Tenant does not timely vacate the Expiration Space in accordance with the terms hereof, then, notwithstanding any contrary provision of the Lease, Tenant shall be deemed to be in holdover with respect to the Expiration Space, and the terms and conditions of Article 16 of the Office Lease shall apply with respect thereto.

(c) Storage Use . In the event that Landlord does not enter into the Zogenix Lease prior to the 2014 Expiration Date, Tenant shall be permitted to store personal property, including but not limited to furniture, within an approximately four thousand (4,000) square foot portion of the Expiration Space to be reasonably designated by Landlord and Tenant (the “ Storage Area ”) until the earlier to occur of (i) December 14, 2014, and (ii) the date which is thirty (30) days after Landlord notifies Tenant in writing that a third-party lease for the Expiration Space has been consummated pursuant to which Landlord must deliver possession of such Storage Area (the “ Storage Use Term ”). Tenant’s use of the Storage Area for the Storage Use Term shall be subject to the insurance, use and indemnification provisions of the Lease, but otherwise shall not constitute: (a) a holdover by Tenant; (b) a failure to quit, vacate, surrender or deliver exclusive possession of the Expiration Space to Landlord, or (c) any other breach of this Section 3.1 or the provisions of the Lease.

3.2 Representations and Warranties . Tenant represents and warrants to Landlord that, as of the date hereof, (a) Tenant has not heretofore assigned or otherwise sublet all or any portion of its interest in the Expiration Space (excepting only pursuant to that certain Sublease dated March 12, 2012, between Zogenix, Inc., a Delaware corporation, and Relational Investors LLC, a Delaware limited liability company (the “ Zogenix Sublease ”), which Zogenix Sublease expires by its terms on or before such 2014 Expiration Date); (b) no other person, firm or entity has any right, title or interest in the Expiration Space; (c) Tenant has the full right, legal power and actual authority to enter into this Second Amendment and to have Tenant’s lease of the Expiration Space expire as contemplated herein without the consent of any person, firm or entity; and (d) Tenant has the full right, legal power and actual authority to bind Tenant to the terms and conditions hereof. Tenant further represents and warrants to Landlord that as of the date hereof there are no, and as of the Effective Date, there shall be no, mechanic’s liens or other liens encumbering all or any portion of the Expiration Space by virtue of any act or omission on the part of Tenant, its predecessors, contractors, agents, employees, successors, assigns or subtenants. The representations and warranties set forth in this Section 3.2 shall survive the termination of Tenant’s lease of the Expiration Space and Tenant shall be liable to Landlord for any inaccuracy or any breach thereof.

 

   -3-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


4. Remaining Premises Extended Term; Option to Extend .

4.1 Remaining Premises Extended Term . Landlord and Tenant acknowledge that the Lease with respect to the entire Premises (including all of the Remaining Premises) is scheduled to expire on November 30, 2014. Notwithstanding the foregoing, the Lease Term is hereby extended with respect only to the Remaining Premises (which, on and following the “RP Extended Term Commencement Date” (defined below), shall be known for purposes of the Lease as the Premises) for a period of five (5) years and four (4) months commencing as of December 1, 2014 (the “RP Extended Term Commencement Date ”), and ending as of March 31, 2020 (the “ RP Extended Term Expiration Date ”), on the terms and conditions set forth in this Second Amendment. The period of time commencing on December 1, 2014, and ending on March 31, 2020, shall be referred to herein as the “ RP Extended Term .”

4.2 Option to Further Extend Term . Notwithstanding any provision to the contrary contained in the Lease (as amended), Landlord and Tenant acknowledge and agree that Tenant shall continue to have two (2) options to extend the Lease Term with regard to the Remaining Premises, each for a period of five (5) years in accordance with, and pursuant to the terms and conditions of, Section 2 of the Office Lease.

5. Rent .

5.1 Base Rent . Prior to the RP Extended Term Commencement Date, Tenant shall continue paying to Landlord monthly installments of Base Rent in accordance with the terms and conditions of the Lease. Notwithstanding any provision to the contrary contained in the Lease, commencing as of the RP Extended Term Commencement Date, and continuing thereafter through the RP Extended Term Expiration Date, Tenant shall pay to Landlord monthly installments of Base Rent for the Remaining Premises (subject to adjustment based on the actual, determined square footage pursuant to the remeasurement set forth in Section 2.3 of this Second Amendment) in the event that the Condition Precedent is not satisfied (which payment shall otherwise be in accordance with the terms of Article 3 of the Office Lease) as follows:

 

Period During the

RP Extended Term

   Annual
Base Rent
     Monthly
Installment
of Base Rent
     Approximate
Monthly
Rental Rate
per Rentable
Square Foot
 

December 1, 2014 –

November 30, 2015

   $ 795,513.60      $ 66,292.80      $ 4.20  

December 1, 2015 –

November 30, 2016

   $ 819,378.96      $ 68,281.58      $ 4.33  

December 1, 2016 –

November 30, 2017

   $ 843,960.36      $ 70,330.03      $ 4.46  

December 1, 2017 –

November 30, 2018

   $ 869,279.16      $ 72,439.93      $ 4.59  

December 1, 2018 –

November 30, 2019

   $ 895,357.56      $ 74,613.13      $ 4.73  

December 1, 2019 –

March 31, 2020

     N/A      $ 74,613.13      $ 4.73  

 

   -4-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


5.2 Abated Base Rent . Provided that no event of default is occurring during the four (4) month period commencing on the first (1st) day of the first (1st) full calendar month of the RP Extended Term and ending on the last day of the fourth (4th) full calendar month of the RP Extended Term (such four (4) month period, the “ Base Rent Abatement Period ”), Tenant shall not be obligated to pay any Base Rent otherwise attributable to the Remaining Premises during such Base Rent Abatement Period (the “ Base Rent Abatement ”). Landlord and Tenant acknowledge that the aggregate amount of the Base Rent Abatement equals Two Hundred Sixty-Five Thousand One Hundred Seventy-One and 20/100 ($265,171.20) (i.e., $66,292.80 per month). Tenant acknowledges and agrees that during such Base Rent Abatement period, such abatement of Base Rent for the Remaining Premises shall have no effect on the calculation of any future increases in Base Rent or Direct Expenses payable by Tenant pursuant to the terms of the Lease, as amended, which increases shall be calculated without regard to such Base Rent Abatement. Additionally, Tenant shall be obligated to pay all “Additional Rent” (as that term is defined in Section 4.1 of the Office Lease) during the Base Rent Abatement Period. Tenant acknowledges and agrees that the foregoing Base Rent Abatement has been granted to Tenant as additional consideration for entering into this Second Amendment, and for agreeing to pay the Base Rent and perform the terms and conditions otherwise required under the Lease, as amended. If Tenant shall be in default under the Lease, as amended, and shall fail to cure such default within the notice and cure period, if any, permitted for cure pursuant to the Lease, as amended, or if the Lease, as amended, is terminated for any reason other than Landlord’s breach of the Lease, as amended, then the dollar amount of the unapplied portion of the Base Rent Abatement as of the date of such default or termination, as the case may be, shall be converted to a credit to be applied to the Base Rent applicable at the end of the RP Extended Term and Tenant shall immediately be obligated to begin paying Base Rent for the Remaining Premises in full. The foregoing Base Rent Abatement right set forth in this Section 6.2 shall be personal to the tenant named above (the “ Original Tenant ”) and shall only apply to the extent that the Original Tenant (and not any assignee, or any sublessee or other transferee of the Original Tenant’s interest in the Lease, as amended) is the Tenant under the Lease, as amended during such Base Rent Abatement Period.

5.3 Direct Expenses . With respect to the period of the Lease Term occurring prior to December 1, 2014, Tenant shall continue paying to Landlord Tenant’s Share of Direct Expenses that arise or accrue during such period in accordance with the terms of the Lease. Notwithstanding any provision to the contrary contained in the Lease, commencing on RP Extended Term Commencement Date, and continuing thereafter through the RP Extended Term Expiration Date, Tenant shall pay to Landlord Tenant’s Share of Direct Expenses arising or accruing on or following RP Extended Term Commencement Date, and continuing through the

 

   -5-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


RP Extended Term Expiration Date in accordance with the terms of Article 4 of the Office Lease, provided that with respect to the calculation of Tenant’s Share of Direct Expenses attributable to the Remaining Premises, the following shall apply (subject to adjustment based on the actual, determined square footage pursuant to the remeasurement set forth in Section 2.3 of this Second Amendment):

(a) Tenant’s Share of Direct Expenses shall be approximately 7.5536%; and

(b) the Base Year shall be the calendar year 2015.

6. Condition of the Remaining Premises . Tenant acknowledges that Tenant has been and is in occupancy of the Remaining Premises pursuant to the Lease, and is fully aware of the condition of the Remaining Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Remaining Premises or the Building, or with respect to the suitability of the Remaining Premises or the Building for the conduct of Tenant’s business. Tenant acknowledges and agrees that Landlord is not in default or violation of any covenant, provision, obligation, agreement or condition contained in the Lease. Therefore, as of the date hereof and during the period ending on the RP Extended Term Expiration Date, Tenant shall continue to accept the Remaining premises in its then existing, “as is” condition, and Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Remaining Premises, subject only to the terms of this Section 6 and the Work Letter attached hereto as Exhibit C (the “Work Letter”).

7. Refurbishment Allowance .

7.1 In General . Notwithstanding the foregoing, Tenant shall be entitled to a one-time refurbishment allowance (the “ Refurbishment Allowance ”) in the amount of Fifteen and No/100 Dollars ($15.00) per rentable square foot of the Remaining Premises, for the costs relating to the construction of any improvements, which are permanently affixed to the Remaining Premises (the “ Refurbishment Improvements ”). In addition, Tenant shall be entitled to use a portion of the Refurbishment Allowance, in an amount not to exceed Three and No/100 Dollars ($3.00) per rentable square foot of the Remaining Premises (the “ Optional Allowance Cost ”), to be applied toward the cost of built-in and movable furniture, computer and telecommunication cabling, telephone systems, moving expenses and other relocation costs reasonably incurred by Tenant (the “ Optional Allowance Improvements ”). Notwithstanding any provision to the contrary set forth in the Lease and except as provided herein, in no event Shall Landlord be obligated to make disbursements from the Refurbishment Allowance for costs which are unrelated to the Refurbishment Improvements or the Optional Allowance Improvements, or in a total amount which exceeds the Refurbishment Allowance. Except as otherwise provided in this Section 7 , Tenant shall perform the Refurbishment Improvements and/or Optional Allowance Improvements at its sole cost and expense and in accordance with the terms of Article 8 of the Lease.

 

   -6-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


7.2 Landlord Supervision . Notwithstanding any provision to the contrary set forth in the Lease, Tenant shall pay a construction supervision and management fee (the Landlord Supervision Fee ”) to Landlord in an amount equal to three percent (3%) of the total hard construction costs (as opposed to soft costs) for the Refurbishment Improvements and/or the Optional Allowance Improvements, which Landlord Supervision Fee shall be applied against and deducted from the Refurbishment Allowance. Such Landlord Supervision Fee shall compensate Landlord for engaging the project space planner, engineers and contractor, all through a Competitive process, and to contract directly with, and make associated payments to, such parties. In connection therewith, Landlord shall lead all project meetings, provide project budgeting, accounting and reconciliation reporting. Landlord shall coordinate with all furniture, technology and moving vendors to coordinate the Refurbishment Improvements, and the remodeling of the Premises, as commercially reasonably required to implement the Refurbishment Improvement process. Such Landlord Supervision Fee shall be the sole compensation paid by Tenant for the supervision of the Refurbishment of the Premises, and no other fees or markup’s shall be due to Landlord.

7.3 Disbursement of Refurbishment Allowance . Subject to the provisions of this Section 7 above, following the completion of the Refurbishment Improvements in accordance with the terms of Article 8 of the Lease, Landlord shall deliver a check made payable to Tenant in payment for the applicable portion of the Refurbishment Allowance, provided that (i) Landlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenant’s use of such other tenant’s leased premises in the Building, (ii) Tenant delivers to Landlord all invoices, marked as having been paid, from all general contractors, subcontractors, laborers, materialmen, and suppliers used by Tenant for labor rendered and materials delivered to the Remaining Premises in connection with the Refurbishment Improvements, and (iii) Tenant delivers to Landlord properly executed unconditional mechanics lien releases in compliance with both California Civil Code Section 8134 and Section 8138. As of January 31, 2015, any portion of the Refurbishment Allowance which has not been previously incurred or in respect of which services have not been performed in connection with the Refurbishment Improvements shall be retained by Landlord, and Tenant shall have no right to use such amount for any remaining improvements or alterations, nor as a Rent credit or a cash allowance or for any other purpose.

8. Parking . Notwithstanding any parking rights or allocations to the contrary set forth in the Lease, commencing as of the RP Extended Term Commencement Date, and continuing through the RP Extended Term Expiration Date, Tenant shall have the right (but not the obligation) to use up to sixty-eight (68) unreserved parking passes (i.e., four and one-half (4  1 2 ) unreserved parking permits per 1,000 usable square feet of the Remaining Premises) on a monthly basis, in accordance with the terms and conditions set forth in this Section 7 and the non-conflicting terms and conditions set forth in Article 28 of the Office Lease. In addition, Tenant shall continue to have the right, for the entire duration of the RP Extended Term only, to use fourteen (14) of such passes as reserved covered parking spaces individually designated for particular employees of Tenant, otherwise in accordance with the terms and conditions of Article 28 of the Office Lease, and such reserved covered parking spaces shall continue to be those numbered one through fourteen as of the date of this Second Amendment.

 

   -7-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


9. Letter of Credit . Landlord and Tenant acknowledge that in accordance with the First Amendment, Tenant has previously delivered an unconditional, clean, irrevocable letter of credit (the “ L-C ”) in an amount equal to One Hundred Thirteen Thousand One Hundred Thirty-Two and 50/100 Dollars ($113,132.50) (the “ Original L-C Amount ”) to Landlord as security for the faithful performance by Tenant of the terms, covenants and conditions of the Lease. From and after December 1, 2014, while Tenant shall remain obligated to maintain such L-C, the original L-C Amount shall be reduced to Seventy-Two Thousand Four Hundred Thirty-Nine and 93/100 Dollars ($72,439.93) (the “ RP L-C Amount ”), which L-C shall be otherwise in accordance with the terms and conditions of the Lease.

10. Notices . Notwithstanding anything to the contrary contained in the Lease, as of the date of this Second Amendment, any notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

Kilroy Realty, L.P.

c/o Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200

Los Angeles, California 90064

Attention: Legal Department

with copies to:

Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200

Los Angeles, California 90064

Attention: Mr. John Fucci

and

Kilroy Realty Corporation

3661 Valley Centre Drive, Suite 250

San Diego, California 92130

Attention: Mr. Brian Galligan

and

Allen Matkins Leck Gamble Mallory & Natsis LLP

1901 Avenue of the Stars, Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

Notwithstanding anything to the contrary contained in the Lease, as of the date of this Second Amendment, any notices to Tenant must be sent, transmitted, or delivered, as the case may be, to the following addresses:

Relational Investors LLC

12400 High Bluff Drive, Suite 600

San Diego, California 92130

Attention: Chief Financial Officer

 

   -8-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


with copies to:

Relational Investors LLC

12400 High Bluff Drive, Suite 600

San Diego, California 92130

Attention: Legal Department

11. Broker . Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Second Amendment other than Hughes Marino, Inc. (the “ Broker ”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Second Amendment other than the Broker. Each party agrees to indemnify and defend the other party against and hold the other party harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent other than the Broker occurring by, through, or under the indemnifying party. The terms of this Section 11 shall Survive the expiration or earlier termination of the term of the Lease, as hereby amended.

12. Utility Billing Information . In the event that the Tenant is permitted to contract directly for the provision of electricity, gas and/or water services to the Remaining Premises with the third-party provider thereof (all in Landlord’s sole and absolute discretion), Tenant shall within ten (10) business days of Landlord’s written request therefore, provide Landlord with a copy of any such invoice(s) specified in the request. Tenant acknowledges that pursuant to California Public Resources Code Section 25402.10 and the regulations adopted pursuant thereto (collectively the “ Energy Disclosure Requirements ”), Landlord may be required to disclose information concerning Tenant’s energy usage at the Building to certain third parties, including, without limitation, prospective purchasers, lenders and tenants of the Building (the “ Tenant Energy Use Disclosure ”). Tenant hereby (A) consents to all such Tenant Energy Use Disclosures, and (B) acknowledges that Landlord shall not be required to notify Tenant of any Tenant Energy Use Disclosure. Further, Tenant hereby releases Landlord from any and all losses, costs, damages, expenses and liabilities relating to, arising out of and/or resulting from any Tenant Energy Use Disclosure. The terms of this Section 12 shall survive the expiration or earlier termination of this Lease, as amended.

13. Certified Access Specialist . For purposes of Section 1938 of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Remaining Premises has not undergone inspection by a Certified Access Specialist (CASp).

14. Access to Electrical and Telecoms Rooms . In addition to the rights specified in Article 1.1.13 of the Office Lease, Tenant shall have the right to access, enter and conduct all necessary work within the Electrical and Telecoms Rooms identified in Exhibits A and B, twenty-four (24) hours per day, seven (7) days per week for the entire duration of the RP Extended Term and any extensions thereof pursuant to Section 4.2 above.

 

   -9-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


15. No Further Modification . Except as specifically set forth in this Second Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

[ the remainder of this page intentionally left blank ]

 

   -10-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


IN WITNESS WHEREOF, this Second Amendment has been executed as of the day and year first above written.

 

LANDLORD ”:

 

KILROY REALTY, L.P.,

a Delaware limited partnership

 

By:  

Kilroy Realty Corporation,

a Maryland corporation,

General Partner

 

  By:  

[ILLEGIBLE]

    Its:   SVP
  By:  

/s/ John T. Fucci

    Its:  

SR. Vice President

Asset Management

TENANT ”:

 

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

 

By:  

[ILLEGIBLE]

  Its:   Principal
By:  

[ILLEGIBLE]

  Its:   CFO

 

   -11-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHIBIT A

12400 HIGH BLUFF

OUTLINE OF REMAINING PREMISES AND EXPIRATION SPACE

 

 

LOGO

EXHIBIT A

 

   -1-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHIBIT B

12400 HIGH BLUFF

OUTLINE OF REMAINING PREMISES AND EXPIRATION SPACE

 

LOGO

EXHIBIT B

 

   -1-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHIBIT C

12400 HIGH BLUFF

WORK LETTER

Except as specifically provided in this Exhibit C below, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises prior to or during the Lease Term and Tenant shall accept the Premises in its currently existing “as-is” condition. Subject to the terms and conditions set forth in this Exhibit C , Landlord shall, on a one (1)-time basis at Landlord’s sole cost and expense, separately demise the Remaining Premises from the Expiration Space, utilizing Building standard methods, materials and finishes, in the location identified on Exhibit A or Exhibit B to the Second Amendment to which this Work Letter is an exhibit; (b) create a secure entrance for Tenant that is separate from the entrance to be used by Zogenix or any other tenant of the Expiration Space; (c) create all necessary entrances to provide access to the Service Elevator and the Electrical and Telecoms Rooms in the locations identified on Exhibit A or Exhibit B ; (d) if applicable, create a secure entrance to the Server Room forming part of the Remaining Premises, in the location identified on Exhibit A : (e) create a new stand-alone electricity meter to be used solely by the Tenant in connection with the Remaining Premises; and (f) create separate zones for lighting and HVAC to be used solely by the Tenant in connection with the Remaining Premises (as applicable, the “Demising Work ”). Tenant shall make no changes, additions or modifications to the Demising Work or require the installation of any items requiring other than Building standard materials, components or finishes (it being expressly acknowledged and agreed that Landlord’s obligations are limited to the performance of the Demising Work as identified above).

EXHIBIT C

 

   -1-   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


THIRD AMENDMENT TO OFFICE LEASE

This THIRD AMENDMENT TO OFFICE LEASE (the “ Third Amendment ”) is made and entered into as of the 31 day of December 2014, by and between. KILROY REALTY, L.P., a Delaware limited partnership (“Landlord”), and RELATIONAL INVESTORS LLC, a Delaware limited liability company, acting on behalf of Series A thereof (“Tenant”).

R E C I T A L S :

A. Landlord, Tenant and Relational Advisors LLC entered into that certain Office Lease dated June 1, 2004 (the “ Office Lease ”), as amended by that certain First Amendment to Office Lease dated as of July 13, 2004 (the “ First Amendment ”), that certain Release Agreement dated as of December 22, 2005 (the “Release”), and that certain Second Amendment to Office Lease dated as of May 1, 2014 (the “ Second Amendment,” collectively with the Office Lease, the First Amendment and the Release, the “ Lease ”), whereby Landlord leases to Tenant and Tenant leases from Landlord approximately 15,784 rentable (14,414 usable) square feet of space located on the sixth (6 th ) floor of the building (the “ Building ”) located at 12400 High Bluff Drive, San Diego, California 92130, together with the adjacent exterior balcony on the sixth (6 th ) floor of the Building, commonly known, collectively, as Suite 600 (the “ Existing Premises ”).

B. Landlord and Tenant desire to amend the Lease on the terms and conditions set forth in this Third Amendment.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Capitalized Terms . All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this Third Amendment.

2. Refurbishment Allowance Extension Date . Landlord and Tenant hereby acknowledge and agree that the date “January 31, 2015” in the last sentence in Section 7.3 of the Second Amendment is hereby deleted and replaced with “December 31, 2015”.

3. No Broker . Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Third Amendment, and that they know of no real estate broker or agent who is entitled to a commission in connection with this Third Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent occurring by, through, or under the indemnifying party. The terms of this Section 3 shall survive the expiration or earlier termination of the term of the Lease, as hereby amended.

4. Certified Access Specialist . For purposes of Section 1938 of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Remaining Premises has not undergone inspection by a Certified Access Specialist (CASp).

5. No Further Modification . Except as specifically set forth in this Third Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

[signatures follow on next page]

 

     

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


IN WITNESS WHEREOF, this Third Amendment has been executed as of the day and year first above written.

 

LANDLORD ”:

 

KILROY REALTY, L.P.,

a Delaware limited partnership

 

By:  

Kilroy Realty Corporation,

a Maryland corporation,

General Partner

 

  By:  

/s/ Joseph E. Magri

    Name:   Joseph E. Magri
    Its:  

Senior Vice President

and Corporate Counsel

  By:  

/s/ John T. Fucci

    Name:   JOHNT. FUCCI
    Its:  

SR. Vice President

Asset Management

 

TENANT ”:

 

RELATIONAL INVESTORS LLC,

a Delaware limited liability company,

acting on behalf of Series A thereof

 

By:  

[ILLEGIBLE]

  Name:  

 

  Its:   [ILLEGIBLE]
By:  

[ILLEGIBLE]

  Name:  

 

  Its:   [ILLEGIBLE]

 

   2   

KILROY REALTY, L.P.

12400 High Bluff

[Relational Advisors LLC, Relational Investors LLC]


EXHIBIT S-B

OFFICE SUBLEASE

[Attached]

 

   Exhibit S-B   


OFFICE SUBLEASE

by and between

RELATIONAL INVESTORS LLC,

a Delaware limited liability company

as Sublandlord

and

EVOFEM, INC.,

a Delaware corporation

as Subtenant

Dated: January 30, 2015


TABLE OF CONTENTS

 

               Page  

1.

   Sublease of Subpremises; Sublease Term; Shared Occupancy      1  
   1.1.    Sublease of Subpremises      1  
   1.2.    Sublease Term      2  
   1.3.    Delivery Date      2  

2.

   Subrent      3  
   2.1.    Base Subrent      3  
   2.2.    Additional Subrent      4  
   2.3.    Letter of Credit      4  

3.

   Incorporation of Overlease      6  
      3.1.1. Defined Terms      6  
      3 1.2. Exclusions      8  
      3.1.3. Amendments for Purposes of Sublease Incorporation of Overlease      8  
      3.1.4. Other      15  
      3.1.5. Dispute Resolution      15  
      3.1.6. Representations and Warranties      15  
      3.1.7. Interaction of Sublease and Overlease      15  
      3.1.8. Notices      15  
   3.2.    Compliance with Overlease      16  
   3.3.    Abatement Rights      16  
   3.4.    Payment of Sublandlord’s Rent      16  
   3.5.    Rights and Benefits Under Overlease      16  
      3.5.1. Additional Costs      16  
   3.6.    Overlandlord’s Performance      16  
   3.7.    Preservation of Overlease      17  
   3.8.    Consents      17  
   3.9.    Representations and Warranties      17  

4.

   Interaction of Estates; Effect on Overlandlord      17  
   4.1.    Priorities      17  
   4.2.    Event of Default      18  
   4.3.    Termination of Overlease, Reentry or Repossession      18  
   4.4.    No Effect on Overlease, Overlandlord      18  
   4.5.    Termination of Overlease      19  

5.

   Leasing Covenants      19  
   5.1.    Delivery; FF&E; Surrender      19  
   5.2.    Insurance      20  
   5.3.    Default; Remedies      20  
   5.4.    Signage      20  

 

i


6.

   Miscellaneous      21  
   6.1.    Defined Terms      21  
   6.2.    Attorneys’ Fees      21  
   6.3.    Further Assurances      21  
   6.4.    Interpretation      21  
   6.5.    Execution      22  
   6.6.    Assignment of Overlease      22  
   6.7.    Overlandlord’s Consent      22  
   6.8.    Guaranty      22  
   6.9.    Financial Statements      22  

 

ii


OFFICE SUBLEASE

This OFFICE SUBLEASE (the “ Sublease” ) is entered into as of January 30, 2015 (the “ Execution Date” ) by and between RELATIONAL INVESTORS LLC, a Delaware limited liability company (“ Sublandlord” ), and EVOFEM INC., a Delaware corporation (“ Subtenant” ).

W I T N E S S E T H

WHEREAS , Sublandlord is the tenant (“ Overtenant ”) under that certain lease dated as of June 1, 2004 between Kilroy Realty, L.P., a Delaware limited partnership (“ Overlandlord ”) and Relational Advisors LLC and Relational Investors LLC, as amended by that certain (i) First Amendment to Office Lease dated as of July 23, 2004, (ii) Release Agreement dated December 22, 2005, (iii) Second Amendment to Office Lease (“ Second Amendment ”) dated May 1, 2014, and (iv) Third Amendment to Office Lease (“ Third Amendment ”) dated December 31, 2014 (collectively, the “ Overlease ”). A copy of the Overlease is attached hereto as Exhibit S-A ;

WHEREAS , Relational Advisors LLC assigned its rights and interests under the Overlease to Sublandord pursuant to that certain Confidential Separation Agreement, effective as of November 10, 2005;

WHEREAS , pursuant to the Overlease, Overlandlord demised to Sublandlord the “Premises” (as defined and described in the original Overlease) located in the “Building” (as defined and described in the Overlease);

WHEREAS , pursuant to the Second Amendment, the Overlease with respect to the portion of the original Premises consisting of the “Expiration Space” (as defined and described in the Second Amendment) expired as of November 30, 2014, and as of December 1, 2014, the “Premises” under the Overlease became solely the “Remaining Premises” (as defined and described in the Second Amendment, and more particularly in Section 2.1 thereof), consisting of approximately 15,784 rentable (14,414 usable) square feet of space located at 12400 High Bluff Drive, Suite 600, San Diego, California 92130; and

WHEREAS , Sublandlord desires to sublease to Subtenant, and Subtenant desires to sublease from Sublandlord, subject to the terms of this Sublease, the Remaining Premises (herein referred to as the “ Subpremises ”). The Subpremises is more particularly depicted on Exhibit S-B attached hereto.

NOW, THEREFORE , in consideration of the mutual covenants contained in this Sublease, and for valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the parties agree as follows.

1. Sublease of Subpremises; Sublease Term; Shared Occupancy.

1.1. Sublease of Subpremises. Subject to the terms and conditions of this Sublease, Sublandlord subleases the Subpremises to Subtenant, and Subtenant subleases the Subpremises from Sublandlord, for the Sublease Term.

 

1


Pursuant to Second Amendment, Overlandlord (and not Sublandlord) has the obligation to demise the Subpremises from the Expiration Space (as defined in the Second Amendment). Subtenant acknowledges that, pursuant to Section 2.3 of the Second Amendment, Overlandlord’s space planner/architect is to measure the rentable square feet of the Subpremises following such demising, and that the determination of Overlandlord’s space planner/architect will be conclusive and binding. Except as expressly set forth otherwise herein, Base Subrent and all other obligations hereunder that are based on the rentable square footage of the Subpremises shall be retroactively adjusted to reflect the results of such measurement. Without limiting any other provisions of this Sublease or the Overlease, Subtenant also acknowledges that the construction work to be performed by Overlandlord pursuant to the Second Amendment may involve noise, dust and other disturbances to Subtenant, and that Subtenant will have no rent abatement or other claims against Sublandlord relating to same.

1.2. Sublease Term. Subject to the terms hereof (including, but not limited to, Section 1.3 below), the “ Sublease Term ”“ shall (a) commence on the date (the “ Sublease Commencement Date ”) that is the later of: (i) February 1, 2015, or (ii) one (1) business day after the date when Sublandlord delivers to Subtenant a consent to this Sublease executed by Overlandlord in accordance with Section  6.7 hereof and (b) expire upon the expiration date of the Overlease ( i.e., March 31, 2020) (the “ Sublease Expiration Date” ). Subtenant acknowledges and agrees that Sublandlord has no obligation to, and does not intend to, exercise the options to extend the current term of the Overlease set forth in Section 4.2 of the Second Amendment.

1.3. Delivery Date. The Subpremises shall be delivered to the Subtenant on the Sublease Commencement Date; provided, however, that prior to the Sublease Commencement Date and so long as (i) Overlandlord has executed a consent to the Sublease in accordance with Section 6.7 hereof, and (ii) Subtenant has delivered the insurance certificate in accordance with Section 5.2 hereof, Subtenant and its contractors and consultants shall be permitted to enter the Subpremises with no obligation to pay Subrent until the Sublease Commencement Date except as set forth below, to install cabling, equipment, telecommunications, computers and furniture (collectively, “ Fixturizing” ) and to use the Subpremises for conduct of Subtenant’s business in accordance with this Sublease. The first date on which the Subpremises is first accessed under this Section 1.3 shall be the “ Early Access Date ”. Subtenant shall hold Sublandlord harmless from and indemnify, protect and defend Sublandlord from and against any Claim relating to or arising out of any loss or damage to the Building, or Subpremises, or any injury to any persons, that results from Subtenant’s access to the Premises pursuant to this Section  1.3 . Additionally, if Subtenant uses the Subpremises for conducting Subtenant’s business prior to the Sublease Commencement Date, then Subtenant hereby agrees that it shall abide by the terms and conditions set forth in this Sublease during that time as if the Sublease Term had commenced; provided, however, that during the period prior to the Sublease Commencement Date, in lieu of the Base Subrent set forth in Section 2.1 below, Subtenant shall pay to Sublandlord an amount equal to One Thousand Dollars ($1,000.00) per month, divided by the number of days of such person’s occupancy, for each person who occupies the Subpremises during such period.

1.4 Shared Occupancy Period. Notwithstanding anything in this Sublease to the contrary, Sublandlord shall have the right to continue to occupy and use, until December 31, 2015 (the “ Shared Occupancy Period ”), (a) the portion of the office area within the Subpremises depicted on Exhibit S-B (the “ Sublandlord Office Area ”) and (b) the computer room within the

 

2


Subpremises depicted on Exhibit S-B (the “ Computer Room ”). Sublandlord shall also have the right during the Shared Occupancy Period to use the conference rooms, kitchens, patios and similar areas within the Subpremises from time to time, subject to availability and Subtenant’s reasonable requirements relating to same. Additionally, after the Shared Occupancy Period expires, Sublandlord shall have the right, in its sole discretion, to continue to occupy and use the Computer Room, or portions thereof, on a month to month basis for up to an additional six (6) months, provided Sublandlord credits against the monthly Subrent payable hereunder a sum equal to the product of the usable square footage of the Computer Room exclusively used by Sublandlord multiplied by $3.65 (i.e. the monthly per square foot Subrent payable during such period). Sublandlord’s right to the use and occupancy of the Sublandlord Office Area and the Computer Room pursuant to the foregoing shall be exclusive, except that (y) Subtenant and its employees and invitees shall have a right to walk through the Sublandlord Office Space to the extent reasonably necessary to get to and from the Subpremises to the remainder of the Building and (z) Subtenant shall have the right to use portions of the Computer Room and the conduits serving same to the extent reasonably necessary in connection with Subtenant’s information systems provided that such use doesn’t interfere with or otherwise adversely affect Sublandlord’s use of the Computer Room and doesn’t result in any additional costs or expenses to Sublandlord.

Sublandlord shall not be obligated to pay any rent or other compensation to Subtenant (or give Subtenant any credit or offset against Subtenant’s obligations hereunder) for the use of the Subpremises as set forth in this Section 1.4 except (i) during the Shared Occupancy Period, Subtenant shall receive a credit against the Subrent payable hereunder equal to twenty percent (20%) of the cost of electricity provided to the Subpremises during the Shared Occupancy Period and (ii) if Sublandlord uses the Computer Room during any period following the Shared Occupancy Period, Subtenant shall receive a credit against the Subrent payable hereunder during such period equal to the product of (A) the sum of (1) the Base Subrent accruing hereunder during such period, (2) Tenant’s Share of Direct Expenses (as defined and calculated under the Overlease) accruing under the Overlease during such period and (3) the cost of electricity provided to the Subpremises during such period times (B) a fraction, the numerator of which is the square footage of the Computer Room (minus the square footage of any portion of same being used by Subtenant pursuant to this Section 1.4) and the denominator of which is the square footage of the entire Subpremises.

While acknowledging that the Sublandlord Office Area and the remainder of the Subpremises will not be separated by a demising wall or other such physical barrier, Sublandlord and Subtenant each agrees to respect and maintain the privacy and confidentiality of the other party’s business and to reasonably cooperate with the other party in implementing any reasonable security measures, procedures or protocols intended to ensure such privacy and confidentiality.

2. Subrent. Subtenant agrees to pay Sublandlord rent under this Sublease (the “ Subrent” ) in the following amounts at the following times, prorated daily for partial periods:

2.1. Base Subrent. Subject to the last sentence of Section 1.3 above, Subtenant shall pay “ Base Subrent ” to Sublandlord for the Subpremises in monthly installments from and after the Sublease Commencement Date through the Expiration Date, in the corresponding amount for each such month (each a “ Lease Month ”) set forth on Exhibit S-C attached hereto. At Overlandlord’s

 

3


election from time to time, Subtenant shall pay Base Subrent directly to Overlandlord and send concurrent evidence of such payment to Sublandlord.

2.2. Additional Subrent. From and after the Sublease Commencement Date through the Expiration Date, Subtenant shall pay directly to Overlandlord, as “ Additional Subrent ,” all amounts (other than the Base Rent) payable to Overlandlord under the Overlease, including but not limited to Tenant’s Share of Direct Expenses thereunder. Notwithstanding anything in the foregoing to the contrary, Additional Subrent shall exclude any charges to the extent such charges arise from (i) goods or services provided to or work performed for the benefit of Sublandlord, or (ii) the negligence or willful misconduct of Sublandlord. Subtenant shall pay each such item of Additional Subrent at least three (3) business days before the Overlease requires Sublandlord to make such payment to Overlandlord. At Sublandlord’s election from time to time, Subtenant shall pay Additional Subrent directly to Overlandlord and send concurrent evidence of such payment to Sublandlord.

2.3. Letter of Credit. Concurrently with Subtenant’s execution of this Sublease, Subtenant shall deliver to Sublandlord an unconditional, irrevocable and renewable letter of credit (“ Letter of Credit ”) in favor of Sublandlord in the form attached hereto as Exhibit S-D attached hereto issued by a financial institution satisfactory to Sublandlord, in the principal amount (“ Stated Amount ”) specified below, to be held by Sublandlord in accordance with the terms, provisions and conditions of this Sublease. Subtenant shall pay all expenses, points and/or fees incurred by Subtenant in obtaining, maintaining, modifying, reducing and/or replacing the Letter of Credit. If the Letter of Credit delivered by Subtenant is inconsistent with the form attached hereto as Exhibit S-D (including, without limitation, the wrong name or address for the Beneficiary), Sublandlord may so notify Subtenant in writing, in which case Subtenant shall cause the Letter of Credit to be corrected within ten (10) business days after such notice. If the issuer of the Letter of Credit is declared to be insolvent by the Federal Deposit Insurance Corporation (or any comparable institution) or becomes a debtor in any case or proceeding under the Bankruptcy Code or any similar law or statute, or ceases to conduct business for any reason, Sublandlord may so notify Subtenant, in which case Subtenant shall, within ten (10) business days after such notice from Sublandlord, provide Sublandlord with a new Letter of Credit which otherwise meets the requirements of this Section 2.3 issued by a substitute financial institution reasonably satisfactory to Sublandlord. The Stated Amount shall initially be Five Hundred Thousand Dollars ($500,000.00); provided, however, that, except as hereinafter provided, (a) commencing on the first (1 st ) day of the first (1 st ) full month following the one (1) year anniversary of the Sublease Commencement Date and thereafter on the first (1 st ) day of each subsequent month through month fifty-eight (58) of the Sublease Term, the Stated Amount may be reduced by Four Thousand Nine Hundred Seventy Nine and 57/100 Dollars ($4,979.57); provided, however, that the aggregate reduction pursuant to this clause (a) shall in no event exceed Two Hundred Thirty Four Thousand Forty Dollars ($234,040.00) and (b) on each of December 5, 2019, January 5, 2020, February 5, 2020 and March 5, 2020, the Stated Amount may be reduced by Sixty Six Thousand Four Hundred Ninety Dollars ($66,490.00). Each of the foregoing dates on which the Stated Amount may be reduced is hereafter referred to as an “ Adjustment Date ”.

However, if (i) a default by Subtenant occurs under this Sublease, or (ii) circumstances exist that would, with notice or lapse of time, or both, constitute a default by Subtenant, and Subtenant has failed to cure such default or circumstances within the time period permitted

 

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hereunder or such lesser time as may remain before the relevant Adjustment Date as provided above, the Stated Amount shall not thereafter be reduced unless and until such default or circumstances shall have been fully cured pursuant to the terms of this Sublease, at which time the Stated Amount may be reduced as hereinabove described. The Letter of Credit shall state that an authorized officer or other representative of Sublandlord may make demand on Sublandlord’s behalf for the Stated Amount of the Letter of Credit, or any portion thereof, and that the issuing bank must immediately honor such demand, without qualification or satisfaction of any conditions, except the proper identification of the party making such demand. In addition, the Letter of Credit shall indicate that it is transferable in its entirety by Sublandlord as beneficiary and that upon receiving written notice of transfer, and upon presentation to the issuing bank of the original Letter of Credit, the issuer or confirming bank will reissue the Letter of Credit naming such transferee as the beneficiary. Sublandlord shall be responsible for the payment to the issuing bank of any transfer costs imposed by the issuing bank in connection with any such transfer. If (A) the term of the Letter of Credit held by Sublandlord will expire prior to the last day of the Sublease Term and the Letter of Credit is not extended, or a new Letter of Credit for an extended period of time is not substituted, in either case at least sixty (60) days prior to the expiration of the Letter of Credit, or (B) Subtenant commits a default with respect to any provision of this Sublease, including the filing of a voluntary petition under Title 11 of the United States Code ( i.e., the Bankruptcy Code), or otherwise becomes a debtor in any case or proceeding under the Bankruptcy Code, as now existing or hereinafter amended, or any similar law or statute, Sublandlord may (but shall not be required to) draw upon all or any portion of the Stated Amount of the Letter of Credit, and the proceeds received from such draw shall constitute Sublandlord’s property (and not Subtenant’s property or the property of the bankruptcy estate of Subtenant) and Sublandlord may then use, apply or retain all or any part of the proceeds (1) for the payment of any sum which is in default, (2) to reimburse Sublandlord for costs incurred by Sublandlord in connection with this Sublease (including, without limitation, any brokerage commissions and attorneys’ fees), (3) for the payment of any other amount which Sublandlord may spend or become obligated to spend by reason of Subtenant’s default, (4) to compensate Sublandlord for any loss or damage which Sublandlord may suffer by reason of Subtenant’s default or (5) as prepaid rent to be applied against Subtenant’s Base Subrent obligations for the last month of the Sublease Term and the immediately preceding month(s) of the Sublease Term until the remaining proceeds are exhausted. If any portion of the Letter of Credit proceeds are so used or applied, Subtenant shall, within ten (10) days after demand therefor, post an additional Letter of Credit in an amount to cause the aggregate amount of the unused proceeds and such new Letter of Credit to equal the Stated Amount required by this Section 2.3. Sublandlord shall not be required to keep any proceeds from the Letter of Credit separate from its general funds. The Letter of Credit or any remaining proceeds of the Letter of Credit held by Sublandlord, after any use, application or retention of same by Sublandlord permitted by this Section 2.3, shall be returned to Subtenant or, at Sublandlord’s option, to the last assignee of Subtenant’s interest hereunder, within sixty (60) days following (a) the expiration of the Sublease Term or (b) any earlier termination of this Sublease, provided that the Overlease has also been terminated, Overlandlord has fully released Sublandlord and all guarantors of the Overlease from liability under the Overlease and such guarantees and Overlandlord has returned to Sublandlord all deposits and other amounts due Sublandlord under the terms of the Overlease.

The use, application or retention of the Letter of Credit and/or the proceeds or any portion thereof, shall not prevent Sublandlord from exercising any other rights or remedies provided

 

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under this Sublease, it being intended that Sublandlord shall not be required to proceed against the Letter of Credit, and such use, application or retention of the Letter of Credit shall not operate as a limitation on any recovery to which Sublandlord may otherwise be entitled. No trust relationship is created herein between Sublandlord and Subtenant with respect to the Letter of Credit.

Sublandlord and Subtenant acknowledge and agree that in no event or circumstance shall the Letter of Credit, any renewal thereof or substitute therefor or the proceeds thereof be (i) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a “security deposit” within the meaning of such Section 1950.7. The parties hereto (A) recite that the Letter of Credit is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (“ Security Deposit Laws ”) shall have no applicability or relevancy thereto and (B) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws. Notwithstanding the foregoing, to the extent California Civil Code Section 1950.7 in any way: (a) is applicable to this Sublease or the Letter of Credit (or any proceeds thereof); or (b) controls Sublandlord’s rights to draw on the Letter of Credit or apply the proceeds of the Letter of Credit to any amounts due under the Sublease or any damages Sublandlord may suffer following termination of this Sublease, then Subtenant fully and irrevocably waives the benefits and protections of Section 1950.7 of the California Civil Code, it being agreed that Sublandlord may recover from the Letter of Credit (or its proceeds) all of Sublandlord’s damages under this Sublease and California law including, but not limited to, any damages accruing upon the termination of this Sublease in accordance with this Sublease and Section 1951.2 of the California Civil Code.

3. Incorporation of Overlease. The Overlease, as it relates to the Subpremises, is incorporated by reference in this Sublease, except as follows.

3.1.1. Defined Terms. Wherever the Overlease refers to a term in the left-hand column of the following table, this Sublease shall be deemed to refer to the adjacent term in the right-hand column of the table. All other defined terms in the Overlease shall be deemed appropriately modified, as necessary in, to reflect the circumstances of this Sublease.

 

Each Reference to:

  

Shall be Deemed Replaced by a Reference to:

Additional Rent

   Additional Subrent

Base Rent

   Base Subrent

 

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Each Reference to:

  

Shall be Deemed Replaced by a Reference to:

Landlord

  

Sublandlord; except:

 

“Landlord” shall be deemed replaced by a reference to “Sublandlord and Overlandlord” for purposes of the following provisions: (1) Section 6.6, (2) the fourth sentence of Section 7.1, (3) Section 10.5, (4) the first sentence of Section 11.1, (5) Article 28 and (6) Section 29.32.

 

“Landlord” shall be replaced with “Sublandlord or Overlandlord” for purposes of the following provisions: (1) Section 5.3, and (2) Section 10.1.

 

“Landlord” shall be deemed replaced by “Overlandlord” for purposes of the following provisions: (1) Section 4.2.4, (2) Section 4.2.5.1, (3) Section 4.2.5.2, (4) Section 4.2.5.4, (5) the last sentence of Section 4.4.2, (6) Section 4.5.1, (7) Section 4.5.2, (8) Article 6, (9) the first sentence of Section 7.1, (10) Section 10.2, (11) Section 11.1 except for the reference in the first sentence thereof, (12) Section 11.2, (13) Article 23, (14) Section 29.15, (15) 29.26, (16) Section 29.30 except for the reference in the first sentence thereof, and (17) Section 29.34.

Landlord Parties

   Sublandlord and Overlandlord Parties

Lease

  

Sublease; except:

 

“Lease” shall be replaced by “Sublease and Overlease” for purposes of Section 29.28.

Lease Expiration Date

   Sublease Expiration Date

Lease Term

   Sublease Term

Lease Commencement Date

   Sublease Commencement Date (except for purposes of Sections 4.2.4 and 4.2.5)

Premises

   Subpremises

Sublease

   Sub-Sublease

Tenant

   Subtenant

Tenant Parties

   Subtenant Parties

 

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In addition to the foregoing replacements, to the extent any capitalized terms used in the Overlease are defined herein, such terms shall be given the meanings ascribed to them in this Sublease.

3.1.2. Exclusions . The following Sections, Articles, Exhibits and Amendments of the Overlease shall not be incorporated herein by reference or otherwise apply to this Sublease: the preamble of the Overlease, Sections 1.2, 2.2, 4.2.5.5, 4.2.7, 4.6, 6.7 and 7.2 and Articles 18, 21, 22 and 23, Exhibits B, G and H, the First Amendment to Office Lease and Sections 2.2, 3.1(a), 3.1(c), 3.2, 4.2, 5.2, 9, 11 and Exhibit B to the Second Amendment.

3.1.3. Amendments for Purposes of Sublease Incorporation of Overlease . For purposes of incorporation herein, only, the following amendments are made to the Overlease:

A. The following sections of the “Summary of Basic Lease Information” in Section 1 of the Overlease are hereby amended and restated in their entirety as follows:

 

    

TERMS OF SUBLEASE

  

DESCRIPTION

1.

   Date:    January 30, 2015

2.

   Subpremises:   
   2.2 Subpremises:    Approximately 15,784 rentable (14,414 usable) square feet, located on the 6 th floor of the Building as depicted on Exhibit S-B attached hereto.

3.

   Sublease Term ( Article 2 ):   
   3.1 Length of Time:    Approximately five (5) years and two (2) months.
   3.2 Sublease Commencement Date:    The date that is the later of: (i) February 1, 2015, or (ii) one (1) business day after the date when Sublandlord delivers to Subtenant a consent to this Sublease executed by Overlandlord in accordance with Section 6.7 of the Sublease.
   3.3 Sublease Expiration Date:    March 31, 2020.

4.

   Base Subrent ( Article 3 ):    As set forth on Exhibit S-C to the Sublease.

5.

   Base Year:    2015.

 

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TERMS OF SUBLEASE

  

DESCRIPTION

6.

  Tenant’s Share:    Approximately 7.5536%.

8.

  [Intentionally Omitted]   

9.

  Parking Pass Ratio ( Article 28 , as amended by Paragraph 8 of the Second Amendment):    Four and one-half (4  1 2 ) parking passes for every 1,000 rentable square feet of the Subpremises, fourteen (14) of which may be for use on reserved covered parking spaces individually designated for particular employees of Subtenant and the balance of which may be for use on non-reserved parking spaces, all as more particularly set forth in Article 28 and the Second Amendment. Notwithstanding anything to the contrary contained herein, Sublandlord shall, during the Shared Occupancy Period, retain the exclusive rights to the use of the three (3) parking spaces numbered 1 through 3 as of the date of this Sublease.

 

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TERMS OF SUBLEASE

  

DESCRIPTION

10.

  Address of Subtenant ( Section 29.18 ):    Prior to Sublease Commencement Date:
     EvoFem Inc.
     8910 University Center Lane,
     Suite 120
     San Diego, CA 92122
     Attention: Chief Financial Officer
     After Sublease Commencement Date:
     EvoFem Inc.
     12400 High Bluff, Suite 600
     San Diego, California 92130
     Attention: Chief Financial Officer
     with copy to:
     K&L Gates LLP
     1 Park Plaza, Twelfth Floor
     Irvine, CA 92614
     Attn: Adam C. Lenain

11.

  Addresses of Sublandlord and Overlandlord:   
 

11.1 Address of Sublandlord:

   Prior to Sublease Commencement Date:
     Relational Investors LLC
     12400 High Bluff, Suite 600
     San Diego, California 92130
     Attention: Jay Sitlani
     After Sublease Commencement Date:
     Relational Investors LLC
     12400 High Bluff, Suite 600
     San Diego, California 92130
     Attention: Jay Sitlani

 

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TERMS OF SUBLEASE

  

DESCRIPTION

  11.2 Address of Overlandlord:   

Kilroy Realty Corporation

12200 West Olympic Boulevard,

Suite 200

Los Angeles, California 90064

Attention: Legal Department

     with copies to:
    

Kilroy Realty Corporation

12200 West Olympic Boulevard,

Suite 200

Los Angeles, California 90064

Attention: Mr. John Fucci

     and
    

Kilroy Realty Corporation

3611 Valley Centre Drive,

Suite 250 San Diego, California 92130

Attention: Mr. Brian Galligan

     and
    

Allen Matkins Leek Gamble &

Mallory LLP

1901 Avenue of the Stars, Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

12.   Broker ( Section 29.24 ):    Cassidy Turley San Diego (Tom van Betten)

B. Section 1.1.1 is hereby amended by deleting the following phrase: “and in the Tenant Work Letter attached hereto as Exhibit B (the “ Tenant Work Letter ”)” in its entirety.

C. Section 2.1 is hereby amended by deleting the following parentheticals: (i) (i.e., December 15, 2004)”, (ii) (i.e., November 30, 2005)”, and (iii) (i.e., December 1 st )”, in their entirety.

D. Article 3 is hereby amended by (i) deleting the phrase “in advance on or before the first day of each and every calendar month during the Lease Term” and replacing it with “in advance on or before the second to last day of the preceding calendar month for each and every Sublease Month during the Sublease Term”; and (ii) deleting the last two sentences in the article.

 

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E. Section 4.2.4 is hereby amended by deleting the second proviso in clause (iii).

F. The first sentence of Section 4.4.1 is hereby amended and restated in its entirety as follows: “Sublandlord shall give to Subtenant following the end of each Expense Year, but in no event later than thirty (30) days after Sublandlord receives the corresponding statement from Overlandlord under the Overlease, a statement (the “ Statement ”) which shall state in general major categories the Building Direct Expenses incurred or accrued for the Base Year or such preceding Expense Year, as applicable, and which shall indicate the amount of Excess.”

G. The first sentence of Section 4.4.2 is hereby amended and restated in its entirety as follows: “In addition, Sublandlord shall give Subtenant a yearly expense estimate statement (the “ Estimate Statement ”), but in no event later than thirty (30) days after Sublandlord receives the corresponding statement from Overlandlord under the Overlease, which shall set forth in general major categories, Overlandlord’s commercially reasonable estimate (the “ Estimate ”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “ Estimated Excess ”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year.”

H. Section 6.3 is hereby amended by deleting, in its entirety, the final sentence in the Section.”

I. Section 8.1 is hereby amended by deleting the last sentence in the Section in its entirety.

J. Section 8.5 is hereby amended by deleting the following phrase in its entirety “, and/or (ii) remove any “Above Building Standard Tenant Improvements,” as that term is defined in Section  2.4 of the Tenant Work Letter, located within the Premises and replace the same with then existing “Building Standard Tenant Improvements,” as that term is defined in Section  23 of the Tenant Work Letter”.

K. The first sentence of Section 10.1 is hereby amended and restated in its entirety as follows: “To the extent not prohibited by law and except as otherwise expressly provided herein to the contrary, Subtenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Subpremises from any cause whatsoever and agrees that the Sublandlord and Overlandlord, their partners, subpartners and their respective officers, agents, servants employees, and independent contractors (collectively, “ Sublandlord and Overlandlord Parties ”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Subtenant or other persons claiming through Subtenant.”

L. Section 10.3.2(ii) is hereby amended by deleting the following phrase: “the “Tenant Improvements,” as that term is defined in Section  2.1 of the Tenant Work Letter” in its entirety.

M. Section 10.4 is hereby amended and restated in its entirety as follows:

 

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10.4 Form of Policies . The minimum limits of policies of insurance required of Subtenant under this Sublease shall in no event limit the liability of Subtenant under this Sublease. Such insurance shall (i) name the Sublandlord, the Overlandlord, and any other party the Sublandlord or Overlandlord so specify that has a material financial interest in the Project, as an additional insured, including Overlandlord’s managing agent, if any; (ii) specifically cover the liability assumed by Subtenant under this Sublease, including, but not limited to, Subtenant’s obligations under 10.1 of the Overlease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Sublandlord and Overlandlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Sublandlord and Overlandlord is excess and is non-contributing with any insurance requirement of Subtenant; (v) be in form and content reasonably acceptable to Sublandlord and Overlandlord; and (vi) provide that said insurance shall not be cancelled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Sublandlord and Overlandlord and any mortgagee of Overlandlord, the identity of whom has been provided to the Subtenant in writing. Subtenant shall deliver certificates of said policy or policies to the Sublandlord and the Overlandlord on the Execution Date and at least thirty (30) days before the expiration dates thereof. In the event Subtenant shall fail to procure such insurance, or to deliver such policies or certificates, Sublandlord or Overlandlord may, at their option, after written notice to the Subtenant and Subtenant’s failure to obtain such insurance within five (5) days thereafter, procure such policies for the account of the Subtenant, and the cost thereof shall be paid to Sublandlord or Overlandlord, as the case may be, within thirty (30) days after delivery to Subtenant of bills therefor.

N. Section 14.2 is hereby amended by deleting the last paragraph in the Section in its entirety and inserting the following:

“Sublandlord and Subtenant hereby acknowledge that Subtenant intends to sublease portions of the Subpremises to Woman Care Global Trading, Inc., a Delaware corporation (“ Woman Care Global ”), pursuant to that certain Sublease of even date herewith, a copy of which is attached hereto as Exhibit S-I (“ Woman Care Global Sublease ”). Sublandlord and Subtenant agree that Woman Care Global shall be allowed to occupy portions of the Subpremises, subject to all the terms and conditions hereof. Subtenant (and Guarantor, by virtue of Guarantor’s delivery of the Guaranty of Lease hereinafter described) shall be solely responsible for any acts or omissions of Woman Care Global and Subtenant further acknowledges that Subtenant’s indemnities contained in this Sublease shall apply to the acts or omissions of Woman Care Global. Woman Care Global’s right to occupy portions of the Subpremises shall be subject and subordinate to the provisions of the Overlease and this Sublease and if this Sublease shall be terminated or if Subtenant is in default hereinafter (after expiration of any applicable notice and cure period), the Woman Care Global Sublease and Woman Care Global’s right to occupy a portion of the Subpremises shall be immediately cancelled at the sole option of Sublandlord.”

O. Article 16 is hereby amended by deleting the first sentence of the Section in its entirety and replacing it with the following:

 

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“If Tenant holds over after the expiration of the Sublease Term or an earlier termination thereof, with or without the express or implied consent of the Sublandlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term. If Subtenant holds over after the expiration of the Sublease Term or due to an earlier termination of the Sublease, Subrent shall be payable at a monthly rate equal to 150% of the Subrent applicable under the last rental period of the Sublease Term under this Sublease; provided, however, if Subtenant holds over after the Sublease Expiration Date such that Sublandlord will be deemed to be holding over under the Overlease, Subtenant will be responsible as the Subrent due pursuant to this Sublease for any rent due under the Overlease for the Subpremises as a result of such holdover, such rent to include any applicable increases in rent pursuant to Article 16 of the Overlease.”

P. The first sentence of Article 27 is hereby amended and restated in its entirety as follows:

“Landlord and Overlandlord reserve the right at all reasonable times (during Building Hours with respect to items (i) and (ii) below) and upon at least twenty four (24) hours prior written notice to Subtenant (except in the case of an emergency) to enter the Subpremises to (i) inspect them; (ii) show the Subpremises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or during the last twelve (12) months of the Sublease Term, for to prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Subpremises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment.”

Q. Section 29.18 is hereby amended by (1) deleting the second sentence in the Section in its entirety and replacing it with the following: “Any Notice shall be sent, transmitted, or delivered, as the case may be, to Subtenant at the appropriate address set forth in Section  10 of the Summary, or to such other place as Subtenant may from time to time designate in a Notice to Sublandlord, or to Sublandlord at the address set forth in Section  11.1 of the Summary, or to such other places as the Sublandlord may from time to time designate in a Notice to Subtenant.” and (2) deleting the final sentence of the Section and replacing it with the following: “Any notices to the Overlandlord shall be sent, transmitted or delivered, as the case may be, to the address listed in Section  11.2 of the Summary or to such other places as the Sublandlord or Overlandlord may from time to time designate in a Notice to Subtenant.”

R. Section 29.24 is hereby amended and restated in its entirety as follows:

“Sublandlord and Subtenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Sublease, excepting only the real estate broker specified in Section 12 of the Summary (the “ Broker ”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Sublease. Sublandlord shall pay such Broker pursuant to a separate written agreement between Sublandlord and the Broker. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be

 

14


owing on account of any dealings with any real estate broker or agent, other than the Broker, occurring by, through, or under the indemnifying party.

3.1.4. Other. In addition, this Sublease does not incorporate by reference any other terms of the Overlease that, by their nature or purpose, are inapplicable or inappropriate to the subleasing of the Subpremises.

3.1.5. Dispute Resolution. Wherever the Overlease provides a dispute resolution procedure or a procedure to determine any matter relevant to this Sublease, and provided Subtenant is not in default of any provision of this Sublease, Sublandlord and Subtenant shall reasonably cooperate in exercising Sublandlord’s rights under or otherwise complying with such procedure pursuant to the Overlease, and Sublandlord’s rights shall be Sublandlord and Subtenant’s joint rights unless Sublandlord assigns all of its rights to Subtenant. All out of pocket costs (including, but not limited to, attorneys’ fees and costs) reasonably incurred by Sublandlord and Subtenant in complying with such procedure shall be shared equally between Sublandlord and Subtenant unless Sublandlord assigns all of its rights to Subtenant in which case they shall be paid or reimbursed by Subtenant. Subtenant shall have no separate right to invoke such procedure as between Sublandlord and Subtenant.

3.1.6. Representations and Warranties. To the extent that Overlandlord makes any representations and warranties in the Overlease: (a) Sublandlord represents and warrants to Subtenant that Sublandlord is not actually aware of any breach of such representations and warranties; and (b) if any such representations and warranties are breached, then Subtenant shall have no claim against Sublandlord except to the extent of an equitable allocation of any payment, settlement, or rent offset that Sublandlord and Subtenant may obtain from Overlandlord because of such breach. References herein to Sublandlord’s “knowledge” shall refer only to the current actual knowledge of Sublandlord’s Chief Financial Officer, without duty of investigation or further inquiry.

Further, Sublandlord represents and warrants that the Subpremises, including the improvements, fixtures, and furnishings therein, shall be broom clean on the earlier of the Early Access Date and the Sublease Commencement Date.

3.1.7. Interaction of Sublease and Overlease. Wherever this Sublease conflicts with an incorporated term of the Overlease, as incorporated in this Sublease, this Sublease shall govern, but wherever reasonably possible such a conflict shall be resolved by treating Subtenant’s and Sublandlord’s obligations under both documents as cumulative.

3.1.8. Notices . Except as otherwise provided herein, the time limits contained in the Overlease for the giving of notices, curing defaults, making payments, or demands or performing any act, condition or covenant (i) on Overtenant’s part, are changed for the purpose of incorporation herein by reference by shortening the same in each instance by three (3) business days, so that Subtenant shall have less time to observe or perform under this Sublease than Overtenant under the Overlease; provided, however, in no event shall Subtenant have less than two (2) business days to so observe or perform any such act, condition or covenant, and (ii) on Overlandlord’s part, are changed for the purpose of incorporation herein by reference by lengthening the same in each instance by three (3) business days, so that Sublandlord shall have

 

15


more time to observe or perform under this Sublease than Overlandlord under the Overlease. If Sublandlord or Subtenant receives any notice or demand from Overlandlord relating to this Sublease or the Subpremises, said party shall promptly give a copy thereof to the other.

3.2. Compliance with Overlease. Subtenant agrees, solely for the benefit of Sublandlord, to be bound by, and to fully comply with all obligations of Sublandlord arising under, the Overlease, including, but not limited to, all obligations relating to the surrender of the Subpremises to Overlandlord upon the expiration or earlier termination of the Overlease, except to the extent that this Sublease requires Sublandlord to perform any obligation under the Overlease (including Sublandlord’s payment of Sublandlord’s Rent under the Overlease, except as provided otherwise herein). Subtenant shall do nothing that violates the Overlease.

3.3. Abatement Rights . Subtenant may not assert against Sublandlord any right to abate rent that may exist under the Overlease, but if any such right becomes relevant for the Subpremises, then Sublandlord, at Subtenant’s request, shall use reasonable efforts to pursue such abatement. Subtenant shall be entitled to an abatement against Subrent only equal to the lesser of (a) the dollar amount of the abatement that Sublandlord actually recovers on behalf of Subtenant to the extent such abatement arises from Overlandlord’s acts and omissions and is allocated to the Sublease Term or (b) the amount of Subtenant’s Subrent for the portion of the Subpremises Term that such abatement affects.

3.4. Payment of Sublandlord’s Rent. Except to the extent this Sublease requires Subtenant to pay portions of same directly to Overlandlord, and provided that Subtenant complies with its payment obligations and material nonmonetary obligations under this Sublease (including payment of all Subrent when and as due), Sublandlord shall pay Overlandlord all rent required by the Overlease (“ Sublandlord’s Rent” ) within the applicable cure periods under the Overlease. This does not limit any express obligation of Subtenant in this Sublease to reimburse Sublandlord for any such rent or pay any other sum.

3.5. Rights and Benefits Under Overlease. To the extent not covered specifically in this Sublease and to the extent that they apply to the Subpremises, Subtenant shall have all the rights, privileges, and benefits granted to or conferred upon Sublandlord as Tenant under the Overlease, provided that Subtenant’s exercise of such rights, privileges, and benefits shall not cause Sublandlord to be in default under the Overlease.

3.5.1. Additional Costs. To the extent Subtenant requires services beyond those provided for in this Sublease, Subtenant shall contract directly with and pay Overlandlord for such services. Such services may include additional cleaning; freight car service; and loading dock security services (the “ Additional Services” ). Subtenant shall indemnify Sublandlord for any costs associated with the Additional Services. If Overlandlord refuses to deal directly with Subtenant about Additional Services, then Sublandlord shall have no liability to Subtenant. Sublandlord shall have no responsibility for Overlandlord’s failure to provide Additional Services except as this Sublease expressly provides.

3.6. Overlandlord’s Performance. Wherever the Overlease (as incorporated by reference in this Sublease) would require Sublandlord to provide any benefit or service, Subtenant shall be entitled to receive such benefit or service directly from Overlandlord under the Overlease, and

 

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Sublandlord shall have no obligation to provide such benefit or service. Sublandlord shall have no liability to Subtenant, and Subtenant’s obligations under this Sublease shall not be reduced, restricted, diminished, or deferred, if Overlandlord fails to provide any service or benefit required under the Overlease, or to perform any obligation under the Overlease, unless both: (a) Subtenant is not in default under this Sublease; and (b) Overlandlord’s failure results from Sublandlord’s default under the Overlease.

3.7. Preservation of Overlease. Subject to any provision of this Sublease to the contrary, so long as Subtenant is not in default under this Sublease, Sublandlord shall, with respect to all periods within the Sublease Term: (a) preserve the Overlease and keep the Overlease in full force and effect; (b) not, without Subtenant’s written consent, agree to any amendment to the Overlease that would materially adversely affect Subtenant; (c) perform all its obligations under the Overlease, except any obligations Sublandlord contests in good faith in accordance with Sublandlord’s rights under the Overlease; and (d) pay Overlandlord any sums payable to Overlandlord on account of entering into this Sublease. Following any amendment of the Overlease the definition of “ Overlease ” shall be deemed modified to reflect such amendment. Sublandlord shall continue to have the sole right to exercise any and all rights, privileges, and remedies under the Overlease provided such exercise does not materially and adversely affect the rights of Subtenant pursuant to this Sublease.

3.8 . Consents. Wherever the Overlease requires Overlandlord’s consent to any action or matter (including any such consent that would be required to be obtained from Overlandlord if such action or matter arose under the Overlease), Subtenant must obtain both Sublandlord’s and Overlandlord’s consent to such action or matter. If Overlandlord consents to any action or matter requiring Overlandlord’s consent but not otherwise expressly referred to in this Sublease, then Sublandlord shall not unreasonably withhold, condition or delay its consent to such action or matter.

3.9. Representations and Warranties. Sublandlord represents and warrants that the Overlease is the entire agreement between Overlandlord and Sublandlord relating to the Premises and is in full force and effect, and neither Sublandlord nor Overlandlord is in default under the Overlease. Subtenant represents and warrants to Sublandlord that Subtenant has reviewed and is fully familiar with the Overlease and the Subpremises. Except as this Sublease provides, neither party makes any representation or warranty about the Overlease, the Subpremises or any other matter.

4. Interaction of Estates; Effect on Overlandlord.

4.1. Priorities. This Sublease is unconditionally subject and subordinate to: (i) the Overlease, as amended from time to time in compliance with this Sublease; (ii) all estates and interests to which the Overlease is subject and subordinate, including any and all underlying ground leases and mortgages affecting Overlandlord’s estate, all as amended or entered into from time to time; and (iii) all the terms, conditions and covenants of items “i” and “ii.” If, pursuant to the Overlease, Overlandlord or Overlandlord’s ground lessor(s) or mortgagee(s) request(s) additional documentation (consistent with such limitations and requirements, if any, as the Overlease provides) to confirm the foregoing subordination, then Subtenant shall promptly execute it.

 

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4.2. Event of Default. Upon an Event of Default, as such term is defined in the Overlease, Overlandlord may enforce the provisions of this Sublease, including collection of rent.

4.3. Termination of Overlease, Reentry or Repossession. In the event of termination of the Overlease for any reason, or in the event of any reentry or repossession of the Subpremises by Overlandlord, Overlandlord may, at its option, either (i) terminate this Sublease or (ii) take over all of the right, title and interest of Sublandlord, as sublessor, under such Sublease, in which case Subtenant shall attorn to Overlandlord, but nevertheless Overlandlord shall not (1) be liable for any previous act or omission of Sublandlord under such Sublease (without limiting Overlandlord’s obligation to cure a default under the Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overlandlord once Subtenant has attorned to Overlandlord, and provided that in no event shall Overlandlord be liable to Subtenant for any damages that the Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), (2) be subject to any defense or offset previously accrued in favor of the Subtenant against Sublandlord (without limiting Overlandlord’s obligation to cure a default under this Sublease by Sublandlord that existed prior to the attornment and which continues after such attornment, to the extent such default is readily curable by Overlandlord once Subtenant has attorned to Overlandlord, and provided that in no event shall Overlandlord be liable to Subtenant for any damages that Subtenant may have incurred by reason of a prior default by Sublandlord under this Sublease), or (3) be bound by any previous modification of this Sublease made without Overlandlord’s written consent, or by any previous prepayment by Subtenant of more than one month’s rent. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee, ground lessor or beneficiary, affecting any mortgage now or hereafter in force against the Building or Project (an “ Underlying Mortgage ”) in order to make such subordination effective. Subtenant, however, shall within ten (10) days of written notice from Overlandlord, execute a commercially reasonable certificate or document that Overlandlord may reasonably request to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease. Notwithstanding the forgoing, the mortgagee, ground lessor or beneficiary of an Underlying Mortgage may elect, at any time by notice given to Subtenant, to subordinate such Underlying Mortgage to this Lease, and no further instrument of subordination shall be required to make such subordination of the Underlying Mortgage effective. Subtenant, however, shall execute promptly any certificate or document requested to effectuate, evidence or confirm such subordination, and failure to do so shall be an Event of Default under this Sublease.

4.4. No Effect on Overlease, Overlandlord. Notwithstanding anything to the contrary in this Sublease, including Overlandlord’s consent to this Sublease: (a) Overlandlord shall have no obligations of any kind to Subtenant; and (b) the Overlease remains in full force and effect between Overlandlord and Sublandlord. Nothing in this Sublease (except upon termination of the Overlease if Overlandlord exercises its right to require Subtenant to recognize and attorn to Overlandlord) shall create any privity or contractual or landlord-tenant relationship of any kind between Overlandlord and Subtenant but Overlandlord shall be a third party beneficiary of Subtenant’s obligations under this Sublease that correspond to obligations of Sublandlord under the Overlease, and shall be entitled to enforce this Sublease.

 

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4.5. Termination of Overlease. If the Overlease terminates for any reason, then, as between Sublandlord and Subtenant, the Sublease Term shall automatically terminate one minute before such termination unless Overlandlord elects or agrees otherwise in writing. Sublandlord’s and Subtenant’s obligations, as between Sublandlord and Subtenant, under this Sublease shall automatically and immediately cease and terminate upon any such expiration of the Sublease Term, but this shall not limit (1) either party’s obligations and liability that accrued before the date of, or as a result of, such termination or (2) Subtenant’s obligations to vacate the Subpremises and return the Subpremises to Sublandlord in the condition required by this Sublease.

5. Leasing Covenants.

5.1. Delivery; FF&E; Surrender. Sublandlord shall deliver to Subtenant, and Subtenant shall accept, the Subpremises in its current “AS IS” condition and Sublandlord shall have no obligation, either as to payment or performance, to remodel or renovate the Subpremises or any portion thereof for Subtenant’s use. Sublandlord makes no representation or warranty as to the number of rentable square feet that constitute the Subpremises. Sublandlord shall deliver the Subpremises to the Subtenant vacant other than the furniture, fixtures and equipment described on Exhibit S-E attached hereto (the “ FF&E ”). Any remodeling or renovation of the Subpremises required for Subtenant’s use thereof shall be the sole responsibility of Subtenant. Subtenant shall not perform any work or alterations in preparing the Subpremises for occupancy, or otherwise during the Sublease Term of this Sublease, without the prior written consent of both Sublandlord and Overlandlord.

If the Subpremises are not tendered to Subtenant in the condition required hereby on or before the Sublease Commencement Date, for any reason whatsoever (other than Sublandlord’s willful, intentional and wrongful refusal to deliver such space and subject to the provisions of this Sublease), Sublandlord shall not be liable for any damage thereby, this Sublease shall not be void or voidable thereby, and the Sublease Term shall not commence until Sublandlord tenders possession thereof to Subtenant in the condition required hereby.

During the Sublease Term, Subtenant shall be entitled to the exclusive use of the FF&E (except the portions to be used by Sublandlord within the Sublandlord Office Area and subject to Sublandlord’s rights hereunder to use conference rooms, kitchens, patios and similar areas during such Shared Occupancy Period) for no consideration other than the payment of the Sublease Rent. Subtenant acknowledges that no representations with respect to the condition of any of the FF&E have been made or will be made to Subtenant. Upon the expiration or earlier termination of the Sublease Subtenant shall be obligated to purchase the FF&E from Sublandlord for an amount equal to the lesser of (a) then then-value of the FF&E, as agreed upon by the Sublandlord and Subtenant on or before the expiration or earlier termination of the Sublease, or if no such agreement is reached as determined by a qualified appraiser mutually chosen by Sublandlord and Subtenant and (b) Forty Nine Thousand Dollars ($49,000.00). The appraisal shall be performed no later than thirty (30) days prior to the expiration or earlier termination of this Sublease (except in the case of termination due to a default) and the payment for the purchase shall be made by Subtenant to Sublandlord in cash or other immediately-available funds prior to or concurrently with the expiration or earlier termination of this Sublease. Sublandlord and Subtenant shall share equally the cost of the appraisal.

 

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At the end of the Sublease Term Subtenant shall remove from the Subpremises all of Subtenant’s furniture, belongings, personal property, trash, debris, and all other movable items of any kind in accordance with the Overlease and shall perform, at its sole cost and expense, all other obligations under the Overlease relating to the surrender of the Subpremises. Without in any way limiting Subtenant’s obligations under Section 3.2 above or the other provisions of this Sublease, Subtenant acknowledges that it will be solely responsible for any holdover rent, indemnification obligations or other penalties or obligations under the Overlease arising from Subtenant’s failure to timely surrender the Subpremises and/or perform any other obligations under the Overlease relating to the surrender of the Subpremises.

5.2. Insurance. Subtenant shall provide all insurance required by Article 10 of the Overlease, as incorporated in this Sublease, for the Subpremises during the Sublease Term and shall deliver to Sublandlord upon execution of this Sublease and at least thirty (30) days before expiration of each insurance policy, certificates of such insurance. Such certificates shall: (a) designate Sublandlord and Overlandlord as additional insureds; and (b) provide that the insurance they evidence shall not be cancelled or terminated without thirty (30) days prior written notice to Sublandlord and Overlandlord. A copy of Subtenant’s initial certificate of insurance is attached hereto as Exhibit S-F.

5.3. Default; Remedies. Notwithstanding anything to the contrary in this Sublease, if Subtenant defaults in performing any obligation under this Sublease or commits a default under this Sublease, including the terms of the Overlease as incorporated in this Sublease, then Subtenant shall remedy such default within the applicable cure period (if any as amended by the Sublease), which period shall automatically commence to run against Subtenant at the same time it commences to run against Sublandlord provided that (in the case of a default by Subtenant under the Overlease) Sublandlord gives Subtenant, with reasonable promptness after receipt by Sublandlord, a copy of Overlandlord’s notice of default. An “ Event of Default” shall exist if (a) Subtenant fails to so remedy any such default, (b) an Event of Default occurs under the Overlease as a result of any breach, default or act by Subtenant, or (c) an Event of Default occurs under the Overlease as incorporated into this Sublease. If Subtenant fails to perform its obligations under this Sublease (including the Overlease as incorporated by reference), then Sublandlord shall be entitled to exercise against Subtenant all remedies provided for in the Overlease (as incorporated by reference) in the case of Sublandlord’s default under the Overlease, and any other remedies available at law or in equity. If an Event of Default occurs, then Sublandlord shall be entitled to exercise against Subtenant all remedies provided for in the Overlease (as incorporated by reference) in the case of Sublandlord’s Event of Default under the Overlease, and any other remedies available at law or in equity. To the extent that Subtenant’s default under this Sublease causes Sublandlord to incur liability to Overlandlord or any loss, cost, damage or expense to Overlandlord, including payment of any holdover rent or other damages to Overlandlord, Subtenant shall indemnify, defend, and hold harmless Sublandlord against all such liability, loss, cost, damage, and expense, including the payment of reasonable attorneys’ fees.

5.4. Signage. Subtenant’s sublease of the Sublease Premises includes all of Sublandlord’s rights under the Overlease to signage, subject to the terms and conditions of the Overlease and provided that Sublandlord shall have the right to continue to be listed on one name strip in the Building’s directory during the Shared Occupancy Period. Sublandlord agrees to reasonably

 

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cooperate with Subtenant in connection with the transfer of Sublandlord’s signage rights to Subtenant pursuant to this Sublease; provided, however, any costs associated with modifications to such signage or costs or fees payable to Overlandlord in connection therewith shall be Subtenant’s sole cost and expense.

5.5 Parking. Except as set forth in the following sentence, Subtenant’s sublease of the Sublease Premises includes all of Sublandlord’s parking rights under the Overlease, subject to the terms and conditions of the Overlease. Notwithstanding the foregoing, Sublandlord shall, during the Shared Occupancy Period, retain the exclusive rights to the use of the three (3) parking spaces numbered 1 through 3 as of the date of this Sublease.

5.6 Refurbishment Allowance. Subtenant’s sublease of the Sublease Premises includes all of Sublandlord’s remaining rights under the Overlease to the “Refurbishment Allowance” referred to in Section 7 of the Second Amendment, subject to the terms and conditions of said Section 7 and any other applicable terms and conditions of the Overlease. Sublandlord represents and warrants that Sublandlord has not yet submitted any request to Overlandlord for payment of any portion of the Refurbishment Allowance, however, Sublandlord has incurred certain costs thus far, which Sublandlord shall have the right to be reimbursed from the Refurbishment Allowance. Further, the Refurbishment Allowance shall be reduced by any amount deducted by Overlandlord therefrom as permitted under the Second Amendment. Notwithstanding the foregoing, Sublandlord agrees that the Refurbishment Allowance made available to Subtenant will equal at least $8.50 per rentable square foot of the Subpremises.

 

6. Miscellaneous.

6.1. Defined Terms. Capitalized terms used herein but not defined herein shall have the meanings given to them in the Overlease (as such terms may be modified by this Sublease). Exhibit S-G attached hereto provides a list of the terms defined in this Sublease.

6.2. Attorneys’ Fees. If this Sublease is the subject of any litigation (including litigation to enforce an indemnity), then the prevailing party shall be entitled to recover all costs incurred, including reasonable attorneys’ fees.

6.3. Further Assurances. Each party shall execute and deliver such further documents, and perform such further acts, as may be reasonably necessary to achieve the intent of the parties as expressed in this Sublease. In the case of the Overlandlord and Sublandlord, they agree to execute such documents as Subtenant’s lenders may reasonably require to preserve the lenders’ rights to access Subtenant’s personal property under certain circumstances (i.e., Landlord’s Consent to Removal of Personal Property.) Each party shall deliver reasonable estoppel certificates within ten days after request by the other party.

6.4. Interpretation. Although the first draft of this Sublease was prepared by Sublandlord, this Sublease shall not be construed against whichever party was the “drafter” of this Sublease. Wherever either party agrees not to unreasonably withhold consent to any matter, such consent shall not be unreasonably conditioned or delayed. The word “include” and its variants shall in each case be interpreted as if followed by the words: “without limitation.”

 

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6.5. Execution. This Sublease shall not be effective in any way (or create any obligations of any kind) unless and until it has been executed and delivered by both parties and approved by Overlandlord. This Sublease or any amendment hereto may be executed by facsimile transmission or by email. Any party executing this Sublease or any amendment hereto by facsimile transmission or by email covenants to promptly deliver original executed counterparts of this Sublease (or amendment hereto) to the other party. This Sublease may be executed in counterparts.

6.6. Assignment of Overlease. If Sublandlord assigns the Overlease, then Sublandlord shall simultaneously assign this Sublease to the same assignee and require such assignee to assume Sublandlord’s obligations under this Sublease, and Sublandlord shall be released from all of its obligations hereunder.

6.7. Overlandlord’s Consent. This Sublease shall be of no force or effect unless and until consented to by Overlandlord (which consent shall be deemed to include any consent to the sublease of parking spaces required under Article 28 of the Overlease, consent to the use of the Subpremises by employees of Subtenant’s affiliates as set forth in Section 3.10 hereof, and Subtenant’s rights to any remaining Refurbishment Allowance) by Overlandlord’s executing either: (a) the Overlandlord’s Consent at the end of this Sublease; or (b) Overlandlord’s standard form of sublease consent, if any, provided that such standard form of sublease consent is unconditional (other than a condition requiring execution by Sublandlord or Subtenant) and irrevocable and does not require Subtenant or Sublandlord to make any payment or assume any material obligation not expressly required by this Sublease or by the express terms of the Overlease (the “ Standard Overlandlord Consent”) . Sublandlord shall promptly submit this fully executed Sublease to Overlandlord for Overlandlord’s consent. Sublandlord shall promptly notify Subtenant if and when Sublandlord’s consent has been obtained. If Sublandlord doesn’t obtain Overlandlord’s consent on or before January 15, 2015, then at any time before such consent has actually been obtained either party may, by notice to the other, terminate this Sublease unless Sublandlord obtains Overlandlord’s consent within ten (10) business days following the receipt of such notice, and upon such termination neither party shall have any further rights or obligations under this Sublease. Sublandlord and Subtenant each agrees to execute the Standard Overlandlord Consent if required by its terms. Notwithstanding anything to the contrary in this Sublease, Subtenant shall not enter into possession of the Subpremises unless and until Overlandlord shall have consented to this Sublease. Nothing in this paragraph shall expand Overlandlord’s right to withhold consent to this Sublease beyond any such rights as Overlandlord may have under the Overlease.

6.8. Guaranty. Concurrently with its execution of this Sublease, and as a condition to Sublandlord’s obligations hereunder, Subtenant shall deliver to Landlord the Sublease Guaranty attached hereto as Exhibit S-H (the “ Guaranty ”), duly executed by EvoMed LLC, a Delaware limited liability company (“ Guarantor ”).

6.9. Financial Statements. Subtenant agrees that it shall promptly furnish to Sublandlord, following the expiration of each calendar quarter during this Sublease Term, financial statements reflecting Subtenant’s then financial condition. Such financial statements shall be the quarterly unaudited financial statements Subtenant prepares for its own purposes, and the fiscal year periods shall be prepared in accordance with generally accepted accounting principles and shall

 

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be audited by an independent certified public accountant. Notwithstanding the foregoing, in the event that Subtenant becomes a publicly traded corporation, then for so long as Subtenant is a publicly traded corporation with financial information available on-line, Subtenant’s obligations under this Section 6.9 shall be deemed satisfied.

No Further Text on This Page.

 

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IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the Execution Date.

 

SUBLANDLORD

RELATIONAL INVESTORS LLC,

a Delaware limited liability company

/s/ David H. Batchelder

By:   David H. Batchelder
Its:   Managing Member
Date Executed: January 30, 2015

/s/ Jay N. Sitlani

By:   Jay N. Sitlani
Its:   Chief Financial Officer
Date Executed: January 30, 2015
SUBTENANT

EVOFEM, INC.,

a Delaware corporation

/s/ Saundra Pelletier

By:   Saundra Pelletier
Its:   Chief Executive Officer
Date Executed: January 30, 2015

/s/ Chad Putnam

By:   Chad Putnam
Its:   Chief Financial Officer
Date Executed: January 30, 2015

 

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Attachments:

 

Exhibit S-A -    Overlease
Exhibit S-B -    Depiction of Subpremises
Exhibit S-C -    Subrent Schedule
Exhibit S-D -    Form of Letter of Credit
Exhibit S-E -    Furniture Inventory
Exhibit S-F -    Subtenant’s Initial Certificate of Insurance
Exhibit S-G -    Sublease Defined Terms
Exhibit S-H -    Sublease Guaranty
Exhibit S-I -    Woman Care Global Sublease

 

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EXHIBIT S-C

BASE SUBRENT SCHEDULE

 

Period

  

Monthly Base Subrent

2/1/15 through 12/31/15

   $21,875.00 ($2.77/sq. ft.)

1/1/16 through 12/31/16

   $28,805.80 ($3.65/sq. ft.)

1/1/17 through 12/31/17

   $29,989.60 ($3.80/sq. ft.)

1/1/18 through 12/31/18

   $31,173.40 ($3.95/sq. ft.)

1/1/19 through 12/31/19

   $32,357.20 ($4.10/sq. ft.)

1/1/20 through 3/31/20

   $33,541.00 ($4.25/sq. ft.)

 

Exhibit S-C


EXHIBIT S-D

SUBTENANT’S INITIAL CERTIFICATE OF INSURANCE

[Attached]

 

 

Exhibit S-D


LOGO

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(les) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER Willis of North Carolina, Inc. c/o 26 Century Blvd P.O. Box 305191 Nashville, TN 37230-5191 nam™ct certificates@willis.com R Exti) (877) 945-7378 No: (888) 467-2378 E-MAIL ADDRESS: INSURER(S) AFFORDING COVERAGE NAIC # insurer A: Federal Insurance Company 20281 INSURED WomanCare Global International P.O. Box 768 Cardiff By The Sea, CA 92007 INSURER B: INSURER C : INSURER D : INSURER E : INSURER F: DATE (MM/DD/YYYY) 1/26/2015 CERTIFICATE OF LIABILITY INSURANCE REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES, LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR LTR TYPE OF INSURANCE ADDL INSD SUBR WVD POLICY NUMBER POLICY EFF (MM/DD/YYYYl POLICY EXP (MM/DD/YYYY) LIMITS A X COMMERCIAL GE NERAL LIABILITY 3E | X OCCUR X 3587-10-60 10/28/2014 10/28/2015 EACH OCCURRENCE S 1,000,000 | CLAIMS-MAC DAMAGE TO RENTED PREMISES (Ea occurrence) $ 1,000,000 MED EXP (Any one person) s 10,000 PERSONAL & ADV INJURY $ 1,000,000 GEN’L AGGREGATE LIMIT APPLIES PER: GENERAL AGGREGATE s 2,000,000 POLICY OTHER: PRODUCTS—COMP/OP AGG $ 0 s A AUTOMOBILE LIABILITY (14)73559460 10/28/2014 10/28/2015 COMBINED SINGLE LIMIT (Ea accident) S 1,000,000 X ANY AUTO BODILY INJURY (Per person) s ALL OWNED AUTOS HIRED AUTOS X SCHEDULED AUTOS NON-OWNED AUTOS BODILY INJURY (Per accident) $ PROPERTY DAMAGE (Per accident) s s A X UMBRELLA LIAB EXCESS LIAB X OCCUR CLAiMS-MADE 79878551 10/28/2014 10/28/2015 EACH OCCURRENCE $ 2,000,000 AGGREGATE S 2,000,000 DED I X | RETENTIONS ^ $ WOF IKERS COMPENSATION N/A PER OTH- STATUTE ER AND cMrLUYcKa LlrtblU I Y y/N ANY PROPRIETOR/PARTNER/EXECUTIVE 1 1 OFFICER/MEMBER EXCLUDED? (Mandatory in NH) If yes, dascribe under DESCRIPTION OF OPERATIONS below E.L. EACH ACCIDENT $ E.L. DISEASE—EA EMPLOYEE $ E.L. DISEASE-POLICY LIMIT $ COVERAGES CERTIFICATE NUMBER: DESCRIPTION OF OPERATIONS I LOCATIONS I VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached If more space Is required) Re: Effective 2/1/2015; Office located at 12400 High Bluff Dr., Suite 600, San Diego, CA 92130 Relational Investors, LLC and Kilroy Realty Corporation, 3611 Valley Center Dr., Suite 250, San Diego, CA 92130 are included as an Additional Insured as respects to General Liability. CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. Relational Investors, LLC Attn: Jay Sitlani 12400 High Bluff Dr., Suite 600 iSan Dieao. CA 92130 AUTHORIZED REPRESENTATIVE ©1988-2014 ACORD CORPORATION. All rights reserved.


LOGO

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER Willis of North Carolina, Inc. c/o 26 Century Blvd P.O. Box 305191 Nashville, TN 37230-5191 name*ct certificates@willis.com ri)?NNEo Extv (877) 945-7378 | ,%c. Noi: (888) 467-2378 E-MAIL ADDRESS: INSURER(S) AFFORDING COVERAGE NAIC it insurer a : Federal Insurance Company 20281 INSURED WomanCare Global International P.O. Box 768 Cardiff By The Sea, CA 92007 INSURER B : INSURER C : INSURERD : INSURER E: INSURER F: DATE (MM/DD/YYYY) 1/30/2015 COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR LTR TYPE OF INSURANCE ADDL INSD SUBR WVD POLICY NUMBER POLICY EFF fMM/DD/YYYY) POLICY EXP fMM/DD/YYYY) LIMITS A X COMMERCIAL GE NERAL LIABILITY )E X | OCCUR X 3587-10-60 10/28/2014 10/28/2015 EACH OCCURRENCE $ 1,000,00C | claims-ma: DAMAGE TO RENTED PREMISES (Ea occurrence) $ 1,000,00( MED EXP (Any one person) $ 10.00C PERSONAL & ADV INJURY $ 1,000,00C GEN’L AGGREGATE LIMIT APPLIES PER: GENERAL AGGREGATE $ 2,000.00C POLICY | | JECT | | LOC OTHER: PRODUCTS—COMP/OP AGG $ s A AU1 X OMOBILE LIABILITY ANY AUTO (14)73559460 10/28/2014 10/28/2015 COMBINED SINGLE LIMIT (Ea accident) $ 1,000,00( BODILY INJURY (Per person) $ ALL OWNED AUTOS HIRED AUTOS X SCHEDULED AUTOS NON-OWNED AUTOS BODILY INJURY (Per accident) s PROPERTY DAMAGE (Per accident) $ $ A X UMBRELLA LIAB EXCESS LIAB X OCCUR CLAIMS-MADE 79878551 10/28/2014 10/28/2015 EACH OCCURRENCE $ 2,000,00C AGGREGATE $ 2,000,00c DED X RETENTIONS ® $ WORKERS COMPENSATION AND EMPLOYERS’ LIABILITY y 1 N ANY PROPRIETOR/PARTNER/EXECUTIVE 1 1 OFFICER/MEMBER EXCLUDED? 1 (Mandatory in NH) If yes, describe under DESCRIPTION OF OPERATIONS below N/A PER OTH- STATUTE ER E.L. EACH ACCIDENT $ E.L, DISEASE—EA EMPLOYEE $ E.L. DISEASE—POLICY LIMIT $ 0 ACORD’ CERTIFICATE OF LIABILITY INSURANCE DESCRIPTION OF OPERATIONS I LOCATIONS I VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached if more space is required) Re: Effective 2/1/2015; Office located at 12400 High Bluff Dr., Suite 600, San Diego, CA 92130 Kilroy Realty Corporation is included as an Additional Insured as respects to General Liability. CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. Kilroy Realty Corporation Attn: Mr. Brian Galligan 3611 Valley Center Dr., Suite 250 iSan Dieao. CA 92130 AUTHORIZED REPRESENTATIVE © 1988-2014 ACORD CORPORATION. All rights reserved. 1.4^][WoDminnCa0re4aobai_Trading_Inc_Evofemh-eSUb?easDenJa,n<20 of AC°RD WOMAGLO-01CRUNKCO WOMAGLO-01CRUNKCO WOMAGLO-01 THOMPSONNE .4.obal_Trading_IncEvofem_-Subiease Ja,n 20 2015.pdf 193]arks of ACORD


EXHIBIT S-E

SUBLEASE DEFINED TERMS

The following terms are defined in the Sublease at the pages indicated below (all other capitalized terms used but not defined in the Sublease shall have the meanings given to those terms in the Overlease)

 

Term

   Page No  
Additional Consideration      4  
Additional Services      15  
Additional Subrent      3  
Base Subrent      3  
Early Access Date      2  
Estimated Excess      10  
Event of Default      20  
Execution Date      1  
FF&E      19  
Fixturizing      2  
Lease Month      3  
Overlandlord      1  
Overlease      1, 15  
Overtenant      1  
Overtenant Parties and Overlandlord Parties      11  
Second Amendment      1  
Security Deposit Laws      5  
Sublandlord      1  
Sublandlord’s Rent      14  
Sublease      1  
Sublease Commencement Date      2  
Sublease Expiration Date      2  
Sublease Term      2  
Subpremises      1  
Subrent      3  
Subtenant      1  
Tenant Work Letter      10  
Third Amendment      1  
Underlying Mortgage      17  

 

 

Exhibit S-E

Exhibit 10.57

S ERIES D P REFERRED S TOCK P URCHASE A GREEMENT

THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the “ Agreement ”) is made as of July 13, 2016, by and between Evofem Holdings, Inc., a Delaware corporation (the “ Company ”), and the persons or entities named on the Schedule of Purchasers attached hereto as Exhibit A (each, a “ Purchaser ,” and collectively, the “ Purchasers ”).

R ECITALS

A.    The Board of Directors of the Company has determined that it is in the best interests of the Company and its stockholders to issue and sell Series D Preferred Stock of the Company up to an aggregate value of Thirty Million Dollars ($30,000,000).

B.    Each Purchaser desires to purchase a portion of such amount on the terms and conditions set forth in this Agreement and the Company’s Second Amended and Restated Certificate of Incorporation of the Company, the form of which is attached hereto as Exhibit B (the “ Restated Certificate ”).

A GREEMENT

In consideration of the mutual promises and covenants set forth herein, the parties hereby agree as follows:

1.     Issuance of Securities .

1.1     Issuance and Sale of Series D Preferred Stock . Subject to the terms and conditions of this Agreement, at each Closing (as hereinafter defined), each Purchaser agrees to purchase, and the Company agrees to issue and sell to such Purchaser, the number of shares of Series D Preferred Stock for the aggregate purchase price set forth opposite such Purchaser’s name in the Schedule of Purchasers with respect to the applicable Closing at a purchase price of $500,000.00 per share. The Series D Preferred Stock will be convertible into shares of capital stock of the Company having the same rights, preferences and privileges as the security the Company issues and sells in its next equity financing (the equity financing, the “ Next Equity Financing ” and the securities, the “ Next Equity Securities ”, it being understood that the liquidation preference per share of such Next Equity Securities issued to each Purchaser shall be equal to the conversion price per share attributable to such conversion (and not the price per share paid by the new investors in the Next Equity Financing (the “ New Investors ”)) as follows: (i) if the Next Equity Financing results in gross proceeds to the Company of at least Forty-Five Million Dollars ($45,000,000), each share of Series D Preferred Stock will automatically convert into the Next Equity Securities, in accordance with the terms of the Restated Certificate; and (ii) if the Next Equity Financing results in gross proceeds to the Company of less than Forty-Five Million Dollars ($45,000,000), each share of Series D Preferred Stock will be convertible at the closing of such Next Equity Financing into shares of Next Equity Securities, in accordance with the terms of the Restated Certificate, only at the election of the Purchasers holding a majority of the shares of Series D Preferred Stock then outstanding.

1.2     Warrant to Purchase Next Equity Securities . The Company hereby agrees to issue to each Purchaser a warrant to purchase up to that number of Next Equity Securities equal to (a) seventy-five percent (75%) of the purchase price paid for the Series D Preferred Stock issued to such Purchaser hereunder, divided by (b) the per share price of the Next Equity Securities issued to the New Investors in such Next Equity Financing, in the form attached hereto as Exhibit C .


1.3     Closings .

1.3.1 First Closing . The first closing of the purchase and sale of Series D Preferred Stock pursuant to this Agreement shall take place at the offices of K&L Gates LLP, 1 Park Plaza, Twelfth Floor, Irvine, California 92614 at 9:00 a.m. Pacific Time on July 18, 2016 or at such time as is mutually agreed upon by the Company and the Purchasers (the “ First Closing ”).

1.3.2 Subsequent Closings . At any time after September 30, 2016, the Company may from time to time request that the Purchasers purchase up to the balance of Thirty Million Dollars ($30,000,000) in value of Series D Preferred Stock not previously issued and sold at the First Closing in Five Hundred Thousand Dollars ($500,000) increments. Any such request shall be delivered in writing to the Purchasers who then hold Series D Preferred Stock, and such requested amount shall be offered pro rata to the Purchasers who then hold Series D Preferred Stock. Within ten (10) business days after any such written request is delivered to the Purchasers, the Purchasers who desire to fulfill such request shall respond to the Company in writing indicating the amount of such requested amount such Purchaser is willing to purchase from the Company. Any such additional purchase shall be in the discretion of each Purchaser. Further, any such additional purchase may be allocated by any such Purchaser among one or more of its funds, in its discretion. If one or more Purchasers agree(s) to purchase additional amounts pursuant to this Section 1.3.2, then the Schedule of Purchasers shall be amended to reflect the amount so purchased by each such Purchaser and the date of such closing (each, a “ Subsequent Closing ,” and together with the First Closing, the “ Closings ”). Subsequent Closings shall be held at such time and place as shall be mutually agreed upon by the Company and the Purchasers who are participating in such Subsequent Closing. For purposes of this Agreement, unless the context otherwise requires, the term “ Closing ” shall refer, with respect to each Purchaser, to the date of the specific closing at which such Purchaser purchases shares of Series D Preferred Stock and delivers to the Company the purchase price therefor. At a Closing, each applicable Purchaser shall deliver to the Company by check or wire transfer of immediately available funds the amount indicated opposite such Purchaser’s name on the Schedule of Purchasers, and the Company shall deliver to each such Purchaser an originally executed certificate representing the shares of Series D Preferred Stock so purchased. The Purchasers expressly acknowledge that the Company may, in its discretion, issue and sell less than or up to Thirty Million Dollars ($30,000,000) in value of the Series D Preferred Stock, as determined by the Board of Directors of the Company in its sole and absolute discretion; provided, however , that Woodford Investment Management LLP, as agent for and on behalf of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund and Woodford Patient Capital Trust Plc (collectively, “ WIM ”), shall deliver to the Company that certain Amended and Restated Promissory Note, dated as of July 18, 2016, by and between Evofem, Inc., a Delaware corporation, and Cosmederm Bioscience, Inc., a Delaware corporation (“ Cosmederm ”), in principal amount of Ten Million Dollars ($10,000,000) (the “ Promissory Note ”) for cancellation by the Company in exchange for Five Million Dollars ($5,000,000) in value of the Series D Preferred Stock.

2.     Representations and Warranties of the Company . In connection with the transactions provided for herein, the Company hereby represents and warrants to each Purchaser as of the date hereof that:

2.1     Organization, Good Standing, and Qualification . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted.

2.2     Authorization . All corporate action on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution, and delivery of this Agreement, the performance of all obligations of the Company hereunder, and the authorization, issuance (or reservation


for issuance), and delivery of the Series D Preferred Stock (collectively, the “ Securities ”) has been taken or will be taken prior to the Closing. This Agreement, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

2.3     Valid Issuance of Stock . The Series D Preferred Stock, the Next Equity Securities and the Option Shares, if and when issued, sold and delivered in accordance with the terms of the Restated Certificate and the Option, respectively, for the consideration expressed therein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations of the Purchasers in this Agreement, will be issued in compliance with all applicable federal and state securities laws.

3.     Representations and Warranties of the Purchasers . In connection with the transactions provided for herein, each Purchaser hereby represents and warrants to the Company that:

3.1     Authorization . This Agreement constitutes Purchaser’s valid and legally binding obligation, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

3.2     Purchase Entirely for Own Account . Purchaser acknowledges that this Agreement is made with Purchaser in reliance upon Purchaser’s representation to the Company that the Securities will be acquired for investment for Purchaser’s own account or on account of funds under management, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Purchaser has no present intention of selling, granting any participation in or otherwise distributing the same. By executing this Agreement, Purchaser further represents that Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant a participation to any third person, with respect to the Securities. Purchaser represents that it has full power and authority to enter into this Agreement.

3.3     Disclosure of Information . Purchaser acknowledges that it has received all the information it considers necessary or appropriate for deciding whether to acquire the Securities. Purchaser further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities.

3.4     Investment Experience . Purchaser is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, can sustain the total loss of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, Purchaser also represents it has not been organized solely for the purpose of acquiring the Securities.

3.5     Limited Operating History . Purchaser acknowledges and agrees that the Company has a limited operating history and faces all of the risks and uncertainties encountered by, and inherent in, an early stage venture, including, without limitation, risks and uncertainties related to the development or regulatory approval of its products and product candidates, the ability to raise substantial additional capital which is necessary to operate the Company’s business and which has not yet been identified, an


evolving and unpredictable business model, and the Company’s ability to anticipate and adapt to a developing market. In addition, Purchaser acknowledges and agrees that the Company is not currently profitable, and if it becomes profitable, it may not be able to sustain profitability. The Company’s lack of operating history makes predicting future operating results, including operating expenses and revenues, difficult, and there can be no assurance that the Company will be successful in managing the foregoing risks or becoming profitable.

3.6     Accredited Investor . Purchaser is an “accredited investor” within the meaning of Rule 501(a) of Regulation D of the Securities Act of 1933, as amended (the “ Securities Act ”), promulgated by the SEC, as presently in effect.

3.7     Restricted Securities . Purchaser understands that it must bear the economic risk of this investment indefinitely unless the Series D Preferred Stock, the Next Equity Securities and/or the Option Shares, as the case may be, are registered pursuant to the Securities Act, or an exemption from registration is available. Purchaser understands that the Company has no present intention of registering the Series D Preferred Stock, the Next Equity Securities or the Option Shares, as the case may be. Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Purchaser to transfer all or any portion of the Series D Preferred Stock, the Next Equity Securities or the Shares, as the case may be, under the circumstances, in the amounts or at the times Purchaser might propose.

3.8     Legends . Purchaser understands that the shares of Series D Preferred Stock, and any securities issued in respect of or exchange for the Series D Preferred Stock, the Next Equity Securities and the Option Shares will bear all of the following legends:

3.8.1 “THE INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.”

3.8.2 If Purchaser is not a United States Person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the “ Code ”)), the shares of Series D Preferred Stock, and any securities issued in respect of or exchange for the Series D Preferred Stock, the Next Equity Securities and the Option Shares will bear all of the following additional legends, as applicable:

(a)    “THE INTERESTS REPRESENTED BY THIS CERTIFICATE ARE BEING OFFERED TO INVESTORS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE SECURITIES ACT”)) AND WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE SECURITIES ACT.”

(b)    “TRANSFER OF THESE INTERESTS IS PROHIBITED, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AVAILABLE


EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.”

3.8.3 Any legend required by the securities laws of any state to the extent such laws are applicable to the shares of Series D Preferred Stock, and any securities issued in respect of or exchange for the Series D Preferred Stock, the Next Equity Securities and the Option Shares represented by the certificate so legended.

3.9     Foreign Investors . If Purchaser is not a United States Person (as defined by Section 7701(a)(30) of the Code), then Purchaser hereby additionally represents and warrants the following:

3.9.1 Purchaser has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the shares of Series D Preferred Stock or any use of this Agreement, including: (i) the legal requirements within its jurisdiction for the purchase of the shares of Series D Preferred Stock, (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 of Series D Preferred Stock;

3.9.2 Purchaser’s subscription and payment for and continued beneficial ownership of the shares of Series D Preferred Stock will not violate any applicable securities or other laws of Purchaser’s jurisdiction;

3.9.3 Purchaser has not offered, sold, pledged, or otherwise transferred, and will not offer, sell, pledge, or otherwise transfer any shares of Series D Preferred Stock within the United States except in accordance with Regulation S promulgated under the Securities Act (“ Reg S ”);

3.9.4 Neither Purchaser, including its officers, directors, consultants or key employees, or any affiliate (as defined under Rule 144 promulgated under the Securities Act) of any of the foregoing, nor any persons acting on its or their behalf has engaged or will engage in any directed selling efforts (as defined in Reg S) with respect to the shares of Series D Preferred Stock, and it and each has complied and will comply with the offering restrictions requirement of Reg S;

3.9.5 At the time of the origination of contact concerning this Agreement and the date of the execution and delivery of this Agreement, Purchaser was outside of the United States;

3.9.6 Purchaser has not pre-arranged with a buyer located within the United States or with a United States Person any of the transactions contemplated by this Agreement, and the Purchaser is not part of a plan or scheme to evade the registration requirements of the Securities Act;

3.9.7 Purchaser was not in the United States engaged in and will not engage in any short selling of or any hedging transaction with respect to the shares of Series D Preferred Stock, including without limitation, any put, call or other option transaction, option writing or equity swap; and

3.9.8 Neither Purchaser nor any person acting on Purchaser’s behalf has undertaken or carried out any activity for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States, its territories or possessions, for any of the shares of Series D Preferred Stock. Purchaser agrees not to cause any advertisement of the shares of Series D Preferred Stock to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the shares of Series D Preferred Stock, except such advertisements that include the statements required by Reg S, and only offshore and not in the United States or its territories, and only in compliance with any local applicable securities laws.


3.10 No General Solicitation . Neither Purchaser, nor any of its officers, directors, employees, agents, stockholders or partners, has either directly or indirectly, including through a broker or finder (a) engaged in any general solicitation, or (b) published any advertisement in connection with the offer and sale of the shares of Series D Preferred Stock.

4.     Miscellaneous .

4.1     Assignment . Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part by any Purchaser to any person or entity without the prior written consent of the Company. Upon any assignment of this Agreement approved by the Company, the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. Any transfer shall be subject to (i) the transferee’s agreement in writing to be subject to the applicable terms of this Agreement; and (ii) compliance with all applicable state and federal securities laws (including the delivery of legal opinions reasonably satisfactory to the Company, if such are reasonably requested by the Company).

4.2     Successors and Assigns . Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

4.3     Governing Law . This Agreement, and any disputes arising under this Agreement shall be governed by and construed under the laws of the State of Delaware, without giving effect to any conflict of laws principle to the contrary.

4.4     Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

4.5     Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience and ease of reference only, and will not in any manner influence the construction or interpretation of any provision of this Agreement.

4.6     Notices . Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon (a) personal delivery to the party to be notified, (b) upon confirmation of receipt by fax by the party to be notified, (c) one business day after deposit with a reputable overnight courier, prepaid for overnight delivery and addressed as set forth in (d) or (d) three days after deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address set forth below, or at such other address as such party may designate by ten (10) days’ advance written notice to the other party given in the foregoing manner.

 

If to the Company:

Evofem Holdings, Inc.

Attn: Jay File

12400 High Bluff Dr.

Suite 600

San Diego, CA 92130

With a copy to:


K&L Gates LLP

Attn: Adam C. Lenain

1 Park Plaza, Twelfth Floor

Irvine, CA 92614

If to a Purchaser:

At the addresses shown on the signature pages hereto.

4.7     Entire Agreement . This Agreement and the Exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof, and supersede all prior or contemporaneous agreements or discussions related thereto.

4.8     Fees and Expenses . The Company will reimburse WIM,for reasonable fees and expenses of Mishcon de Reya LLP, counsel for WIM, incurred in connection with the transactions contemplated by this Agreement in an amount not to exceed, in the aggregate, Eighty Thousand British Pounds (£80,000, excluding VAT and out of pocket costs). In furtherance of the foregoing, WIM may deduct such amount from the proceeds deliverable pursuant to Section 1.3.1 hereof.

4.9     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 Purchasers holding a majority of shares of Series D Preferred Stock then outstanding. The parties hereby agree that the addition of any Purchaser to the Schedule of Purchasers pursuant to the terms of this Agreement shall not be considered an amendment hereto under this Section 4.9.

4.10     Severability . If one or more provisions of this Agreement is held to be illegal, invalid or unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

4.11     Market Stand Off . In connection with the IPO of the Common Stock, each Purchaser hereby agrees that such Purchaser shall not sell or otherwise transfer or dispose of any of the Company’s securities held by such Purchaser (other than those included in the registration at issue, if any) for a period specified by the representative of the underwriters of Common Stock not to exceed one hundred eighty (180) days following the effective date of the registration statement for such initial public offering; provided that such Purchaser shall not be subject to such lock-up unless the officers and directors of the Company are also bound by similar restrictions. Each Purchaser agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. The Company may impose stop transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said period.

[Remainder of Page Intentionally Blank]


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

EVOFEM HOLDINGS, INC.
By:  

/s/ Jay File

Name:   Jay File
Its:   Chief Financial Officer

 

C OMPANY S IGNATURE P AGE TO S ERIES D P REFERRED S TOCK P URCHASE A GREEMENT


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

W OODFORD I NVESTMENT M ANAGEMENT LLP ,

as agent for and on behalf of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund

By:  

/s/ Simon Osborne

Name:   Simon Osborne
Its:   Authorised Signatory
Address:   9400 Garsington Road, Oxford
  Business Park, OX4 2HN, Oxford UK
 

 

email:   simon.osborne@woodfordfunds.com

 

C OMPANY S IGNATURE P AGE TO S ERIES D P REFERRED S TOCK P URCHASE A GREEMENT


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

W OODFORD I NVESTMENT M ANAGEMENT LLP ,

as agent for and on behalf of Woodford Patient Capital Trust Plc

By:  

/s/ Simon Osborne

Name:   Simon Osborne
Its:   Authorised Signatory
Address:   9400 Garsington Road, Oxford
  Business Park, OX4 2HN, Oxford, UK
 

 

email:   simon.osborne@woodfordfunds.com

 

C OMPANY S IGNATURE P AGE TO S ERIES D P REFERRED S TOCK P URCHASE A GREEMENT


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

W OODFORD I NVESTMENT M ANAGEMENT LLP ,

as agent for and on behalf of Omnis Income & Growth Fund, a sub-fund of Omnis Portfolio Investments ICVC

By:  

/s/ Simon Osborne

Name:   Simon Osborne
Its:   Authorised Signatory

Address:

  9400 Garsington Road, Oxford
 

Business Park, OX4 2HN, Oxford, UK

 

 

email:

 

simon.osborne@woodfordfunds.com

 

C OMPANY S IGNATURE P AGE TO S ERIES D P REFERRED S TOCK P URCHASE A GREEMENT


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

P URCHASER
By:  

                                          

Name:  

 

Its:  

 

Address:  

 

 

 

 

 

email:  

 

 

C OMPANY S IGNATURE P AGE TO S ERIES D P REFERRED S TOCK P URCHASE A GREEMENT


E XHIBIT A

S CHEDULE OF P URCHASERS

 

Purchaser   

Investment Amount at First

Closing and Number of Shares

of Series D Preferred Stock to

be issued therefor

   Investment Amount at
Subsequent Closing and
Number of Shares of Series D
Preferred Stock to be issued
therefor
 

WIM acting as agent for and on behalf of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund

  

$29,500,000

for Fifty-Nine (59) shares of

Series D Preferred Stock(1)

  

WIM acting as agent for and on behalf of Omnis Income & Growth Fund, a sub-fund of Omnis Portfolio Investments ICVC

  

$500,000

for one (1) share of

Series D Preferred Stock

  
  

 

  

 

 

 

TOTAL :

   $30,000,000      $              

 

(1) $5,000,000 of such investment amount consists of forgiveness of indebtedness relating to the cancellation of the Promissory Note.

 

E XHIBIT A


E XHIBIT B

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

EVOFEM HOLDINGS, INC.

The undersigned, Jay File, hereby certifies that:

1.    He is the duly appointed and acting Chief Financial Officer of Evofem Holdings, Inc., a Delaware corporation.

2.    The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on July 23, 2015. An Amended and Restated Certificate of Incorporation was filed with the Secretary of State of Delaware on October 30, 2015.

3.    The Board of Directors of the Corporation duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of the Corporation, and that thereafter, pursuant to such resolutions of the Board of Directors of the Corporation, an action by written consent of stockholders was signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon would have been present and voted.

4.    Said amendment was duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law.

5.    The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows:

ARTICLE I

The name of the corporation is Evofem Holdings, Inc. (the “ Corporation ”).

ARTICLE II

The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, County of New Castle. The name of its registered agent at such address is Corporation Service Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law.

ARTICLE IV

(A)     Classes of Stock . The Corporation is authorized to issue two classes of stock to be designated, respectively, “ Common Stock ” and “ Preferred Stock .” The total number of shares which the Corporation is authorized to issue is Two Hundred Fifteen Million Three Hundred Thirty-Eight Thousand One Hundred Forty-Four (215,338,144) shares, each with a par value of $ 0.001 per share. One Hundred Fifty-Seven Million Eight Hundred Thirty-Six Thousand Five Hundred Forty (157,836,540) shares shall


be Common Stock and Fifty-Seven Million Five Hundred One Thousand Six Hundred Four (57,501,604) shares shall be Preferred Stock.

(B)     Rights, Preferences and Restrictions of Preferred Stock . The Preferred Stock authorized by this Second Amended and Restated Certificate of Incorporation (the “ Restated Certificate ”) may be issued from time to time in one or more series. The first series of Preferred Stock shall be designated “Series A Preferred Stock” and shall consist of Twelve Million Seven Hundred Sixty-Eight Thousand Four Hundred Ninety-Two (12,768,492) shares. The second series of Preferred Stock shall be designated as “Series B Preferred Stock” and shall consist of Thirty-One Million Thirty-Four Thousand Six Hundred Ninety-Six (31,034,696) shares. The third series of Preferred Stock shall be designated as “Series C Preferred Stock” and shall consist of Five Million Thirty-Seven Thousand Seven Hundred Eighty-Four (5,037,784) shares. The fourth series of Preferred Stock shall be designated as “Series C-1 Preferred Stock” and shall consist of Eight Million Six Hundred Sixty Thousand Five Hundred Seventy-Two (8,660,572) shares. The fifth series of Preferred Stock shall be designated as “Series D Preferred Stock and shall consist of Sixty (60) shares. The “ Series Preferred Stock ” when used herein shall mean the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock. The rights, preferences, privileges, and restrictions granted to and imposed on the Series Preferred Stock are as set forth below in this Article IV(B).

1.     Dividends . From and after the date of the issuance of any shares of Series D Preferred Stock, dividends at the rate per annum of $60,000 per share (which equates to 12% per annum of the Original Issue Price of the Series D Preferred Stock) shall accrue on such shares of Series D 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 D Preferred Stock) (the “ Accruing Dividends ”). Accruing Dividends shall accrue from day to day, whether or not declared; provided, however , that such Accruing Dividends shall be payable only upon a Liquidation Transaction as contemplated by Section 2(a) of this Article IV, upon redemption as contemplated by Section 3 of this Article IV, or upon a conversion of the Series D Preferred Stock as contemplated by Section 4(a) or 4(b) of this Article IV. 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 unless (in addition to the obtaining of any consents required elsewhere in the Restated Certificate) the holders of the Series D Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series D Preferred Stock in an amount at least equal to the amount of the aggregate Accruing Dividends then accrued on such share of Series D Preferred Stock and not previously paid.

2.     Liquidation .

(a)     Preference . In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, or upon a Liquidation Transaction: (a) first, the holders of the Series D Preferred Stock shall be entitled to receive on a pro rata pari passu basis, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share of Series D Preferred Stock equal to one (1) times (the “ Series D Multiplier ”) the sum of the Original Issue Price (as defined below) for the Series D Preferred Stock (as adjusted for stock splits, stock dividends, reclassification and the like) and all dividends accrued thereon pursuant to Section 1 of this Article IV, provided that in the case of a Liquidation Transaction, the “ Series D Multiplier ” shall be equal to two (2) times, (b) second, the holders of the Series C Preferred Stock shall be entitled to receive on a pro rata pari passu basis, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C-1 Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share of Series C Preferred Stock equal to the greater of: (i) the


Original Issue Price (as defined below) for the Series C Preferred Stock (as adjusted for stock splits, stock dividends, reclassification and the like), plus declared but unpaid dividends thereon, less declared and paid dividends thereon, or (ii) such amount as would have been payable had all shares of Series C Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution or winding up of the Corporation or such Liquidation Transaction, then (c) third, after payment of the aforesaid preferential amounts, the holders of the Series A Preferred Stock, Series B Preferred Stock and Series C-1 Preferred Stock shall be entitled to receive on a pro rata pari passu basis, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share of Series A Preferred Stock, Series B Preferred Stock or Series C-1 Preferred Stock, respectively, equal to the greater of: (i) the Original Issue Price (as defined below) for the Series A Preferred Stock, Series B Preferred Stock or Series C-1 Preferred Stock, respectively (as adjusted for stock splits, stock dividends, reclassification and the like) for each share of Series A Preferred Stock, Series B Preferred Stock or Series C-1 Preferred Stock, respectively, then held by such holder, plus declared but unpaid dividends, or (ii) such amount as would have been payable had all shares of Series A Preferred Stock, Series B Preferred Stock or Series C-1 Preferred Stock, respectively, been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution or winding up of the Corporation or such Liquidation Transaction. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series Preferred Stock, ratably in proportion to the preferential amount each such holder is otherwise entitled to receive; provided, however , and for the avoidance of doubt, such distribution shall be made in accordance with the prior sentence, such that the holders of Series D Preferred Stock shall receive payment in full of their aforesaid preferential amounts, prior to any distribution to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series C-1 Preferred Stock. The “ Original Issue Price ” of the Series A Preferred Stock shall be $1.9579445 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. The “Original Issue Price” of the Series B Preferred Stock shall be $3.2222 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. The “ Original Issue Price ” of the Series C Preferred Stock shall be $3.97 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. The “ Original Issue Price ” of the Series C-1 Preferred Stock shall be $3.97 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-1 Preferred Stock. The “ Original Issue Price ” of the Series D Preferred Stock shall be $500,000.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series D Preferred Stock.

(b)     Remaining Assets . Upon the completion of the distribution required by Section 2(a) above, if assets remain in the Corporation, the remaining assets of the Corporation shall be distributed solely to the holders of the Common Stock.

(c)     Certain Acquisitions .

(i)     Deemed Liquidation . For purposes of this Section 2, a liquidation, dissolution, or winding up of the Corporation shall be deemed to occur if the Corporation shall sell, license, convey or otherwise dispose of all or substantially all of its property or business or merge with or into or consolidate with any other corporation, limited liability company or other entity, in one or a series of transactions, unless the holders of at least a majority of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock, voting as a separate class, elect not to treat the transaction as a Liquidation Transaction


for purposes of such Series of Preferred Stock (any such transaction, unless elected otherwise, a “ Liquidation Transaction ”).

(ii)     Valuation of Consideration . In the event of a deemed Liquidation Transaction as described in Section 2(c)(i) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value, which such value shall be determined in good faith by the Board of Directors of the Corporation. Any securities shall be valued as follows:

(A)    Securities not subject to an investment letter or other similar restrictions on free marketability:

(1)    If traded on a securities exchange the value shall be based on the formula specified in the definitive agreements for the Liquidation Transaction or, if no such formula exists, then the value of such securities shall be based on a formula approved in good faith by the Board of Directors and derived from the closing prices of the securities on such exchange over a specified time period;

(2)    If actively traded over-the-counter, the value shall be based on the formula specified in the definitive agreements for the Liquidation Transaction or, if no such formula exists, then the value of such securities shall be based on a formula approved in good faith by the Board of Directors and derived from the closing bid or sales prices (whichever is applicable) of such securities over a specified time period; and

(3)    If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors.

(B)    The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as specified above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.

(iii)     Notice of Liquidation Transaction . The Corporation shall give each holder of record of Series Preferred Stock written notice of any impending Liquidation Transaction not later than 10 days prior to the stockholders’ meeting called to approve such Liquidation Transaction, or 10 days prior to the closing of such Liquidation Transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such Liquidation Transaction. The first of such notices shall describe the material terms and conditions of the impending Liquidation Transaction and the provisions of this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. Unless such notice requirements are waived in writing, the Liquidation Transaction shall not take place sooner than 10 days after the Corporation has given the first notice provided for herein or sooner than 10 days after the Corporation has given notice of any material changes provided for herein. Notwithstanding the other provisions of this Restated Certificate, all notice periods or requirements in this Restated Certificate may be shortened or waived, either before or after the action for which notice is required, upon the written consent of the holders of a majority of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock, each voting as a separate class, that are entitled to such notice rights.

(iv)     Effect of Noncompliance . In the event the requirements of this Section 2(c) are not complied with, the Corporation shall forthwith either cause the closing of the


Liquidation Transaction to be postponed until the requirements of this Section 2 have been complied with, or cancel such Liquidation Transaction, in which event the rights, preferences, privileges and restrictions of the holders of Series Preferred Stock shall revert to and be the same as such rights, preferences, privileges and restrictions existing immediately prior to the date of the first notice referred to in Section 2(c)(iii).

3.     Redemption .

(a)     General . Unless prohibited by Delaware law governing distributions to stockholders, the shares of Series D Preferred Stock shall be redeemed by the Corporation at a price equal to the Original Issue Price per share for the Series D Preferred Stock, plus all dividends accrued thereon pursuant to Section 1 of this Article IV (the “ Redemption Price ”), in a single installment not more than ten (10) business days after receipt by the Corporation at any time on or after July 18, 2018, from the holders of at least a majority of the then outstanding shares of Series D Preferred Stock, of written notice requesting redemption of all shares of Series D Preferred Stock (the “ Redemption Request ”). Upon receipt of a Redemption Request, the Corporation shall apply all of its assets to any such redemption pursuant to the terms of this Section 3, and to no other corporate purpose, except to the extent prohibited by Delaware law governing distributions to stockholders. The date of such payment shall be referred to as the “ Redemption Date . ” If on the Redemption Date Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of Series D Preferred Stock to be redeemed, the Corporation shall ratably redeem the maximum number of shares that it may redeem consistent with such law, and shall redeem the remaining shares as soon as it may lawfully do so under such law.

(b)     Surrender of Certificates; Payment . On or before the Redemption Date, each holder of shares of Series D Preferred Stock to be redeemed on such Redemption Date 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, 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 by the Corporation, 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.

(c)     Rights Subsequent to Redemption . If the Redemption Request shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the shares of Series D 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 in a timely manner, then notwithstanding that any certificates evidencing any of the shares of Series D Preferred Stock so called for redemption shall not have been surrendered, dividends with respect to such shares of Series D Preferred Stock shall cease to accrue after such Redemption 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 any such certificate or certificates therefor.

(d)     Redeemed or Otherwise Acquired Shares . Any shares of Series D 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 Series D Preferred Stock following redemption.


(e)     No other Redemption Rights . Except as expressly set forth in this Section 3, the Series Preferred Stock is not redeemable.

4.     Conversion . The holders of the Series Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

(a)     Automatic Conversion of Series D Preferred Stock . At the closing of a transaction, or series of related transactions, in which the Corporation issues and sells equity securities (the “ Next Equity Financing ”), that results in gross proceeds to the Corporation equal to or exceeding Forty-Five Million Dollars ($45,000,000), the outstanding shares of Series D Preferred Stock shall automatically convert into fully paid and nonassessable shares of capital stock of the Corporation having the same rights, preferences and privileges as the Corporation’s equity securities issued in such Next Equity Financing (it being understood that the liquidation preference per share of such equity securities issued to each holder of Series D Preferred Stock shall be equal to the conversion price per share attributable to such conversion and not the price per share paid by the new investors in the Next Equity Financing) (the “ Next Equity Securities ”) as follows: the number of shares of such Next Equity Securities to be issued upon such conversion shall be equal to the quotient obtained by dividing: (i) the aggregate Original Issue Price for all shares of Series D Preferred Stock to be converted, plus all dividends accrued thereon pursuant to Section 1 of this Article IV as of the date of conversion, by (ii) the product of (a) the price per share of such Next Equity Securities sold to the investors in such Next Equity Financing multiplied by (b) 50% (0.50). The shares of Next Equity Securities to be issued upon conversion of the Series D Preferred Stock pursuant to this Section 4(a) shall be entitled to the same rights and subject to the same obligations provided in the purchase agreement and other financing documents entered into with the investors in the Next Equity Financing; provided, however , that the liquidation preference per share of the Next Equity Securities shall be equal to the conversion price per share attributable to such conversion after applying the fifty percent (50%) discount to the price paid by such investors in the Next Equity Financing referenced above. In addition, each holder of Series D Preferred Stock shall become a party to, and shall execute, all related Next Equity Financing documents, including, but not limited to, any definitive stock purchase agreement and any investors rights agreement.

(b)     Optional Conversion of Series D Preferred Stock . At the closing of the Next Equity Financing that results in gross proceeds to the Corporation of less than Forty-Five Million Dollars ($45,000,000), the outstanding Series D Preferred Stock shall be convertible, at the election of the holders holding not less than a majority of such shares of Series D Preferred Stock, into fully paid and nonassessable shares of Next Equity Securities. The Corporation shall provide at least ten (10) business days advance notice to the holders thereof of the expected closing date (the “ Expected Closing Date ”) of such Next Equity Financing. In order to convert the Series D Preferred Stock into Next Equity Securities at such a Next Equity Financing, the holder thereof must provide written notice thereof to the Corporation prior to the Expected Closing Date. The number of shares of such Next Equity Securities to be issued upon such conversion of Series D Preferred Stock shall be equal to the quotient obtained by dividing: (i) the aggregate Original Issue Price for all shares of Series D Preferred Stock to be converted, plus all dividends accrued thereon pursuant to Section 1 of this Article IV as of the date of conversion, by (ii) the product of (a) the price per share of such Next Equity Securities sold to the investors in such Next Equity Financing multiplied by (b) 50% (0.50). The shares of Next Equity Securities to be issued upon conversion of the Series D Preferred Stock pursuant to this Section 4(b) shall be entitled to the same rights and subject to the same obligations provided in the purchase agreement and other financing documents entered into with the investors in the Next Equity Financing; provided, however , that the liquidation preference per share of the Next Equity Securities shall be equal to the conversion price per share attributable to such conversion after applying the fifty percent (50%) discount to the price paid by such investors in the Next Equity Financing referenced above. In addition, each holder of the Series D Preferred Stock that is converted into Next Equity Securities in accordance with this Section 4(b) shall


become a party to, and shall execute, all related Next Equity Financing documents, including, but not limited to, any definitive stock purchase agreement and any investors rights agreement.

(c)     Effect of Conversion .

(i)     Mechanics of Conversion; Holder of Record . At the closing of the Next Equity Financing that results in a conversion of Series D Preferred Stock into shares of Next Equity Securities pursuant to Section 4(a) or Section 4(b) hereof, the shares of Series D Preferred Stock so converted shall evidence solely the right to receive that number of Next Equity Securities as set forth in Section 4(a) or 4(b) above as the case may be (the “ Conversion Date ”). In addition, each holder of converted shares of Series D Preferred Stock acknowledges and agrees to return any certificate evidencing such shares of Series D Preferred Stock for cancellation promptly after receipt of notice of such conversion from the Corporation. The Corporation shall promptly issue and deliver to the holder a certificate or certificates for the number shares of Next Equity Securities to which the holder shall be entitled as a result of such conversion at such time as the certificate evidencing the shares of Series D Preferred Stock so converted is so returned to the Corporation for cancellation; provided, however , that each applicable holder shall be treated for all purposes as the record holder of such Next Equity Securities on the Conversion Date.

(ii)     Fractional Shares . No fractional shares shall be issued in connection with any conversion of Series D Preferred Stock; rather, the Corporation shall pay the holder cash in lieu of any fractional shares.

(d)     Right to Convert other Series Preferred Stock . Subject to Section 4(f), each share of Series Preferred Stock (other than Series D Preferred Stock which Conversion Rights attributable thereto are set forth in full in Section 4(a) and 4(b) above) shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of Series A Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Series A Preferred Conversion Rate (as defined below) then in effect by the number of shares of Series A Preferred Stock being converted. The conversion rate in effect at any time for conversion of the Series A Preferred Stock (the “ Series A Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Original Issue Price of the Series A Preferred Stock by the Series A Preferred Conversion Price (as defined below). The conversion price for the Series A Preferred Stock initially shall be the Original Issue Price of the Series A Preferred Stock (the “ Series A Preferred Conversion Price ”). The number of shares of Common Stock to which a holder of Series B Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Series B Preferred Conversion Rate (as defined below) then in effect by the number of shares of Series B Preferred Stock being converted. The conversion rate in effect at any time for conversion of the Series B Preferred Stock (the “ Series B Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Original Issue Price of the Series B Preferred Stock by the Series B Preferred Conversion Price (as defined below). The conversion price for the Series B Preferred Stock initially shall be the Original Issue Price of the Series B Preferred Stock (the “ Series B Preferred Conversion Price ”). The number of shares of Common Stock to which a holder of Series C Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Series C Preferred Conversion Rate (as defined below) then in effect by the number of shares of Series C Preferred Stock being converted. The conversion rate in effect at any time for conversion of the Series C Preferred Stock (the “ Series C Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Original Issue Price of the Series C Preferred Stock by the Series C Preferred Conversion Price (as defined below). The conversion price for the Series C Preferred Stock initially shall be the Original Issue Price of the Series C Preferred Stock (the “ Series C Preferred Conversion Price ”). The number of shares of Common


Stock to which a holder of Series C-1 Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Series C-1 Preferred Conversion Rate (as defined below) then in effect by the number of shares of Series C-1 Preferred Stock being converted. The conversion rate in effect at any time for conversion of the Series C-1 Preferred Stock (the “ Series C-1 Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Original Issue Price of the Series C-1 Preferred Stock by the Series C-1 Preferred Conversion Price (as defined below). The conversion price for the Series C-1 Preferred Stock initially shall be the Original Issue Price of the Series C-1 Preferred Stock (the “ Series C-1 Preferred Conversion Price ”). The Series A Preferred Conversion Price, the Series B Preferred Conversion Price, the Series C Preferred Conversion Price and the Series C-1 Preferred Conversion Price are sometimes referred to herein, collectively, as the “ Series Preferred Conversion Price .” The Series A Preferred Conversion Rate, the Series B Preferred Conversion Rate, the Series C Preferred Conversion Rate and the Series C-1 Preferred Conversion Rate are sometimes referred to herein, collectively, as the “ Series Preferred Conversion Rate .” The Series Preferred Conversion Price shall be subject to adjustment as set forth in Section 4(g).

(e)     Automatic Conversion of Other Series Preferred Stock . Each share of Series Preferred Stock (other than Series D Preferred Stock which Conversion Rights attributable thereto are set forth in full in Sections 4(a) and 4(b) above) shall automatically be converted into a number of shares of Common Stock obtained by multiplying such share by the applicable Series Preferred Conversion Rate immediately upon the earlier of: (i) except as provided below in Section 4(g), the time immediately prior to the closing of the Corporation’s sale of its Common Stock in a firm commitment underwritten public offering of its Common Stock, or securities convertible into Common Stock, pursuant to an effective registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “ Securities Act ”), or the “completion date” with respect to the listing or admission of the Corporation’s Common Stock to a national securities exchange, including, without limitation, the Alternative Investment Market or the Main Market of the London Stock Exchange, pursuant to a similar disclosure document filed under a similar statute in a jurisdiction outside the United States, which results in a pre-money equity valuation of the Corporation of not less than Five Hundred Twenty Million Dollars ($520,000,000) and aggregate cash proceeds to the Corporation of not less than One Hundred Fifty Million Dollars ($150,000,000) (a “ Qualified IPO ”); (ii) immediately prior to the closing of a reverse merger of the Corporation with an entity (or a wholly owned subsidiary of such entity) that is subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended, or similar law or statute in a jurisdiction outside the United States; or (iii) the date specified by written consent or agreement of the holders of a majority of each of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C-1 Preferred Stock and Series C Preferred Stock, each voting as a separate class.

(f)     Mechanics of Conversion . With respect to the conversion of Series Preferred Stock other than Series D Preferred Stock: before any holder of such Series Preferred Stock shall be entitled to convert such Series Preferred Stock into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed (or a reasonably acceptable affidavit and indemnity undertaking in the case of a lost, stolen or destroyed certificate), at the office of the Corporation or of any transfer agent for such series of Series Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a certificate for the remaining number of shares of Series Preferred Stock if less than all of the Series Preferred Stock evidenced by the certificate were surrendered. Such conversion shall be deemed to have been made immediately prior to the close of business on: (i) the date of such surrender of the shares of


Series Preferred Stock to be converted; or (ii) if applicable, the date of automatic conversion specified in Section 4(e) above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten public offering of securities registered pursuant to the Securities Act the conversion may, at the option of any holder tendering such Series Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event any persons entitled to receive Common Stock upon conversion of such Series Preferred Stock shall not be deemed to have converted such Series Preferred Stock until immediately prior to the closing of such sale of securities.

(g)     Conversion Price Adjustments of Series Preferred Stock for Certain Dilutive Issuances, Splits and Combinations . For the avoidance of doubt, Section 4(g), 4(h), 4(i) and 4(j) of this Article IV shall not apply to the Series D Preferred Stock, and any conversion price attributable to such Series D Preferred Stock shall not be adjusted or adjustable pursuant to the provisions of Sections 4(g), 4(h), 4(i) and 4(j) hereof. Subject to the foregoing sentence, the applicable Series Preferred Conversion Price shall be subject to adjustment from time to time as follows:

(i)     Issuance of Additional Stock below Original Issue Price . If the Corporation should issue, at any time after the date upon which any shares of Series Preferred Stock were first issued (an “ Original Issue Date ”), any Additional Stock (as defined below) without consideration or for a consideration per share less than the applicable Series Preferred Conversion Price in the case of the Series Preferred Stock, in each case in effect immediately prior to the issuance of such Additional Stock, the applicable Series Preferred Conversion Price in effect immediately prior to each such issuance shall automatically be adjusted as set forth in this Section 4(g)(i), unless otherwise provided in this Section 4(g)(i).

(A)     Adjustment Formula . Whenever the applicable Series Preferred Conversion Price is adjusted pursuant to this Section 4(g)(i), the new Series Preferred Conversion Price shall be determined by multiplying the applicable Series Preferred Conversion Price then in effect by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (the “ Outstanding Common ”) plus the number of shares of Common Stock that the aggregate consideration received by the Corporation for such issuance would purchase at such then-existing applicable Series Preferred Conversion Price in effect immediately prior to such issuance; and (y) the denominator of which shall be the number of shares of Outstanding Common plus the number of shares of such Additional Stock. For purposes of the foregoing calculation, the term “Outstanding Common” shall include shares of Common Stock deemed issued pursuant to Section 4(g)(i)(E) below.

(B)     Definition of “Additional Stock.” For purposes of this Section 4(g)(i), “Additional Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 4(g)(i)(E) below, deemed to be issued) by the Corporation after the Original Issue Date, other than:

(1)    Common Stock issued pursuant to a transaction described in subsection 4(g)(ii) hereof;

(2)    shares of capital stock (or options therefor) issuable or issued to employees, consultants, advisors, officers or directors of the Corporation pursuant to a plan or plans approved by the Board;


(3)    shares of capital stock (or rights to acquire same) issued or issuable: (i) in a Qualified IPO; or (ii) upon exercise of warrants or rights granted to underwriters in connection with such Qualified IPO;

(4)    shares of capital stock (or rights to acquire same) issued in connection with any merger, consolidation, acquisition or similar business combination approved by the Board;

(5)    shares of capital stock or rights to acquire shares of capital stock issued in connection with equipment lease financing arrangements, credit agreements, debt financings with commercial lenders, or other commercial transactions; provided, however , that in each such case, such issuance is approved by the Board;

(6)    shares of capital stock or rights to acquire shares of capital stock issued in connection with strategic transactions involving the Corporation and other entities, including joint ventures, collaborations, technology transfer or development arrangements; provided, however , that in each such case, such issuance is approved by the Board;

(7)    shares of Common Stock issued upon conversion of the Series Preferred Stock or as a dividend or distribution on the Series Preferred Stock; or

(8)    shares of Series D Preferred Stock.

(C)     No Fractional Adjustments . No adjustment of the applicable Series Preferred Conversion Price shall be made in an amount less than one cent ($0.01) per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three years from the date of the event giving rise to the adjustment being carried forward.

(D)     Determination of Consideration . In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment.

(E)     Deemed Issuances of Common Stock . In the case of the issuance of securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (the “ Common Stock Equivalents ”), the following provisions shall apply for all purposes of this Section 4(g)(i):

(1)    The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (to the extent then convertible, exchangeable or exercisable) of any Common Stock Equivalents and subsequent conversion, exchange or exercise thereof shall be deemed to have been issued at the time such securities were issued or such Common Stock Equivalents were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related Common Stock Equivalents (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential antidilution


adjustments) upon the conversion, exchange or exercise of any Common Stock Equivalents (the consideration in each case to be determined in the manner provided in Section 4(g)(i)(D)).

(2)    In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon conversion, exchange or exercise of any Common Stock Equivalents, other than a change resulting from the anti-dilution provisions thereof, the applicable Series Preferred Conversion Price, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the conversion, exchange or exercise of such Common Stock Equivalents.

(3)    Upon the termination or expiration of the convertibility, exchangeability or exercisability of any Common Stock Equivalents, the applicable Series Preferred Conversion Price, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Common Stock Equivalents that remain convertible, exchangeable or exercisable) actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(4)    The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Section 4(g)(i)(E)(1) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 4(g)(i)(E)(2) or 4(g)(i)(E)(3).

(F)     No Increased Conversion Price . Notwithstanding any other provisions of this Section 4(g)(i), except to the limited extent provided for in Sections 4(g)(i)(E)(2) and 4(g)(i)(E)(3), no adjustment of the applicable Series Preferred Conversion Price pursuant to this Section 4(g)(i) shall have the effect of increasing any Series Preferred Conversion Price above the applicable Series Preferred Conversion Price in effect immediately prior to such adjustment.

(ii)     Stock Splits and Dividends . In the event the Corporation should at any time after the applicable Original Issue Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or Common Stock Equivalents without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the applicable Series Preferred Conversion Price shall be appropriately 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 of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in Section 4(g)(i)(E).

(iii)     Reverse Stock Splits . If the number of shares of Common Stock outstanding at any time after the applicable Original Issue Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the applicable Series Preferred Conversion Price shall be appropriately 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 outstanding shares.


(h)     Other Distributions . In the event the Corporation shall declare a distribution (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in Section 4 or Section 2 of this Article IV(B)) payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4(g)(i) or 4(g)(ii), then, in each such case for the purpose of this Section 4(h), the holders of Series Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

(i)     Recapitalizations . If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in Section 4 or Section 2 of this Article IV(B)) provision shall be made so that the holders of the Series Preferred Stock shall thereafter be entitled to receive upon conversion of such Series Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of such Series Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the applicable Series Preferred Conversion Price then in effect and the number of shares purchasable upon conversion of such Series Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable.

(j)     No Fractional Shares and Certificate as to Adjustments .

(i)    No fractional shares shall be issued upon the conversion of any share or shares of the Series Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded down to the nearest whole share. The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of Series Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. If the conversion would result in any fractional share, the Corporation shall, in lieu of issuing any such fractional share, pay the holder thereof an amount in cash equal to the fair market value of such fractional share on the date of conversion, as determined in good faith by the Board of Directors.

(ii)    Upon the occurrence of each adjustment or readjustment of the applicable Series Preferred Conversion Price pursuant to this Section 4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Series Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the applicable Series Preferred Conversion Price at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of the Series Preferred Stock.

(k)     Notices of Record Date . In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series Preferred Stock,


at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

(l)     Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of such series of Series 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 such series of Series Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Restated Certificate.

(m)     Notices . Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

5.     Voting Rights . Except as expressly provided by this Restated Certificate or as provided by law, the holders of Series Preferred Stock shall have the same voting rights as the holders of Common Stock and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation, and the holders of Common Stock and the Series Preferred Stock shall vote together as a single class on all matters. Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held, each holder of Series Preferred Stock (other than the Series D Preferred Stock) shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series Preferred Stock could be converted and each holder of Series D Preferred Stock shall be entitled to one vote for each share of Series D Preferred Stock held, in each case as of the record date of such meeting. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half or more being rounded upward).

6.     Preferred Stock Protective Provisions . So long as any shares of Preferred Stock) remain outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of a majority of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock, and Series D Preferred Stock each voting as a separate class, including any approvals required by the Stockholder Agreement, dated as of even date herewith, by and among by the Corporation, the holders listed on Exhibit A thereto and such other persons who thereafter became parties to the Stockholder Agreement pursuant to the terms thereof, as amended from time to time (the “ Stockholder Agreement ”), take any action (or permit any subsidiary to take any such action) whether directly or indirectly through merger, consolidation, recapitalization or otherwise, to:

(a)    create, allot, issue (or agree to create, allot or issue) any shares or securities in the Corporation, or grant any option, warrant or other right to subscribe for, convert into or otherwise require the creation, allotment or issue of any such shares or securities, whether conditional or not, other than pursuant to the Corporation’s equity incentive plan in existence as of the date hereof;


(b)    increase, repay, subdivide, consolidate, capitalize, redenominate or otherwise vary the share capital of the Corporation;

(c)    approve any merger, liquidation, dissolution or acquisition of the Corporation;

(d)    amend, alter, waive or repeal this Restated Certificate or the Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Preferred Stock;

(e)    undertake any Liquidation Transaction which results in an enterprise value to the Corporation of less than Five Hundred Twenty Million Dollars ($520,000,000);

(f)    purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on any shares of capital stock of the Corporation prior to the Preferred Stock other than repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

(g)    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, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Corporation, or 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)     (1) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Preferred Stock in respect of any such right, preference, or privilege or (2) reclassify, alter or amend any existing security of the Corporation that is junior to the Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Preferred Stock in respect of any such right, preference or privilege;

(i)    amend, modify, vary, alter or abrogate the rights, privileges or restrictions attaching to the Preferred Stock;

(j)    enter into any negotiations or reach any agreement for the Corporation to sell, transfer or otherwise dispose of any significant asset (excluding, for the avoidance of doubt, any sale or transfer in the ordinary course of business) or any material part of the Corporation’s business or undertaking, whether by a single transaction or series of transactions, whether related or not;

(k)    establish any equity incentive plan or other employee benefit arrangement plan after the date hereof;

(l)    enter into any contract or arrangement with a related party that is not in the ordinary course of business and at arm’s length terms; or


(m)    enter into any agreement, commitment or arrangement to do any of the foregoing;

provided, however , that nothing herein shall prevent the Corporation from undertaking a reorganization transaction in which the Corporation is acquired by an affiliated entity (the “ Acquiror ”) in a reverse triangular merger whereby the Acquiror’s capital stock is issued to and owned by the same persons in the same proportions and with the same rights, preferences and privileges as the same persons who own the capital stock of the Corporation immediately prior to such transaction.

Upon request by any stockholder, a copy of the Stockholder Agreement will be provided by the Secretary of the Corporation free of charge.

7.     Status of Converted Stock . In the event any shares of Series Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be cancelled and shall not be issuable by the Corporation. This Restated Certificate shall be appropriately amended to effect the corresponding reduction in the Corporation’s authorized capital stock.

(C)     Common Stock .

1.     Dividend Rights . Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

2.     Liquidation Rights . Upon the liquidation, dissolution or winding up of the Corporation, or the occurrence of a Liquidation Transaction, the assets of the Corporation shall be distributed as provided in Section 2 of Article IV(B).

3.     Redemption . The Common Stock is not redeemable.

4.     Voting Rights . Each holder of Common Stock shall have the right to one vote per share of Common Stock, and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law.

ARTICLE V

In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized and empowered to adopt, amend or repeal the Bylaws of the Corporation.

ARTICLE VI

Unless and except to the extent the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.

ARTICLE VII

Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware (the “ Court ”) may, on the application in a summary


way of this Corporation or any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of section 279 of Title 8 of the Delaware Code, order a meeting of creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such a manner as such Court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, such compromise or arrangement and such reorganization shall, if sanctioned by the Court to which such application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

ARTICLE VIII

(A)     Indemnification . To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and agents of the Corporation (and any other persons to which the Delaware General Corporation Law (the “ DGCL ”) permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the DGCL.

(B)     Insurance . The Corporation may, to the fullest extent permitted by applicable law, at any time without further stockholder approval, 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 director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under applicable law.

(C)     Prospective Repeal or Amendment . Any repeal, modification or amendment of this Article VIII by the stockholders of the Corporation or by changes in applicable law shall, to the extent permitted by applicable law, be prospective only, and shall not adversely affect any right to indemnification or advancement of expenses of a director or officer of the Corporation existing at the time of such repeal, modification or amendment. In addition to the foregoing, the right to indemnification and advancement of expenses shall be to the fullest extent permitted by the DGCL or any other applicable law and all amendments to such laws as hereafter enacted from time to time.

ARTICLE IX

The personal liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent under applicable law. If the DGCL is amended 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 DGCL, as so amended. Any repeal or modification of this Article IX shall be prospective and shall not affect the rights under this Article IX in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.


ARTICLE X

All of the powers of this Corporation, insofar as the same may be lawfully vested by this Restated Certificate in the Board of Directors, are hereby conferred upon the Board of Directors of this Corporation.

[Remainder of Page Intentionally Left Blank]


The foregoing Second Amended and Restated Certificate of Incorporation has been duly adopted by this corporation’s Board of Directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law.

IN WITNESS WHEREOF, the Second Amended and Restated Certificate of Incorporation has been signed under the seal of the Corporation this 15th day of July, 2016.

 

/s/ Jay File

Jay File, Chief Financial Officer


E XHIBIT C

F ORM OF W ARRANT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

Warrant No.     

   Issued         , 2016

WARRANT

OF

EVOFEM HOLDINGS, INC.

This Warrant (the “ Warrant ”) is issued to                                           (the “ Holder ”), or its registered assigns, by Evofem Holdings, Inc., a Delaware corporation (the “ Company ”), pursuant to the terms of that certain Series D Preferred Stock Purchase Agreement entered into by the parties as of even date herewith (the “ Purchase Agreement ”). Capitalized terms used but not defined in this Warrant have the meanings assigned to such terms in the Purchase Agreement. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange hereof as provided herein.

1.     Warrant . Subject to the terms and conditions hereinafter set forth, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the Holder hereof in writing), to purchase up to that number of Next Equity Securities equal to (a) seventy-five percent (75%) of the purchase price paid for the Series D Preferred Stock issued to the Holder pursuant to the Purchase Agreement, divided by (b) the per share price of the Next Equity Securities issued to the New Investors in such Next Equity Financing (collectively, the “ Warrant Shares ”). Upon the closing of the Next Equity Financing, the Company shall deliver to the Holder a certificate setting forth the number of shares of Next Equity Securities subject to the Warrant along with the exercise price thereof, as contemplated by Section 3 hereof.

2.     Term of Warrant . Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, at any time until the date that is seven (7) years after the date of the Next Equity Financing.

3.     Exercise Price . The price per share to be paid for such Next Equity Securities shall be the price per share paid by the New Investors in such Next Equity Financing (the “ Exercise Price ”), and the Holder hereby agrees that it will enter into the documents and agreements entered into by the other investors in such Next Equity Financing in order to purchase such Next Equity Securities upon exercise of the Warrant.

4.     Exercise of Warrant .

 

E XHIBIT C


(a)    The purchase rights represented by this Warrant are exercisable by the Holder in whole or in part at any time, or from time to time, as described above, by the surrender of this Warrant and upon payment: (i) in cash or by check or wire transfer of immediately available funds; (ii) by cancellation by the Holder of indebtedness or other obligations owed by the Holder to the Company; or (iii) by combination of (i) and (ii), of the purchase price of the Warrant Shares to be purchased.

(b)     Net Issuance . In lieu of payment of the Exercise Price in accordance with Section 4(a), the Holder may, by providing notice of exercise of the Warrant or any portion thereof in accordance with Section 8, elect to receive, without the payment by the Holder of any additional consideration, such number of fully paid and nonassessable shares of Next Equity Securities as is computed using the following formula:

where:                  X = Y (A – B)

                                                   A

 

X =

   the number of shares to be issued to the Holder pursuant to this Section 4(b)

Y =

   the number of shares covered by the Warrant in respect of which the net issuance election is made pursuant to this Section 4(b)

A =

   the fair market value of one share of Next Equity Securities, as determined in accordance with the provisions of this Section 4(b)

B =

   the Exercise Price in effect at the time the net issuance election is made pursuant to this Section 4(b)

For purposes of this Section 4(b), the “ fair market value ” shall mean, on any given day: (A) if this Warrant is exercised in connection with the Company’s initial public offering (“ IPO ”), then the fair market value shall be the price per share of the shares sold to the public in such IPO; (B) if the class of Next Equity Securities is exchange-traded, the average of the closing sales prices per share of the class of Next Equity Securities for the ten (10) consecutive trading days ending on the day that is two (2) trading days prior to the applicable date of determination of fair market value; or (C) if the class of Next Equity Securities is not listed or admitted to trading on any securities exchange but is regularly traded in any over-the-counter market, then the average of the bid and ask prices per share of the class of Next Equity Securities for the ten (10) consecutive trading days ending on the day that is two (2) trading days prior to the applicable date of determination of fair market value; or (D) if the class of Next Equity Securities is not sold or traded as described in clauses (A), (B) or (C), then the per share fair market value of the class of Next Equity Securities as determined in good faith by the Company’s Board of Directors.

5.     Replacement of Warrant . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery or an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at the Holder’s expense, shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

6.     No Stockholder Rights; Voting Rights . Prior to exercise of the Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the Warrant Shares, including (without limitation) the right to (i) receive dividends or other distributions thereon and (ii) exercise preemptive rights, and the Holder shall not be entitled to any notice or other communication concerning the business

 

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or affairs of the Company with respect to such Warrant Shares, except as otherwise provided herein. Notwithstanding the foregoing, the Holder shall be entitled to one (1) vote and shall vote with the holders of common stock of the Company (“ Common Stock ”) on all matters submitted to the vote or written consent of the holders of Common Stock.

7.     Transferability and Non-negotiability of Warrant . Neither this Warrant nor any of the rights, interests or obligations hereunder may be assigned or transferred, by operation of law or otherwise, in whole or in part by the Holder to any person or entity without the prior written consent of the Company; provided, however , that this Warrant may be assigned or transferred, in whole or in part, without the prior written consent of the Company to an affiliate, partner or member of the Holder so long as: (i) all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are requested by the Company), have been complied with, and (ii) the assignee agrees to be bound by the terms and conditions set forth herein, including, without limitation, executing the applicable agreements upon exercise of this Warrant. It is expressly understood that the Holder may transfer all or a portion of this Warrant to an affiliate.

8.     Notices . The Company shall provide the Holder with at least twenty (20) days advance notice of the expected closing date (the “ Expected Closing Date ”) of the Next Equity Financing. In order to exercise the Warrant, the Holder must provide written notice of its intent to do so to the Company at least three (3) days prior to such Expected Closing Date.

9.     Amendments .

(a)    Any term of this Warrant may be amended or waived with the written consent of the Company and the Holder.

(b)    No waivers of, or exceptions to, any term, condition or provision of this Warrant, 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.

10.     Adjustment of Exercise Price and Number of Shares . The number of and kind of securities purchasable upon exercise of the Warrant and the exercise price shall be subject to adjustment from time to time as follows:

(a)     Subdivisions, Combinations and Other Issuances . If the Company shall at any time prior to the expiration of the Warrant subdivide the class of securities that includes the Warrant Shares, by split-up or otherwise, or combine the class of securities that includes the Warrant Shares, or issue additional shares of the class of securities that includes the Warrant Shares as a dividend with respect to the class of securities that includes the Warrant Shares, the number of Warrant Shares issuable on the exercise of the Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the exercise price payable per share, but the aggregate exercise price payable for the total number of shares of the Company’s capital stock purchasable under the Warrant (as adjusted) shall remain the same. Any adjustment under this Section 10(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

(b)     Reclassification, Reorganization and Consolidation . In case of any merger, consolidation, share exchange, reclassification, capital reorganization, or change in the Company’s capital stock (other than as a result of a subdivision, combination, or stock dividend provided for in Section 10(a)

 

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above or as contemplated by Section 10(c) below), then, as a condition of such merger, consolidation, share exchange, reclassification, reorganization, or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder with respect to the Warrant, so that the Holder shall have the right at any time prior to the expiration of the Warrant to purchase, at a total price equal to that payable upon the full exercise of the Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such merger, consolidation, share exchange, reclassification, reorganization, or change by a holder of the same number of shares of capital stock as were purchasable by the Holder pursuant to the Warrant immediately prior to such merger, consolidation, share exchange, reclassification, reorganization, or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per share payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c)     Conversion of Preferred Stock . In the event the Warrant Shares are preferred stock of the Company (“ Preferred Stock ”) and the Preferred Stock is converted into Common Stock pursuant to the terms of the Company’s certificate of incorporation, then the Warrant shall be exercisable for that number of shares of Common Stock into which the Warrant Shares then subject to the Warrant could have been exercised on the date of such exercise, and the Exercise Price shall be appropriately adjusted so that the aggregate Exercise Price remains the same. Thereafter, for purposes of the Warrant, the Warrant Shares shall be deemed to be Common Stock.

(d)     Notice of Adjustment . When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of shares of the Company’s capital stock or other securities or property thereafter purchasable upon exercise of the Warrant and any resulting changes to the Exercise Price.

(e)     No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor.

11.     Miscellaneous .

(a)     Governing Law . This Agreement and the rights and obligations of the parties set forth herein shall be governed by, construed and interpreted in accordance with the internal laws of the State of Delaware (including its Uniform Commercial Code), but without giving effect to its laws or rules relating to conflicts of laws.

(b)     Successors and Assigns . The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the respective successors and assigns of the parties. Nothing in this Warrant, express or implied, in intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Warrant, except as expressly provided in this Warrant.

(c)     Severability . If any provision of this Warrant is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible. If such clause or provision cannot be so enforced, such provision shall be stricken from this Warrant and the remainder of this Warrant shall be enforced as if

 

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such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Warrant.

[ Signature page follows ]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as of the date first set forth above by its duly authorized officer.

 

THE COMPANY:

Evofem Holdings, Inc. ,

a Delaware corporation

By:  

                                          

Name:   Saundra Pelletier
Title:   Chief Executive Officer

 

ACKNOWLEDGED AND AGREED:
HOLDER:
By:  

                                                              

Name:  

 

Title:  

 

 

S IGNATURE P AGE TO W ARRANT

Exhibit 10.58

FIRST AMENDMENT TO

SERIES D PREFERRED STOCK PURCHASE AGREEMENT

This FIRST AMENDMENT TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this “ Amendment ”) is made and entered into as of July 28, 2017, by and among Evofem Biosciences, Inc. (f/k/a Evofem Holdings, Inc.), a Delaware corporation (the “ Company ”) and Woodford Investment Management Limited, as agent for and on behalf of each of Woodford Patient Capital Trust Plc, CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund, and Omnis Income & Growth Fund, a sub fund of Omnis Portfolio Investments ICVC (“ WIM ”), and amends that certain Series D Preferred Stock Purchase Agreement (as amended, the “ Purchase Agreement ”), dated as of July 13, 2016, by and between the Company and WIM. The Company and WIM are sometimes referred to herein together as the “ Parties .”

RECITALS

WHEREAS , the Parties desire to amend the Purchase Agreement, pursuant to Section 4.9 thereof, to (i) increase the number of shares of Series D Preferred Stock and warrants to purchase capital stock of the Company issuable by the Company pursuant to the Purchase Agreement from an aggregate value of Thirty Million Dollars ($30,000,000) of Series D Preferred Stock to an aggregate value of Forty Million Dollars ($40,000,000) of Series D Preferred Stock, (ii) provide for the Company to have the right to request additional investment from the existing holders of Series D Preferred Stock and (iii) make certain other changes as set forth herein; and

WHEREAS , WIM holds one hundred percent (100%) of the shares of Series D Preferred Stock of the Company currently outstanding.

NOW, THEREFORE , for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged and agreed, the Parties hereby agree as follows:

AGREEMENT

1.     Amendment of Recitals . The Recitals of the Purchase Agreement are hereby amended and restated in their entirety as follows:

“A.    The Board of Directors of the Company has determined that it is in the best interests of the Company and its stockholders to issue and sell Series D Preferred Stock of the Company up to an aggregate value of Forty Million Dollars ($40,000,000).

B.    Each Purchaser desires to purchase a portion of such amount on the terms and conditions set forth in the Restated Certificate. As used herein, the term “Restated Certificate” shall mean (i) prior to the date hereof, the Company’s Second Amended and Restated Certificate of Incorporation as filed with the Secretary of State of Delaware on July 15, 2016, (ii) on and following the date hereof, the Company’s Third Amended and Restated Certificate of Incorporation as filed with the Secretary of State of Delaware on July 28, 2017.”

2.     Amendment of Section  1.1 . Section 1.1 of the Purchase Agreement is hereby amended and restated in its entirety as follows:

“1.1     Issuance and Sale of Series D Preferred Stock . Subject to the terms and conditions of this Agreement, at each Closing and each Additional Closing (each as defined herein), each Purchaser agrees to purchase, and the Company agrees to issue and sell to such


Purchaser, the number of shares of Series D Preferred Stock for the aggregate purchase price set forth opposite such Purchaser’s name in the Schedule of Purchasers with respect to the applicable Closing at a purchase price of $500,000.00 per share. The Series D Preferred Stock will automatically convert into shares of capital stock of the Company having the same rights, preferences and privileges as the security the Company issues and sells in its next equity financing in accordance with the terms of the Restated Certificate (the equity financing, the “ Next Equity Financing ” and the securities, the “ Next Equity Securities ”, it being understood that the liquidation preference per share of such Next Equity Securities issued to each Purchaser shall be equal to the conversion price per share attributable to such conversion (and not the price per share paid by the new investors in the Next Equity Financing (the “ New Investors ”)).

3.     Amendment of Section  1.2 . Section 1.2 of the Purchase Agreement is hereby amended and restated in its entirety as follows:

“1.2     Warrant to Purchase Next Equity Securities . For consideration of $1.00, for which the Company hereby confirms receipt, the Company hereby agrees to issue to each Purchaser a warrant to purchase up to that number of Next Equity Securities equal to (a) seventy-five percent (75%) of the purchase price paid for the Series D Preferred Stock issued to such Purchaser hereunder, divided by (b) the per share price of the Next Equity Securities issued to the New Investors in such Next Equity Financing, in the form attached hereto as Exhibit C .”

4.     Section 1.3.3 . A new Section 1.3.3 of the Purchase Agreement is hereby inserted following Section 1.3.2 as follows:

“1.3.3     Additional Closings . The Company may, until the earlier of the closing of the Next Equity Financing or December 31, 2017, request that the Purchasers purchase up to an additional Ten Million Dollars ($10,000,000) in value of Series D Preferred Stock in Two Million Five Hundred Thousand Dollar ($2,500,000) increments. Any such request shall be delivered in writing to WIM, and such requested amount shall be allocated in WIM’s discretion among the Purchasers who then hold Series D Preferred Stock (the “ Call Notice ”). Upon delivery of a Call Notice, WIM (or the Purchasers designated by WIM) may, in WIM’s or such Purchaser’s sole discretion, purchase that number of shares of Series D Preferred Stock set forth in the Call Notice (up to a total aggregate of Ten Million Dollars ($10,000,000) in value of Series D Preferred Stock in all such Call Notices). An additional closing shall occur on the date that is ten (10) business days after the date of the Call Notice, or such later date as the Company may designate, in its sole discretion (each such closing, an “ Additional Closing ”). Any such sale and issuance of Series D Preferred Stock in an Additional Closing shall be on the same terms and conditions as those contained herein. After each Additional Closing, the Schedule of Purchasers shall be amended to reflect the number of shares of Series D Preferred Stock purchased by each Purchaser upon such Additional Closing and the date of such Additional Closing. At each Additional Closing, each Purchaser purchasing shares of Series D Preferred Stock in such Additional Closing shall deliver to the Company, by check or wire transfer of immediately available funds, the amount indicated in the Call Notice, and the Company shall deliver to each such Purchaser an originally executed stock certificate representing the shares of Series D Preferred Stock so purchased.

5.     Amendment of Section  2.2 . The first sentence of Section 2.2 of the Purchase Agreement is hereby amended and restated as follows:

“All corporate action on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution, and delivery of this Agreement, the performance of all obligations of the Company hereunder, and the authorization, issuance (or reservation for

 

2


issuance), and delivery of the Series D Preferred Stock (collectively, the “ Securities ”) has been taken or will be taken prior to the Closing or Additional Closing, as applicable.”

6.     Amendment of Section  4.1 . Section 4.1 is hereby amended and restated in its entirety as follows:

“4.1     Assignment . Upon any assignment of this Agreement (including any assignment of the rights set forth in Section  1.3.3 of this Agreement), the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. Any assignment shall be subject to (i) the assignee’s agreement in writing to be subject to the applicable terms of this Agreement; and (ii) compliance with all applicable state and federal securities laws (including the delivery of legal opinions reasonably satisfactory to the Company, if such are reasonably requested by the Company); provided, however, that at any time prior to the closing of the Next Equity Financing, each Purchaser acknowledges and agrees that the shares of Series D Preferred Stock purchased by such Purchaser, any rights to participate in an Additional Closing set forth in Section  1.3.3 of this Agreement held by such Purchaser in connection with its purchase of Series D Preferred Stock, and the warrant issued to such Purchaser pursuant to the terms of Section  1.2 of this Agreement may only be transferred by such Purchaser collectively as a single unit.”

7.     Amendment of Section  4.6 . The reference to “Evofem Holdings, Inc.” in Section 4.6 of the Purchase Agreement is hereby deleted and replaced with “Evofem Biosciences, Inc.” and the reference to “K&L Gates LLP” and associated address are deleted and replaced with:

“Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Attn: Adam C. Lenain

3580 Carmel Mountain Road, Suite 300

San Diego, CA 92130”

8.     Amendment of Section  4.8 . Section 4.8 of the Purchase Agreement is hereby amended and restated in its entirety as follows:

“4.8     Fees and Expenses . The Company will reimburse WIM, for reasonable fees and expenses of Mishcon de Reya LLP, counsel for WIM, incurred in connection with the transactions contemplated by this Agreement (i) with respect to the First Closing, in an amount not to exceed, in the aggregate, Eighty Thousand British Pounds (£80,000, excluding VAT and out of pocket costs), and (ii) with respect to the Additional Closing occurring on or about July 28, 2017, in an amount not to exceed Twenty Thousand British Pounds (£20,000, excluding VAT and out of pocket costs). In furtherance of the foregoing, WIM may deduct such amounts from the proceeds deliverable pursuant to Sections 1.3.1 and 1.3.3 hereof, respectively.”

9.     Amendment of Section  4.11 . Section 4.11 of the Purchase Agreement is hereby amended and restated in its entirety as follows:

“4.11     Market Stand Off . In connection with the IPO of the Common Stock, each Purchaser hereby agrees that such Purchaser shall not sell or otherwise transfer or dispose of any of the Company’s securities held by such Purchaser (other than those included in the registration at issue, if any) for a period specified by the representative of the underwriters of Common Stock not to exceed one hundred eighty (180) days following the effective date of the registration statement for such initial public offering unless otherwise approved in writing by the Company; provided that such Purchaser shall not be subject to such lock-up unless the officers and directors

 

3


of the Company are also bound by similar restrictions. Each Purchaser agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. The Company may impose stop transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said period.”

10.     Amendment of Section  4 . A new Section 4.12 of the Purchase Agreement is hereby inserted following Section 4.11 as follows:

“(d)     WIM Obligations . WIM will not be obliged to comply with any provision of this Agreement if so complying would result in WIM breaching any applicable law or regulation (to be determined by the Investor in its sole discretion) provided that WIM will use reasonable endeavours to procure that any such breach is avoided. If, by entering into any provision of this Agreement, WIM would be in breach of any applicable law or regulation (to be determined by WIM in its sole discretion), that provision will be treated by the parties as void ab initio and will be severed from this Agreement. Notwithstanding that severance, the other provisions of this Agreement and the remainder (if any) of the relevant provision will continue to be fully effective.”

11.     Amendment of Exhibit A . Exhibit A of the Purchase Agreement is hereby amended and restated in its entirety as follows:

S CHEDULE OF P URCHASERS

 

Purchaser   

Investment Amount at First

Closing and Number of Shares

of Series D Preferred Stock to

be issued therefor

  

Investment Amount at

Subsequent Closing and Number

of Shares of Series D Preferred

Stock to be issued therefor

WIM acting as agent for and on behalf of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund

  

$29,500,000

for fifty-nine (59) shares of

Series D Preferred Stock (1)

   —  

WIM acting as agent for and on behalf of Omnis Income & Growth Fund, a sub-fund of Omnis Portfolio Investments ICVC

  

$500,000

for one (1) share of

Series D Preferred Stock

  

$500,000

for one (1) share of

Series D Preferred Stock

WIM acting as agent for and on behalf of Woodford Patient Capital Trust PLC

   —      $7,000,000 for fourteen (14) shares of Series D Preferred Stock
  

 

  

 

TOTAL :

   $30,000,000    $7,500,000

 

(1) $5,000,000 of such investment amount consists of forgiveness of indebtedness relating to the cancellation of the Promissory Note.

 

4


12.     Amendment of Definition . The definition of “Company” is hereby amended and restated in its entirety to read as follows:

““ Company ” Evofem Biosciences, Inc. (f/k/a Evofem Holdings, Inc.), a Delaware corporation.”

13.     Amendment of Section  7 of the Warrant Attached as Exhibit C to the Purchase Agreement and addition of new Section  11(d) to the Warrant Attached as Exhibit C to the Purchase Agreement . Section 7 of the Warrant attached as Exhibit C to the Purchase Agreement are hereby amended and restated in their entirety as follows:

7.      Transferability and Negotiability of Warrant . This Warrant may be assigned or transferred, in whole or in part, without the prior written consent of the Company, subject to compliance with all applicable securities laws; provided, however, that at any time prior to the closing of the Next Equity Financing, each Holder acknowledges and agrees that the shares of Series D Preferred Stock purchased by such Holder pursuant to the Purchase Agreement, any rights to participate in an Additional Closing set forth in Section  1.3.3 of the Purchaser Agreement held by such Holder in connection with its purchase of Series D Preferred Stock, and this Warrant may only be transferred by such Holder collectively as a single unit. Subject to the terms of this Section 7, it is expressly understood that the Holder may transfer all or a portion of this Warrant to an affiliate.”

A new Section 11(d) of the Warrant is hereby inserted following Section 11(c) of the Warrant as follows:

“(d)     WIM Obligations . WIM will not be obliged to comply with any provision of this Warrant if so complying would result in WIM breaching any applicable law or regulation (to be determined by the Investor in its sole discretion) provided that WIM will use reasonable endeavours to procure that any such breach is avoided. If, by entering into any provision of this Warrant, WIM would be in breach of any applicable law or regulation (to be determined by WIM in its sole discretion), that provision will be treated by the parties as void ab initio and will be severed from this Warrant. Notwithstanding that severance, the other provisions of this Warrant and the remainder (if any) of the relevant provision will continue to be fully effective.”

14.     Amendment and Ratification . The parties agree that the Purchase Agreement is hereby amended in accordance with the foregoing provisions of this Amendment. Except as specifically amended hereby, all terms, conditions, covenants, representations and warranties contained in the Purchase Agreement shall remain in full force and effect, and shall be binding upon each party to the Purchase Agreement.

15.     Governing Law . This Amendment, and any disputes arising under this Amendment, shall be governed and construed under the laws of the State of Delaware, without giving effect to any conflict of laws therein.

16.     Titles and Subtitles . The titles and subtitles used in this Amendment are used for convenience and ease of reference only, and will not in any manner influence the construction or interpretation of any provision of this Amendment.

17.     Counterparts . This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. This Amendment may be executed on signature pages exchanged by facsimile or electronic mail, which copies shall be equally as effective as delivery of an original executed counterpart of this Amendment.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

EVOFEM BIOSCIENCES, INC.
By:  

/s/ Jay File

Name:   Jay File
Title:   Chief Financial Officer

 

S IGNATURE P AGE TO F IRST A MENDMENT TO S ERIES D P REFERRED S TOCK P URCHASE A GREEMENT


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

 

Woodford Investment Management Limited, as agent for and on behalf of CF Woodford Equity Income Fund, a sub fund of CF Woodford Investment Fund
By:  

/s/ Chris Martin

Name:   Chris Martin
Title:   Authorised Signatory
Woodford Investment Management Limited, as agent for and on behalf of Omnis Income & Growth Fund, a sub fund of Omnis Portfolio Investments ICVC
By:  

/s/ Chris Martin

Name:   Chris Martin
Title:   Authorised Signatory
Woodford Investment Management Limited, as agent for and on behalf of Woodford Patient Capital Trust Plc
By:  

/s/ Chris Martin

Name:   Chris Martin
Title:   Authorised Signatory

 

S IGNATURE P AGE TO F IRST A MENDMENT TO S ERIES D P REFERRED S TOCK P URCHASE A GREEMENT

Exhibit 10.59

EVOFEM BIOSCIENCES, INC.

RESTRICTED STOCK CANCELLATION AGREEMENT

This RESTRICTED STOCK CANCELLATION AGREEMENT (this “Agreement”) is entered into as of this 17 th day of October, 2017, by and between Evofem Biosciences, Inc., a Delaware corporation (the “Company”), and the undersigned holder (the “Holder”) of the Restricted Stock Awards, each dated September 28, 2016 (the “Restricted Stock Awards”), pursuant to which Holder was issued an aggregate total of 3,259,091 shares of restricted common stock, $.001 par value, of the Company (the “Company Common Stock”).

WHEREAS , the Restricted Stock Awards were intended to vest only upon the consummation of the Company’s Initial Public Offering pursuant to the vesting conditions set forth in such Restricted Stock Awards;

WHEREAS , the Company has elected to undertake a merger transaction (the “Merger”) pursuant to that certain Agreement and Plan of Merger, by and among the Company, Neothetics, Inc., a Delaware corporation (“Parent”) and Nobelli Merger Sub, Inc., a Delaware corporation (the “Merger Agreement”), and as a result, the vesting conditions set forth in the Restricted Stock Awards will not take place; and

WHEREAS , as an inducement to Parent to enter into the Merger Agreement, Parent desires that the Company and the Holder enter into this Agreement to clarify that the vesting of such Restricted Stock Awards will not take place and that the Restricted Stock Awards shall therefore be cancelled and of no further force or effect contingent upon and immediately prior to the effective time of the Merger (the “Effective Time”).

NOW THEREFORE , for good and valuable consideration, the sufficiency of which is hereby acknowledged, the Holder hereby agrees as follows:

1.    The Holder is the holder of the Restricted Stock Awards, and such Restricted Stock Awards remain outstanding and unvested as of the date hereof.

2.    Notwithstanding anything to the contrary contained in the Restricted Stock Awards or the Company’s Amended and Restated 2012 Equity Incentive Plan, pursuant to which the Restricted Stock Awards were granted, contingent upon and immediately prior to the Effective Time, the Restricted Stock Awards held by the Holder will be deemed cancelled and shall be of no further force or effect, whether or not returned to the Company for cancellation.

3.    The Holder (a) has not sold, assigned, pledged, transferred, encumbered delivered to anyone, hypothecated or otherwise disposed of the Restricted Stock Awards or any interest represented thereby, or signed any power of attorney or other authorization with respect to the Restricted Stock Awards and (b) does not know of any person, firm, corporation, agency or government who has, or has asserted, any right, title, claim, equity or interest in, to or respecting the Restricted Stock Awards or any of the shares of Company Common Stock represented thereby.

4.    Immediately prior to the Effective Time, the Holder shall fully, forever, irrevocably and unconditionally release, remise and discharge the Company, and its past, current or future officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents and employees (the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including


attorneys’ fees and costs), of every kind and nature which he ever had or now has against the Released Parties arising out of the Restricted Stock Awards.

5.    The Holder shall execute and deliver such further instruments of conveyance, assignment or other documents reasonably requested by the Company to cancel the Restricted Stock Awards and all rights of the Holder thereunder.

6.    If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. This Agreement may be executed in one or more counterparts and may not be changed except in a writing signed by the person against whose interest such change shall operate. This Agreement shall be governed by and construed under the laws of the State of Delaware without regard to the principles of conflicts of law thereof.

[ Signature Page Follows ]


IN WITNESS WHEREOF, the undersigned has executed and delivered this Agreement as of this 17th day of October, 2017.

 

HOLDER:

/s/ Saundra Pelletier

Saundra Pelletier
EVOFEM BIOSCIENCES, INC.
By:  

/s/ Jay File

  Name:   Jay File
  Title:   Chief Financial Officer

 

Signature Page to Restricted Stock Award Cancellation Agreement

Exhibit 10.60

EVOFEM BIOSCIENCES, INC.

RESTRICTED STOCK CANCELLATION AGREEMENT

This RESTRICTED STOCK CANCELLATION AGREEMENT (this “Agreement”) is entered into as of this 17 th day of October, 2017, by and between Evofem Biosciences, Inc., a Delaware corporation (the “Company”), and the undersigned holder (the “Holder”) of a Restricted Stock Award, dated September 28, 2016 (the “Restricted Stock Award”), pursuant to which Holder was issued 1,400,000 shares of restricted common stock, $.001 par value, of the Company (the “Company Common Stock”).

WHEREAS , the Restricted Stock Award was intended to vest only upon the consummation of the Company’s Initial Public Offering pursuant to the vesting conditions set forth in such Restricted Stock Award;

WHEREAS , the Company has elected to undertake a merger transaction (the “Merger”) pursuant to that certain Agreement and Plan of Merger, by and among the Company, Neothetics, Inc., a Delaware corporation (“Parent”) and Nobelli Merger Sub, Inc., a Delaware corporation (the “Merger Agreement”), and as a result, the vesting conditions set forth in the Restricted Stock Award will not take place; and

WHEREAS , as an inducement to Parent to enter into the Merger Agreement, Parent desires that the Company and the Holder enter into this Agreement to clarify that the vesting of such Restricted Stock Award will not take place and that the Restricted Stock Award shall therefore be cancelled and of no further force or effect contingent upon and immediately prior to the effective time of the Merger (the “Effective Time”).

NOW THEREFORE , for good and valuable consideration, the sufficiency of which is hereby acknowledged, the Holder hereby agrees as follows:

1.    The Holder is the holder of the Restricted Stock Award, and such Restricted Stock Award remains outstanding and unvested as of the date hereof.

2.    Notwithstanding anything to the contrary contained in the Restricted Stock Award or the Company’s Amended and Restated 2012 Equity Incentive Plan, pursuant to which the Restricted Stock Award was granted, contingent upon and immediately prior to the Effective Time, the Restricted Stock Award held by the Holder will be deemed cancelled and shall be of no further force or effect, whether or not returned to the Company for cancellation.

3.    The Holder (a) has not sold, assigned, pledged, transferred, encumbered delivered to anyone, hypothecated or otherwise disposed of the Restricted Stock Award or any interest represented thereby, or signed any power of attorney or other authorization with respect to the Restricted Stock Award and (b) does not know of any person, firm, corporation, agency or government who has, or has asserted, any right, title, claim, equity or interest in, to or respecting the Restricted Stock Award or any of the shares of Company Common Stock represented thereby.

4.    Immediately prior to the Effective Time, the Holder shall fully, forever, irrevocably and unconditionally release, remise and discharge the Company, and its past, current or future officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents and employees (the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including


attorneys’ fees and costs), of every kind and nature which he ever had or now has against the Released Parties arising out of the Restricted Stock Award.

5.    The Holder shall execute and deliver such further instruments of conveyance, assignment or other documents reasonably requested by the Company to cancel the Restricted Stock Award and all rights of the Holder thereunder.

6.    If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. This Agreement may be executed in one or more counterparts and may not be changed except in a writing signed by the person against whose interest such change shall operate. This Agreement shall be governed by and construed under the laws of the State of Delaware without regard to the principles of conflicts of law thereof.

[ Signature Page Follows ]


IN WITNESS WHEREOF, the undersigned has executed and delivered this Agreement as of this 17th day of October, 2017.

 

HOLDER:

/s/ Jay File

Jay File
EVOFEM BIOSCIENCES, INC.
By:  

/s/ Saundra Pelletier

  Name:   Saundra Pelletier
  Title:   Chief Executive Officer

 

Signature Page to Restricted Stock Award Cancellation Agreement

Exhibit 10.61

EVOFEM BIOSCIENCES, INC.

RESTRICTED STOCK CANCELLATION AGREEMENT

This RESTRICTED STOCK CANCELLATION AGREEMENT (this “Agreement”) is entered into as of this 17 th day of October, 2017, by and between Evofem Biosciences, Inc., a Delaware corporation (the “Company”), and the undersigned holder (the “Holder”) of a Restricted Stock Award, dated September 28, 2016 (the “Restricted Stock Award”), pursuant to which Holder was issued 50,000 shares of restricted common stock, $.001 par value, of the Company (the “Company Common Stock”).

WHEREAS , the Restricted Stock Award was intended to vest only upon the consummation of the Company’s Initial Public Offering pursuant to the vesting conditions set forth in such Restricted Stock Award;

WHEREAS , the Company has elected to undertake a merger transaction (the “Merger”) pursuant to that certain Agreement and Plan of Merger, by and among the Company, Neothetics, Inc., a Delaware corporation (“Parent”) and Nobelli Merger Sub, Inc., a Delaware corporation (the “Merger Agreement”), and as a result, the vesting conditions set forth in the Restricted Stock Award will not take place; and

WHEREAS , as an inducement to Parent to enter into the Merger Agreement, Parent desires that the Company and the Holder enter into this Agreement to clarify that the vesting of such Restricted Stock Award will not take place and that the Restricted Stock Award shall therefore be cancelled and of no further force or effect contingent upon and immediately prior to the effective time of the Merger (the “Effective Time”).

NOW THEREFORE , for good and valuable consideration, the sufficiency of which is hereby acknowledged, the Holder hereby agrees as follows:

1.    The Holder is the holder of the Restricted Stock Award, and such Restricted Stock Award remains outstanding and unvested as of the date hereof.

2.    Notwithstanding anything to the contrary contained in the Restricted Stock Award or the Company’s Amended and Restated 2012 Equity Incentive Plan, pursuant to which the Restricted Stock Award was granted, contingent upon and immediately prior to the Effective Time, the Restricted Stock Award held by the Holder will be deemed cancelled and shall be of no further force or effect, whether or not returned to the Company for cancellation.

3.    The Holder (a) has not sold, assigned, pledged, transferred, encumbered delivered to anyone, hypothecated or otherwise disposed of the Restricted Stock Award or any interest represented thereby, or signed any power of attorney or other authorization with respect to the Restricted Stock Award and (b) does not know of any person, firm, corporation, agency or government who has, or has asserted, any right, title, claim, equity or interest in, to or respecting the Restricted Stock Award or any of the shares of Company Common Stock represented thereby.

4.    Immediately prior to the Effective Time, the Holder shall fully, forever, irrevocably and unconditionally release, remise and discharge the Company, and its past, current or future officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents and employees (the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys’ fees and costs), of every kind and nature which he ever had or now has against the Released


Parties arising out of the Restricted Stock Award.

5.    The Holder shall execute and deliver such further instruments of conveyance, assignment or other documents reasonably requested by the Company to cancel the Restricted Stock Award and all rights of the Holder thereunder.

6.    If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. This Agreement may be executed in one or more counterparts and may not be changed except in a writing signed by the person against whose interest such change shall operate. This Agreement shall be governed by and construed under the laws of the State of Delaware without regard to the principles of conflicts of law thereof.

[ Signature Page Follows ]


IN WITNESS WHEREOF, the undersigned has executed and delivered this Agreement as of this 17th day of October, 2017.

 

HOLDER:

/s/ Kelly Culwell

Kelly Culwell
EVOFEM BIOSCIENCES, INC.
By:  

/s/ Saundra Pelletier

  Name:   Saundra Pelletier
  Title:   Chief Executive Officer

 

Signature Page to Restricted Stock Award Cancellation Agreement

Exhibit 10.62

EVOFEM BIOSCIENCES, INC.

RESTRICTED STOCK UNIT AWARD CANCELLATION AGREEMENT

This RESTRICTED STOCK UNIT AWARD CANCELLATION AGREEMENT (this “Agreement”) is entered into as of this 17 th day of October, 2017, by and between Evofem Biosciences, Inc., a Delaware corporation (the “Company”), and the undersigned holder (the “Holder”) of a Restricted Stock Unit Award, dated October 13, 2016 (the “Restricted Unit Award”), to acquire 100,000 shares of common stock, $.001 par value, of the Company (the “Company Common Stock”).

WHEREAS , the Restricted Unit Award was intended to vest only upon the consummation of the Company’s Initial Public Offering pursuant to the vesting conditions set forth in such Restricted Unit Award;

WHEREAS , the Company has elected to undertake a merger transaction (the “Merger”) pursuant to that certain Agreement and Plan of Merger, by and among the Company, Neothetics, Inc., a Delaware corporation (“Parent”) and Nobelli Merger Sub, Inc., a Delaware corporation (the “Merger Agreement”), and as a result, the vesting conditions set forth in the Restricted Unit Award will not take place; and

WHEREAS , as an inducement to Parent to enter into the Merger Agreement, Parent desires that the Company and the Holder enter into this Agreement to clarify that the vesting of such Restricted Unit Award will not take place and that the Restricted Unit Award shall therefore be cancelled and of no further force or effect contingent upon and immediately prior to the effective time of the Merger (the “Effective Time”).

NOW THEREFORE , for good and valuable consideration, the sufficiency of which is hereby acknowledged, the Holder hereby agrees as follows:

1.    The Holder is the holder of the Restricted Unit Award, and such Restricted Unit Award remains outstanding and unvested as of the date hereof.

2.    Notwithstanding anything to the contrary contained in the Restricted Unit Award or the Company’s Amended and Restated 2012 Equity Incentive Plan, pursuant to which the Restricted Unit Award was granted, contingent upon and immediately prior to the Effective Time, the Restricted Unit Award held by the Holder will be deemed cancelled and shall be of no further force or effect, whether or not returned to the Company for cancellation.

3.    The Holder (a) has not sold, assigned, pledged, transferred, encumbered delivered to anyone, hypothecated or otherwise disposed of the Restricted Unit Award or any interest represented thereby, or signed any power of attorney or other authorization with respect to the Restricted Unit Award and (b) does not know of any person, firm, corporation, agency or government who has, or has asserted, any right, title, claim, equity or interest in, to or respecting the Restricted Unit Award or any of the shares of Company Common Stock represented thereby.

4.    Immediately prior to the Effective Time, the Holder shall fully, forever, irrevocably and unconditionally release, remise and discharge the Company, and its past, current or future officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents and employees (the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys’ fees and costs), of every kind and nature which he ever had or now has against the Released


Parties arising out of the Restricted Unit Award.

5.    The Holder shall execute and deliver such further instruments of conveyance, assignment or other documents reasonably requested by the Company to cancel the Restricted Unit Award and all rights of the Holder thereunder.

6.    If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. This Agreement may be executed in one or more counterparts and may not be changed except in a writing signed by the person against whose interest such change shall operate. This Agreement shall be governed by and construed under the laws of the State of Delaware without regard to the principles of conflicts of law thereof.


IN WITNESS WHEREOF, the undersigned has executed and delivered this Agreement as of this 17th day of October, 2017.

 

HOLDER:

/s/ Thomas Lynch

Thomas Lynch
EVOFEM BIOSCIENCES, INC.
By:  

/s/ Saundra Pelletier

  Name:   Saundra Pelletier
  Title:   Chief Executive Officer

 

Signature Page to Restricted Stock Unit Award Cancellation Agreement

Exhibit 21.1

 

Subsidiary

   Jurisdiction of Incorporation

Nobelli Merger Sub, Inc.

   Delaware

Exhibit 21.2

EVOFEM BIOSCIENCES, INC.

Subsidiaries

 

Subsidiary Name

  

Jurisdiction of Formation

  

Parent Entity

Evofem, Inc.

   Delaware    Evofem Biosciences, Inc.

Evofem Ltd (UK)

   United Kingdom    Evofem, Inc.

Evofem North America, Inc.

   Delaware    Evofem Biosciences, Inc.

Evofem Limited, LLC

   Delaware    Evofem Biosciences, Inc.

Evolution Pharma

   The Netherlands   

Evofem Biosciences, Inc. (99%)

Evofem Limited, LLC (1%)

Exhibit 23.1

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated March 23, 2017, except for the fourth, fifth and sixth paragraphs of note 1 and note 10, as to which the date is November 15, 2017, with respect to the financial statements of Neothetics, Inc. included in this Registration Statement on Form S-4 and related proxy statement/prospectus/information statement of Neothetics, Inc. for the registration of shares of its common stock.

/s/ Ernst & Young LLP

San Diego, California

November 15, 2017

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in this Registration Statement of Neothetics, Inc. on Form S-4 of our report dated September 8, 2017 relating to the consolidated financial statements of Evofem Biosciences, Inc. and its subsidiaries (the “Company”) as of and for the years ended December 31, 2016 and 2015 (which report expresses an unmodified opinion and includes an emphasis-of-matter paragraph relating to the Company’s ability to continue as a going concern), appearing in the proxy statement/prospectus/information statement, which is a part of this Registration Statement, and to the reference to us under the heading “Experts” in such proxy statement/prospectus/information statement.

/s/ DELOITTE & TOUCHE LLP

San Diego, California

November  15 , 2017

Exhibit 99.3

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, California 92122

We hereby consent to the inclusion of our opinion letter, dated October 16, 2017, to the Strategic Transaction Committee of the Board of Directors of Neothetics, Inc. (the “Company”), as Annex B to, and reference to such opinion letter under the headings “Prospectus Summary — Opinion of the Neothetics Financial Advisor” and “The Merger — Opinion of Oppenheimer & Co. Inc. as Neothetics’ Financial Advisor” in, the proxy statement/prospectus/information statement relating to the proposed merger involving the Company and Evofem Biosciences, Inc., which proxy statement/prospectus/information statement forms a part of the Registration Statement on Form S-4 of the Company (the “Registration Statement”). By giving such consent, we do not thereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term “expert” as used in, or that we come within the category of persons whose consent is required under, the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder.

Very truly yours,

 

LOGO

OPPENHEIMER & CO. INC.

November 15, 2017